The Impact Of Government Subsidies On Agriculture, Automobiles, And Solar/Wind Energy Industry

Farm Household Allowance in Australia

Question:

Discuss about the Economic Cooperation and Development.

Subsidies are benefits offered by the government to sectors of the economy, individuals or groups. Notably, most governments have offered subsidies in a bid to revive or expand various industries in their economies. Predominantly, subsidies have impacted positively and negatively on the economy and its inhabitants. Similarly, subsidies in the Agricultural, automobile and solar and wind industry are no exception. However, the effectiveness of the subsidies is subjective to each industry. Further, reductions in subsidies have negatively affected the economy and inhabitants of individual countries.

Noteworthy, the Australian government has proposed availability of financial assistance to low-income farmers similar to start-up allowance to the unemployed through the Farm Household Allowance. Further, the condition for the allowance to encourage future preparedness and better farm management. This subsidy is aimed at bettering the economic livelihood of farmers and their families while securing future agricultural viability (Freebairn, 2014) Moreover, the subsidy during the drought season has created wealth redistribution among the Australian people.

Consequently, farming policies have an effect on the overall population because government revenue collected through taxation is part of the subsidy expenditure. Mostly, large-scale farmers benefit more from subsidies as compared to small time farmers. Overall, the citizens of each country have to pay taxes to support government expenditure and programs (Reidl, 2007)

Notably, most member countries in the Organization for Economic Cooperation and development have implemented car industry subsidies through subsidized credit facilities and bonuses for the purchase of new models of cars in a bid to replace the old automotive models. Further, this has encouraged the production of energy-efficient automobiles through the various subsidy packages. Notably, In Australia, the scrapping system involves tax deductions by  50% deduction for assets cost between December 2008 to 31 December 2009.Moreover,30% deduction cost on asset bought before June and July 2009.

Noteworthy, the Australian Automotive industry has been boosted by the Implementation of the Automotive Transformation Scheme since the year 2008.The scheme has been incorporated to boost innovative initiates in the industry through offering financial support to research and development efforts.Further,$1.0b has been set aside to boost manufacturing and supply company operations .Also, the implementation of the growth fund by the government of Australia has helped maintain employment opportunities in Victoria. Moreover, Holden and Toyota firms have also contributed to the growth fund to stir investment and economic progress (Lee, n.d.) 

Also, employment subsidies, training, and equipment have been provided by the Australian government to boost worker skills and performance in the automobile industry through its employment Pathway fund thus maintaining job employment opportunities while promoting efficiency and productivity through training and better equipment in the automobile industry in Australia. Further, technological advancement has been propelled in the Australian automotive industry through the manufacturing transition program. Through government funding of $50 million.

Significantly, competitiveness of Australian Automotive products has been boosted through this transition grants scheme. Also, more energy efficient automobiles were purchased during that time thereby promoting environmental sustainability and increasing government revenue at the time.Further,some OECD governments have availed loans and subsidies to car manufacturers firms directly to encourage more quality production and boost their individual revenues by reducing their production costs through loan accessibility. Noteworthy, General motors received loans and subsidies from the United States Government to reconstrure (OECD, n.d.)

Car Industry Subsidies and the Automotive Transformation Scheme in Australia

Moreover, the use of subsidies has encouraged research and development thus the technological advancements in the field of agriculture(Clay,2013)In addition, the availability of subsidies and grants in the automobile industry in Australia has promoted efficiency, productivity and high-quality production of automobiles hence promoting global competitiveness and promoting energy efficient automobiles thus sustainability and environmental conservation(Lee,n.d)Also, diversification has been a product of government subsidy funding through the Australian Diversification program which has equipped automobile suppliers with an easy product transition.

Noteworthy, the implementation of subsidies has prevented the collapse of some industries and dislocation of economic prospects in some industries (Janda,2013) Subsidies have maintained employment opportunities in industries which without the injection of subsidies would have closed permanently. In Australia, the mining and automotive industry is struggling and due to government intervention through subsidy packages has kept them afloat. Notably, the Australian government invested $5.4 b in sustaining the automobile industry since 2008.

Globally, wind and solar energy methods are being adopted due to their environmental friendliness. Notably, in Australia, 42% of the total energy is through solar and wind energy.Predominantly,wind and solar subsidies have created employment opportunities for the unemployed in  Australia. Further, government subsidies on solar and wind has encouraged private investors into the wind and solar energy industry(Loomborg,2015).Negatively, expansion of wind and solar facilities through easy availability of subsidies has made prices for power to be threefold expensive. The population ends up paying for power, subsidies for inefficient renewables and fossils fuels that are inefficient.

