It’s an economic urban myth. Australia could be Argentina if gets its policy settings wrong. Usually, it is bandied about by those on the end of policy changes that will cost them money.
Today we get it from gas cartelier ConocoPhillips:
There has been a lot of noise recently about price-caps and windfall profits tax to reduce the cost of gas. I respect the intentions of the government, but having built a reputation and attracted this scale of investment, it does not make sense for Australian policy makers to now risk these hard fought gains by adopting policies that have failed elsewhere.
Facing similar drivers to lower gas prices, other governments have attempted price controls and interventions with ultimately negative outcomes. Despite having vast hydrocarbon potential, Argentinian government intervention led to the country’s sovereign default. International oil and gas companies exited the country, investment dried up and production dwindled. Intervention measures and government subsidies failed to curb inflation.
Windfall profits taxes are not new and have been tried unsuccessfully elsewhere in response to rising inflationary pressures.
US President Jimmy Carter’s 1980 tax response to a doubling of oil prices caused by the Iran Revolution and the deregulation of the industry had the unintended consequence of reducing domestic oil production and increasing reliance on foreign oil between 1980 and 1988.
While interventionist policies may lower short term domestic prices they also artificially stimulate demand and tend to restrict supply, leading to gas shortages.
Simple economics rule here. You tax what you want less of. The way to reduce prices is to increase supply. Taxes do not reduce prices. Price caps do not encourage supply.
Australia is, and has been, an exceptional economic player, but it should not expect different results by repeating the mistakes of other countries.
There’s already plenty of gas supply and a staggering global price to incentivise more. The problem is it is being withheld because there is no effective local market. The export cartel not competition sets the local price.
As for Argentina, the comparison is ludicrous. It had no fewer than six military coups after 1930 which imposed a series of severe import replacement policies repeated over decades.
Australia’s temporary regulation to address war profiteering amid extant market failure in a thriving liberal democracy is as close to Argentina as it is to the rings of Saturn.
The US comparison is wrong as well. It simply started running out of conventional oil after 1980. In fact, after 1970. No policy of any kind caused or could have prevented that.
Simple economics does rule here. The most basic economic law of all. If you allow a cartel to suspend price discovery via the interplay of supply and demand then you’ll pay A LOT MORE.
If ConocoPhillips is so misinformed then let it sell its local assets to those in the long queue of global capital seeking to access Australian gas reserves and prepared to supply locally at reasonable prices.
