for Forestry Tasmania and the Forest Industries Association of Tasmania) by

• Main Author: Graeme Wells
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2009
• Subjects: Macquarie Island
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.580.4946; http://tasmaniantimes.com/images/uploads/Critique_of_IMC-Link_report_Final.pdf

It has been claimed that this Report ‘clearly shows subsidies benefits consumers as well as producers, and generate jobs and income for Tasmanians’1. It does nothing of the kind. The Report attempts to estimate value added for five Tasmanian industries, to estimate subsidies paid in each of the industries, and to take the ratio of the two. This referred to as the ‘bang for buck ’ ratio. The higher is the ‘bang for buck’, according to the Report, the greater the ‘return ’ per dollar of subsidy. An example illustrates why this approach is completely uninformative as to Dr Drielsma’s claim. Suppose, counterfactually, agriculture initially receives no subsidies at all. The government then subsidises apple growing on the marginal electorate of Macquarie Island, with a $10m grant. Farmers take the opportunity to spend a year or two working among the scenery and birdlife down south. Value added in Tasmanian agriculture (roughly speaking, the amount of productive activity in agriculture) falls. Clearly this subsidy would fail any sensible cost-benefit test but, on the Report’s methodology, the industry would show a high ‘bang for buck ’ ratio because the subsidy is small relative to the size of the agriculture sector. The ‘bang for buck ’ ratio has nothing to say about benefits to consumers, producers, incomes or jobs. Even so, the Report might have made a contribution to debate if it generated plausible estimates of subsidies and value added in each of the five industries. I argue that the Report fails on this score, too.