Sustainability is one of the benefits of involving subsidies into the wind and solar energy because here investments is self-sustaining due to the present and future availability of solar and wind.Inevitably, wind and solar are current and future conditions that once s established will go away to conserve the environment and provide friendly energy supply. (Maehlum, 2014)Further, environment friendliness of solar and wind power energy has been expanded by government subsidies to providers of solar and wind power energy. Implementation of subsidies has enabled easy and affordable access to electricity by both rich and poor thereby promoting equity and redistribution of income through electricity charges.

Standard electricity charges powered by solar and wind energy has proven the equality of charges despite the income disparities among Australian electricity consumers. However, transparency and accountability of subsidies allocation, distribution and are hardly attainable in most industries globally and Australia is no exception (Mineral Council of Australia, 2015)Also, the cost of subsidies in the electricity sector in Australia is borne by electricity users which is a burden to some electricity consumers due to income disparities. Notably, electrical surcharges are a  cost transference from the government to consumers through electricity use. The government seeks to recover subsidy costs from electricity users in Australia.

Significantly, most agricultural based subsidies in Australia are drought based. The seasonality of the subsidies has hampered agricultural quality and produce during most cycles of the year due to its centrality on drought times. Further, these seasonal subsidies are viewed as solely benefiting private individuals and spreading the losses socially.Also, reduced return variations are inevitable over a period of time. Notably, redistribution of national resources which are scarce is reduced to lower value use. Also, these seasonal subsidies have discouraged active future planning of the adverse conditions of nature thereby slowing agricultural adaptability.

Employment Subsidies, Training, and Equipment in the Automobile Industry in Australia

Arguably, agricultural subsidies are credited for reducing global prices for agricultural produce (Clay, 2013) Further, poverty and unfair profits between large and small scale farmers has been attributed to the high cost of subsidies in the United States of America. Moreover, subsidies are a disincentive for efficiency. Also, agricultural subsidies are overused through excessive use of fertilizers and chemicals thereby distorting the environment, food and national security (Clay, 2013)Inappropriate subsidy use results into inefficiency and unsustainability of the agricultural sector. Also, low economic growth can be affected by continued use of subsidies in agriculture.

Sometimes, the abrupt unavailability of subsidies can hamper industry operations and individual firms in that industry (Valenzuela,2014)Notably, the Ford group in Australia is winding up its operations by 2017 thus translating to a loss of employment opportunities and revenue loss for the Australian government. Inevitably, subsidies contribute to market inefficiency and reduced welfare socially.Similarly, Toyota and Holden companies in Australia are contemplating closure in the eventuality that subsidies are not availed to then thus the assertion that lack of subsidies could prompt closure of some firms.

Consequently, with the closure of automobile firms like Holden and Toyota then a substantial population of Australia are likely to lose their jobs(Kohler,2013)Subsequently, global automobile production is likely to reduce following the closure of global major car manufacturers. Despite the influx of subsidies, the automobile industry in Australia s future doesn’t seem bright thus the assertion that subsidies are not always effective in boosting a collapsing industry (Kafla and Gollan,2012)Further, job opportunities in the manufacturing industry are decreasing as opposed to growing.

Evidently, the automobile manufacturing industry in Australia is unlikely to sustain its operations without the subsidies thereby questioning the effectiveness of subsidies being injected into this sector(Kafla and Gallen,2012)Further ,some economists argue that the automotive sector in Australia shouldn't receive subsidies because it is considered expensive for tax payers and unlikely to revive the declining manufacturing sector(Australian Associated Press,2014)Subsidies ought to be replaced by economic and regulatory measures and policies. Subsidies are not always effective in solving industry problems.

Noteworthy, the European Union Agricultural policy boosted the farmers income. Notably, Common Agricultural Policy contributed 3b to the United Kingdom totaling to about 55% of its farmer's income. Thus the income rise of farmers due to subsidies being available under the European Union(Bloomberg,2016)Environmentally, most agricultural subsidies have made positive impacts(Cropsite,2015)Noteworthy, organic agriculture incentives have preserves soil fertility and promoted healthy produce, helped maintain fresh air quality and reduction in the volume of greenhouse gases thus promoting biodiversity.

Significantly, financial incentives to farmers have promoted environmental conservation. Noteworthy, environment based incentives have caused an increase in bird population and low greenhouses gas emissions from the agriculture industry. Further, innovative incentives have progressed the research and development activities in agriculture. Also, income increase for farmers in most European countries has increased revenue for both government and farmer households(Godsen,2016)Notably, the Common Agricultural Policy offers financial aid to 12million farmers in the European territory.

