Australia's Economy Increasingly Reliant on Government Subsidies

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  Business and Finance on Sun, Jan 04th, 2026 by The West Australian

The Hidden Hand: How Subsidies are Increasingly Propping Up Australia's Economy – And What That Means

A recent analysis by Dimitri Burshtein and Peter Swan, published in The West Australian, highlights a concerning trend within the Australian economy: an escalating reliance on government subsidies to maintain stability and growth. Their argument isn’t necessarily against subsidies themselves, but rather points to their growing scale and the potential risks associated with masking underlying structural weaknesses. The piece argues that these interventions are becoming less about targeted support for specific industries and more like a broad-based prop preventing a deeper economic correction.

The core of Burshtein and Swan's concern lies in the sheer volume of subsidies now flowing through the Australian economy, particularly since the onset of the COVID-19 pandemic. They cite data showing that government assistance has significantly outpaced investment in productive capacity. While initial pandemic support measures like JobKeeper were understandable as a crisis response, their continued presence and expansion into other areas – including renewable energy, agriculture, manufacturing, and even housing – is raising questions about long-term sustainability and efficiency.

The authors distinguish between two types of subsidies: those designed to address market failures (like supporting research and development or correcting environmental externalities) and those used as a blunt instrument to prop up struggling industries or artificially stimulate demand. They argue that the latter category has become increasingly dominant, blurring the lines and making it difficult to assess genuine economic need versus political expediency.

A key point raised is the distortionary effect of subsidies. By shielding businesses from market forces – competition, price signals, and consumer preferences – subsidies can discourage innovation, reduce efficiency, and lead to misallocation of resources. Companies that would otherwise fail or adapt are kept afloat, preventing a natural process of creative destruction that drives economic progress. This echoes arguments made in the linked article "Subsidies distort markets," which emphasizes how artificial support can stifle competition and hinder long-term growth.

The renewable energy sector is specifically called out as an area where subsidies have become particularly pervasive. While transitioning to cleaner energy sources is a laudable goal, Burshtein and Swan contend that the current level of government intervention – including direct grants, tax credits, and feed-in tariffs – risks creating a “zombie” industry reliant on ongoing support rather than genuine market viability. The linked article "Renewables face subsidy cliff" further explores this issue, highlighting concerns about what will happen when these subsidies are reduced or removed, potentially leading to significant job losses and project cancellations.

Furthermore, the authors express concern that the reliance on subsidies is masking deeper structural problems within the Australian economy. Instead of addressing issues like declining productivity, skills shortages, and a lack of investment in infrastructure, policymakers seem increasingly inclined to throw money at the problem. This creates a false sense of security and delays necessary reforms. The article "Productivity slump casts shadow over economic outlook" underscores this point, detailing how Australia's productivity growth has lagged behind other developed nations for years, a trend that subsidies are unlikely to reverse.

Burshtein and Swan also touch upon the fiscal implications of such extensive subsidy programs. The cost is ultimately borne by taxpayers, potentially crowding out investment in essential public services like healthcare and education. Moreover, the increasing national debt – as highlighted in the linked article "Debt burden rises amid spending spree" – makes it increasingly difficult to sustain these levels of support indefinitely.

The authors don't offer a simple solution. They acknowledge that some subsidies are necessary and beneficial. However, they advocate for greater transparency and accountability in subsidy programs. They call for rigorous evaluations of their effectiveness, with clear metrics for success and sunset clauses to ensure that interventions are time-limited and regularly reviewed. A shift towards targeted support focused on genuine market failures, rather than broad-based industry bailouts, is also recommended.

Ultimately, Burshtein and Swan’s analysis serves as a cautionary tale about the dangers of overreliance on government intervention. While subsidies can play a role in supporting economic activity, they should be used judiciously and strategically, not as a crutch to prop up an economy struggling with underlying structural challenges. Ignoring these issues risks creating a fragile and unsustainable system that is vulnerable to future shocks. The piece concludes by urging policymakers to prioritize long-term economic health over short-term political gains, fostering an environment where businesses can thrive based on their own merits rather than government handouts.

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