|Telstra diminished by subsidies|
Telstra has said that its obligation to provide basic phone services under its
Universal Service Obligation (USO) will become untenable. Under the agreement
Telstra subsidises the bush by $350M per year, and the government pays for
around half that.
In an economy in which government monopolies were used to provide hidden
subsidies to special interest groups, the USO agreement didn't even raise
eyebrows. Clearly disadvantaged groups (like those in the country) deserved to
have their lifestyles subsidised by the rest of Australia. Direct subsidies
through the tax system may have been the preferred option, but indirect
subsidies through forcing 'price equality' were also popular.
However, the economic climate has changed considerably in the last few
decades. Privatisation and deregulatory reforms started by the Labour
government, and continued with gusto by the Coalition have brought the nation
much closer to a system where the consumer chooses, and pays, for their
Telstra now operates in a competitive environment, and is about to be
completely privatised. A government payment to a private company would be
unacceptable to their competitors, not to mention the voters. And forcing a
private company to sell their product (phone services) below cost would be
considered an unfair burden to place on a private company, and would greatly
lower the share price when the remaining shares are sold in the T3 float.
So the goverment, and Telstra, face a dilemma. How do we continue to
subsidize our fellow Australians who choose to live in the country? We
don't. We never should have.
The arguments in favor of rural subsidization are fallacious. They usually
revolve around two arguments: one, that disadvantaged people deserve
welfare; two, that removing subsidies will raise the cost of food, and everyone
will be worse off. Rural subsidization proponents usually flip between these
argument to avoid getting pinned on either of them, while mouthing as many
platitudes as possible.
People disadvantaged by their address have the option to move. If moving to
a less disadvantaged address has prohibitive overheads (eg the high cost of
rents in the city) then perhaps those people are not actually disadvantaged by
their address at all. Given a free choice, people will tend to move to places
where they enjoy the best lifestyle.
Removing rural subsidies probably would increase the cost of food, but is
unlikely to rise by more than the subsidies needed to keep it low. Any
suggestion that people would starve is ridiculous. Less rural dwellers would
lower the supply of rural labor, and therefore raise its cost, food production
prices would increase, and lead to lower production. As production dropped,
food prices would rise, and prices would stabilize accordingly.
But Australia's national pride is at stake - the romantic notion that
Australia is a nation of sweeping plains, droughts, floods and massive food
surpluses is threatened, and reason takes a back seat to national fervor.
In fact, Telstra's conundrum is an relic of a past mindset - a failed,
damaging and discredited economic paradigm which has no place in modern
Australia. There is no call for people to live at the expense of others, and
genuine choice is crucial for a free society.
It might be a bitter pill for our nationalist pride but sometimes the
best medicine is the worst tasting. Australia will make a full recovery.