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How Government Intervention is influenced by political considerations rather than economics


Government intervention in the economy can have far-reaching consequences, impacting everything from individual businesses to entire industries and even entire nations. I shall seek to highlight several drawbacks of Government intervention in the Australian economy, citing those which are attributable to political decisions rather than for the economic or social welfare of citizens.

Most credible economic thinkers share a common belief in the importance of free markets and limited government intervention in economic affairs. They believe that government intervention in the economy should be limited to a few specific areas, such as protecting property rights, enforcing contracts, and providing stable monetary policy. Beyond these areas, most argue that government intervention can often be influenced by political considerations rather than economic or social welfare.


When government intervention is influenced by political considerations, it often leads to unintended consequences and inefficiencies in the economy. For example, politicians may be motivated to intervene in the economy in order to curry favour with certain interest groups or to win votes in upcoming elections. This can lead to policies that benefit certain groups at the expense of others, or that create artificial barriers to entry in certain industries.


One classic example of political considerations influencing government intervention is the case of rent control. The topic of housing is on the minds of many non-government organizations and pollical interest groups currently. Rent control policies are often implemented in urban areas in order to protect tenants from rising housing costs. However, economists argue that rent control has led to unintended consequences, such as a decrease in the quality and quantity of rental housing, as landlords have less incentive to maintain their properties or build new ones. Worldwide economists cite the failures of Melbourne’s introduction of such policies which were overturned in the early 1980s. However, these foreseeable failures continue to prevail in a range of failed states in the US and abroad.


Another example of political considerations influencing government intervention is the case of protectionist trade policies. Politicians may argue that protectionist trade policies are necessary to protect domestic industries and jobs from foreign competition. However, economists argue that protectionist trade policies lead to higher prices for consumers, a decrease in the efficiency of domestic industries, and even retaliation from foreign governments in the form of trade barriers against domestic industries. We are currently experiencing this from China.


Here are several other examples:


1. The introduction of the Renewable Energy Target, which was designed to increase the use of renewable energy sources, but has led to increased energy costs for consumers.


2. The decision to establish a National Broadband Network, which was intended to improve internet access across Australia, has been broadly criticized for being too expensive and extremely slow and inefficient. Contemporaneous and modern-day alternatives provide a range of upgradeable and cheaper options.

3. The introduction of the carbon tax, which was intended to reduce greenhouse gas emissions, was seen as politically unpopular and was eventually repealed. Although I have never encountered a tax I like or agree with, the decision to repeal it was entirely political.


4. The decision to provide funding for the construction of new coal-fired power plants, although entirely needed, the Greens and Labor Party have both claimed this decision was politically motivated and disregarded the concerns about the environmental impact of coal.


5. The establishment of the Australian Renewable Energy Agency, which was intended to promote the development of renewable energy technology but has been criticized for funding projects that are not economically viable and non-recyclable.


6. The decision to increase the minimum wage, despite concerns that this could and did lead to job losses and decreases in economic growth. This also increased the labour shortage in youth employment due to the restriction of affordability for unskilled hire.


7. The introduction of the National Disability Insurance Scheme, which was intended to provide support for people with disabilities but has been criticized for being inept, corrupt, too expensive, and inefficient.


8. The decision to provide subsidies for the automotive industry, despite concerns about the industry's viability and the environmental impact of cars. Although economically profitable for small communities it wasn’t popular with taxpayers.

9. The establishment of the Australian Securities and Investments Commission, which was intended to regulate the financial industry, but has been criticized for being too lenient on banks and other financial institutions. However, criticized for focusing on small businesses.


10. The decision to allow foreign investment in Australian farmland, despite concerns about the impact on local communities and the environment. This has led to oligopolies in many industries like Milk production.


11. The decision to increase funding for private schools, despite concerns about the impact on public schools and education inequality.


12. The introduction of the Goods and Services Tax, which was intended to simplify the tax system, has been criticized for being regressive and unfairly impacting low-income households.

Locally the NT has not escaped several Politically motivated decisions as well.

1. The decision to build the Inpex gas project, which was seen as a major economic boon for the Northern Territory but has been criticized for its environmental impact, badly negotiated water use, and the failures to economically plan for Boom and bust cycles.


2. The introduction of the Cashless Debit Card in certain communities, which was intended to reduce social welfare dependency and promote responsible spending but has been criticized for being stigmatizing and ineffective.


3. The establishment of the Northern Territory's Economic Reconstruction Commission, which was intended to promote economic growth and development in the wake of the COVID-19 pandemic but has been criticized for not adequately consulting with local or Indigenous communities. To date without effective auditing reports has reportedly wasted over $650 Million of taxpayer funds on mercantilism-based projects.


4. The decision to allow fracking in the Northern Territory, which was seen as a potential source of economic growth but has been controversial due to its massive reliance on taxpayer subsidies and public concerns about the environmental impact and potential risks to local communities.


5. The introduction of the NT Home Improvement Scheme, which provided funding for home renovations and repairs in the wake of Cyclone Marcus but has been criticized for being too limited in scope and not adequately addressing the needs of all affected communities. It also was reportedly rife with fraud and government nepotism and corruption.


6. The decision to provide tax breaks and other incentives to attract mining companies to the Northern Territory, which has been seen as a potential source of economic growth but has been criticized for not adequately considering the previous failures in contract negotiation terms, royalty payments, rehabilitation projects and the potential environmental and social impact of mining activities.


7. The establishment of the Northern Territory Infrastructure Development Fund, which was intended to support the development of infrastructure projects in the Northern Territory but has been criticized for not adequately addressing actual infrastructural needs in both suburban and urban areas and completely ignoring the needs of remote and Indigenous communities.



In addition to these specific examples, there are broader concerns about the overall impact of government intervention on economic growth and prosperity. When government intervention is influenced by political considerations, it can lead to an inefficient allocation of resources and a decrease in overall economic growth. This can be particularly damaging in developing economies, where limited resources must be allocated carefully in order to promote economic development and improve the standard of living for citizens.


In my opinion, while government intervention can be beneficial in certain limited areas, it is important to be mindful of the potential for political considerations to influence economic policy. By ensuring that government intervention is guided by economic and social welfare considerations, rather than political considerations, we can promote a more efficient and prosperous economy for all.

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