AT VARIOUS times during the past couple of decades, the tourism industry has suffered a serious downturn.
The GFC caused one, as did the planes flying into the World Trade Centre in 2001. Indeed, in the latter case there was a massive downturn with all resorts doing it tough and many tourism operators going broke.
Tourism is one of the three industries in which Australia has a natural advantage, the others being agriculture and mining. It is also a huge employer, far larger than agriculture or mining. And just like agriculture, each time there is a slump the tourism industry appeals to government to step in.
Help is provided in two ways. One is to contribute funds to advertising campaigns intended to attract tourists to Australia or a particular region. The other is to provide grants to individual tourism ventures to help them expand.
Assistance is never available to help operators survive. In fact, recipients of tourism grants must prove they are viable and will contribute at least the same amount of their own funds to the venture. The purpose of the grants is to boost the capacity of the whole industry, not to keep any individual operator in business.
In my ideal world, taxpayer funds would never be used to support or prop up any industry. It’s called corporate welfare and is an improper use of other people’s money. But the amount allocated to tourism is not especially high. In the current budget, Tourism Australia will receive about $130 million and state tourism budgets are similarly modest.
According to the Minister for Agriculture, Barnaby Joyce, there will a "complete and utter financial meltdown" unless drought-affected farms, mostly in his former home state of Queensland, are relieved of their debts. Amid calls for low interest loans, Mr Joyce’s preferred solution is to nationalise the loans (and by implication the farms that provide security for the loans) that farmers cannot afford to repay. He is reported to believe these amount to $7 billion, or 10 per cent of total rural loans.
The chances of Mr Joyce getting $7 billion are zero, but it’s an ambit claim. What he wants is for drought-affected farmers to receive a handout from their fellow Australians to stay in business. If he can convince his cabinet colleagues to throw in a few tens of millions to shut him up, he’ll probably consider it a worthwhile exercise.
In economic terms, it makes no difference to our national prosperity whether an individual farmer or a tourism operator goes broke. If a hotel or tour operator fails, Ayers Rock and the Great Barrier Reef are still there.
When a farmer goes broke, the farm does not disappear or food production cease. There is always someone else, quite often a neighbour, willing to purchase the farm. Food production, if that is what the farm is used for, barely falters.
Even if a third of the farmers in the drought-affected areas were to go broke this month, which is not even remotely likely, there would be no adverse consequences for the rest of Australia. No shortages, no price rises, nothing. Indeed, it is likely that overall productivity would increase. Uncomfortable as it may be for some to accept, the farmers who go broke during droughts tend to have lower overall productivity than those who remain viable.
That is not to deny that innovative, highly productive farmers sometimes fail. Bad luck happens. Moreover, entrepreneurs who take risks with their own money deserve respect and admiration.
Similarly, there is no denying that when a business fails, the consequences can be unpleasant. Lives are disrupted, self-worth is questioned and families come under stress. There is an increased risk of suicide and mental breakdown. That applies to all businesses, not just farmers.
The notion that farmers are different from tourism operators or other business people is wrong. In a market economy, the term for failure is creative destruction. Something stronger and more resilient always emerges from it.
If government assistance to agriculture is warranted, it is no more than to ensure farmers and their families do not starve. There is a scheme for this already, which looks likely to expand. It provides the equivalent of unemployment benefits to farmers who have no income, despite the fact that they may own assets worth hundreds of thousands of dollars.
It also makes sense to facilitate the exit of non-viable farmers from the industry. This may mean helping to sell the farm and recover remaining equity, finding a job, or relocating. It’s a difficult process and taxpayers are not hard-hearted when it comes to spending some of their money in such cases.
But, as the Treasurer Joe Hockey pointed out recently, the solution to excessive debt is not more debt. There is absolutely no justification for relieving debt-burdened farmers of their debts so they can borrow more.
If they are struggling with excessive debt while interest rates are at record lows, they will be in even worse trouble when rates return to more normal levels. A drought that lasts longer than anticipated does not alter that.
Like agriculture, the tourism industry has a limited number of large operators plus a lot of family-owned businesses. Also like agriculture, it is subject to events well outside its control, such as erupting volcanoes, airline strikes and civil unrest. The effects of 9/11 were much worse than the termination of live exports.
And yet, the government’s support for the tourism industry is far more coherent and rational than any of the proposals now being floated for supporting drought-affected farmers.
There is nothing inherently different about farming that warrants different treatment. Apart from a certain amount of compassionate assistance, improved access to markets is about all it needs.