Significantly, the agricultural policy has increased global market prices for agricultural produce which translates into income revenue increase for farmers thus improving the economic living standards of farmers. Further, through the policy,There's been increase in production of agricultural produce thus meaning food security for most countries in the world, through import and exports(Godsen,2015)Also, the exit of Britain from the European Union has made subsidies injection to significantly drop hence some agri-based ventures have closed and unemployment opportunities reduced.

The Impact of Subsidies on Research and Development in Agriculture and Technological Advancements in the Automotive Industry

In addition, a research and development capacity in the United Kingdom has greatly decreased due to the funding shortage from the common agricultural policy. Due to the impact of the common agricultural policy benefits the United kingdom’s productivity and agricultural competitiveness will reduce due to the lack of substantial subsidies and incentives from the European Union membership regime(Krasniqi,2016)Further, high subsidies has distorted the global market thus causing hiked prices for agricultural produce. For instance, a Switzerland high subsidy by its government has made productivity levels to decrease and meat price hikes. However, Australia has low subsidies thus it has a sustainable agricultural industry.

Following the exit of Britain from the European Union, farmers are likely to face tough times due to the possible discontinuance of the common Agricultural Policy(Bloomberg,2016)However, the United Kingdom government has committed to mitigating financial challenges of farmers following its falling out with the European Union. Availability of subsidies has been blamed for hampering agricultural production due to the fact that in the United kingdom subsidies and funds are allocated to each farmer according to what they produce which some view as a disincentive for encouraging further production but stagnating it.

In addition, subsidies may not go along the way to boost the agricultural production in the case of unfavorable and unsustainable agricultural climates and land. Subsidies are likely to have a major impact in the case where agriculture has been adequately invested in terms of land, infrastructure, climate,storage facilities and available market. Further, subsidies offered due to membership such as Commonwealth or the European Union is likely to distort the stability of farmers dependent on those membership grants. For instance, farmers in Britain following the Brexit.

Further, subsidies are considered a short-term solution to farming problems. Arguably, subsidies ought to boost agriculture where a farmer is adequately trained and skilled in agriculture, has the ability to handle environmental challenges and has the ability to adapt innovative and creative ways to deal with farming-related problems. However, most farmers are inadequately prepared to handle environmental and workplace challenges hence resulting into poor agricultural performance despite the subsidies availed to him or her. Eventually, agricultural productivity and mass and quality production requires farmers to have a certain skillset despite subsidies.

Also, availability of subsidies has created overdependence by most farmers thus the challenge when economic terms are hard. Naturally, subsidies should be view as an aid to agriculture and not a dependent factor by farmers worldwide. Overdependence on subsidies has encouraged laziness, poor economic decisions by farmers thereby translating to low quality, low produce levels thereby discouraging growth and innovation of agriculture. Also, reduced income may result in cases where subsidies are withdrawn. For instance, Brexit exist may affect the Common Agricultural policy contribution to the United Kingdom farmers (Godsen, 2015)

Subsequently, the unavailability of subsidies can lead to unemployment opportunities due to the closure of major automobile manufacturers dependent on subsidies. Notably, Ford Australia has laid off 44O workers following its winding up operations(Bolsworth,2012).Also, accessibility of subsidies to automobile firms has encouraged competitiveness due to research and development activities by individual firms in the industry. Usually, large-scale companies are likely to engage in research and development initiatives due to their large economies of scale and other merits. Similarly, through subsidies, smaller automobile firms have been able to engage in research and development activities thereby boosting efficiency and productivity.

Subsidies for Wind and Solar Energy in Australia and Around the World

According to most economists, automobile subsidies does have many positive impacts instead it increases taxation burden for the citizens whereas it’s positive impacts are short lived. Further, some economists argue that subsidies in various industries are for political reasons and favorability thus uplifting certain industries at the expense of other industries (Kohler, 2012) Compensation for the automotive industry in the United Kingdom is an example of how costly compensation for subsidies can be. Following the Exit of Britain from the European Union, the government of the United Kingdom has to pay automobile industry due to the Brexit exportation tariffs.

Noteworthy, the Nissan Motor automaker claims compensation before making any commitments to  further investing in the United Kingdom through a compensation guarantee(Bergin,2016)According to Kevin Farnsworth an author on government subsidies, government subsidies to the automotive industry following the Brexit would be the most expensive in the history of the United Kingdom thereby increasing tax burden on citizens.

Notably, the quantity of subsidy affects the pricing of commodities invested in thereby directly affecting consumers. According to the Guardian, the solar power capacity fell following the 65% budget cut(Vaughan,2016)Predominantly, the subsidy cut was motivated by the need to lessen cost burden on electricity consumers. The subsidy cut has discouraged further investment into the solar and wind market in the United Kingdom due to the less financial incentives available to new entrants into the industry. However, energy prices are consumer friendly.

Positively, subsidy cuts have been able to reduce cost burdens on consumers of electricity(Mathiesen,2016)However, on and industry development point of view, subsidy cuts will slow down the growth of solar and wind energy in the United Kingdom. Further, unemployment opportunities have increased due to subsidy cuts which have limited the operation capacities for most solar and wind energy plants in Australia. Inevitably, the confidence of investors to venture into the solar and wind power energy industry is shaken by government subsidy cuts and deductions whereas the reverse is true.

Remarkedly, solar and wind power subsidies have boosted the electricity supply thereby causing a drop in the energy prices.Undoubtedly,low energy prices are consumer pocket-friendly.Notably, power stations in the United Kingdom are offering their power for sale. Friendly energy prices are attributed to renewable sources of energy. However, less energy prices could in turn translate to low government revenue but on the bright side most of the United Kingdom population will have affordable access to basic power. Notably, the United Kingdom has 22 gigawatts of renewable energy capacity (Mathieson, 2016).Further, the expansion of the wind and a solar energy firm through subsidies has afforded job opportunities to a portion of United Kingdom’s population.

Subsequently, employment opportunities have been lost through the subsidy cuts and lost of investment capital and infrastructure belonging to investors rendered obsolete with the winding up of solar and wind energy firms in the United Kingdom (Kemp, 2015).Predominantly, this has been attributed to government percentage withdrawal of incentives. However, the United Kingdom intends to make its industry subsidy free by the year 2020.Also, green energy pricing levels have gone down since the year 2008.Positively, the windfarm construction in Cornwall has created job opportunities in Cornwall without any government subsidy. Further, the withdrawal of government subsidies has discouraged future prospects of investors into the United Kingdom economy with the mothballing of projects and company closures. 

Conclusion

Undeniably, the implementation of subsidies in various sectors of the economy of Australia and the United Kingdom has had both negative and positive effects. Some of the impacts of subsidies are temporary or permanent. In some cases, the subsidies haven’t been able to revive the industry, especially the automotive sectors in both Australia and the United Kingdom. However, the financial assistance by the government to the solar and wind energy sectors has decreased thereby causing investment anxiety among new and existing investors. Further, the reduction of subsidies has led to the closure of some companies and abandoned underway infrastructure which isn’t good for economic growth.

Arguably, subsidies are beneficial and distortive to economic growth. Overdependence on subsidies has led to collapse and decline in some key industries in most economies.

References

Australian Associated Press.(2014)Car Industry subsidies should end, says productivity commission.The Guardian.[Online]Available at https://www.theguardian.com/business/2014/jan/31/car-industry-subsidies-end-productivity-commission[Accessed 8 May 2017]

Bergin, T.(2016)Brexit Subsidies for Automakers could top $1.24 Billion. Auto news .[Online[Available at Http://europe.autonews.com/article/20161103/ANE/161109948/brexit-subsidies-for-automakers-could-top-$1.24-billion[Accessed 8 May 2017]

Bloomberg (2016) UK Agriculture: Britains Farmers will need help after Brexit .Financial Times.[Online]Available at https://www.ft.com/content/df151906-6616-11e6-a08a-c7ac04ef00aa[Accessed 8 May 2017]

Bosworth, M.(2012) Car subsidies: Throwing Good Money after Bad .ABC News.[Online]Available at https://www.abc.net.au/news/2012-07-19/bosworth-car-subsidies/4141710[Accessed 8 May 2017]

Clark, P.(2016)UK Power prices go negative as Renewables Boom Distorts market .Financial Times.[Online]Available at https://www.ft.com/content/5164675e-1e7e-11e6-b286-cddde55ca122[Accessed 8 May 2017]

Clay, J.(2013)Are Agricultural subsidies causing more harm than good? The Guardian.[Online]Available at https://www.theguardian.com/sustainable-business/agricultural-subsidies-reform-government-support[Accessed 8 May 2017]

Cropsite. (2015) Farm Environment subsidies have a positive effect. Crop site. [Online]Available at https://www.thecropsite.com/news/17684/farm-environment-subsidies-have-positive effect [Accessed 8 May 2017]

Freebairn, J.(2014)Help Farmers with direct assistance rather than Subsidies .The Conversation.[Online]Available at https://theconversation.com/help-farmers-with-direct-assistance-rather-than-subsidies-23021[Accessed 8 May 2017]

Godsen, E.(2016)What would Brexit mean for farmers and the Common Agricultural Policy?. The Telegraph.[Online]Available at https://www.telegraph.co.uk/news/2016/06/13/what-would-brexit-mean-for-farmers-and-the-common-agricultural-p/[Accessed 8 May 2017]

Harvey, F.(2016)Good energy promises UKs First Subsidy-free Wind farm. The Guardian.[Online ]Available at https://www.theguardian.com/environment/2016/mar/02/good-energy-promises-uks-first-subsidy-free-windfarm[Accessed 8 may 2017]

Kalfa, S and Gollan, P.(2012)Concentrating on the costs of the car industry means we are failing to see the Benefits. The Conversation.[Online]Available at https://theconversation.com/concentrating-on-the-costs-of-the-car-industry-means-we-are-failing-to-see-the-benefits-10503[Accessed 8 May 2017]

Janda, M  .(2013)Good Economics or not, auto subsidies should stay. ABC  News. [Online]Available at https://www.abc.net.au/news/2013-04-22/janda-auto-subsidies-should-stay-for-now/4640226[Accessed 8 May 2017]

Kemp, M.G.(2015)UK Governments energy policy is self-destructive and bad for Scotland .BusinessforScotland. [Online]Available at https://www.businessforscotland.com/uk-governments-energy-policy-is-self-destructive-and-bad-for-scotland/[Accessed 8 May 2017]

Krasnqi, F.(2016)Can removing subsidies in Farming be Positive after Brexit?. The Huffington Post.[Online]Available at https://www.huffingtonpost.co.uk/fjona-krasniqi/can-removing-subsidies-in_b_12512046.html[Accessed 8 May 2017]

Kohler, A.(2013) Subsidising the car industry to death. ABC News. [Online]Available at https://www.abc.net.au/news/2013-10-16/kohler-car-industry/5025360[Accessed 8 May 2017]

Lee, M.(n.d.)Automotive Industry Package: Budger Review 2014-15 Index. Parliament of Australia.[Online]Available at https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201415/Automotive[Accessed 8 May 2017]

Lomborg, B.(2015)Counting the cost of Wind and Solar .The Australian.[Online]Available at https://www.theaustralian.com.au/opinion/columnists/bjorn-lomborg/counting-the-cost-of-wind-and-solar/news-story/318ba96f7765c25792f1ff184051e8c6[Accessed 8 May 2017]

Maehlum, A-M.(2014)Solar Energy Pros and Cons .Energy Informative.[Online]Available at https://energyinformative.org/solar-energy-pros-and-cons/[Accessed 8 May 2017]

Mathiesen, K.(2015)How will government Subsidy Cut Impact the UK s Solar Industry. The Guardian.[Online]Available at https://www.theguardian.com/environment/2015/jul/22/how-will-government-subsidy-cuts-impact-the-uks-solar-industry[Accessed 8 May 2017]

Minerals Council of Australia.(2015)Electricity Production subsidies in Australia. Mineral Council Of Australia.[Online]Available at https://www.minerals.org.au/file_upload/files/media_releases/Electricity_production_subsidies_in_Australia_FINAL.pdf[Accessed 8 May 2017]

Organization for Economic Cooperation and Development.(n.d)The Automobile industry in and Beyond the crisis .Organization for Economic Cooperation and Development.[Online]Available at https://www.oecd.org/eco/outlook/44089863.pdf[Accessed 8 May 2017]

Reidl, B.(2007)How farm subsidies Harm taxpayers,consumers, and farmers, Too.The Heritage Foundation.[Online]Available at

https://www.heritage.org/agriculture/report/how-farm-subsidies-harm-taxpayers-consumers-and-farmers-too[Accessed 8 May 2017]

Valenzuela, R.(2014)How Industry Subsidies Work .The Sydney Morning Herald.[Online]Available at https://www.smh.com.au/national/education/how-industry-subsidies-work-20140206-325l7.html[Accessed 8 May 2017]

Vaughan, A.(2016)UK Solar Power installations plummet after government cuts .The Guardian.[Online]Available at https://www.theguardian.com/environment/2016/apr/08/solar-installation-in-british-homes-falls-by-three-quarters-after-subsidy-cuts[Accessed 8 May 2017]