I’m from the government and I’m here to help.

According to the late Ronald Reagan, speaking as US President in 1988, these nine words form one of the most worrying sentences one person can say to another. If you want evidence for Reagan’s astuteness there then you need look no further than Australia in 2010 and the Federal Government’s Home Insulation Programme. The government men indeed came to help with ‘handouts’, and when they were finished ‘helping’ cowboy fitters had pockets full of taxpayer’s cash, hundreds of thousands of Australian homes ended up with substandard, badly fitted or simply unneeded loft insulation, more than a hundred houses were damaged by fire, thousands of jobs were put at risk* and four deaths had been linked to the programme.

Now in one sense, that of being an expat Brit who moved from a house with double glazing and several inches of insulation in the roof and wall cavities to one which is probably not much more thermally efficient than a tent, I can see where the Federal Government was coming from. Despite the winter minimum temperatures being typically a few degrees warmer than where I lived in the UK – probably more with the last couple of British winters covering the country in globally warmed snow – many here have a choice of either walking around inside their homes dressed almost for the outside or having an enormous gas bill sometime around September. Conversely in summertime fans, coolers and air conditioners mean higher electricity bills, and for much the same reason – houses seem not to be very well insulated compared to what us poms are used to.** This could so easily be ‘Things I Still Don’t Get About Australia – No 23’ (in fact it will be) as when it comes to keeping beer and sausages cool until they’re wanted Australians understand perfectly well that good insulation serves to keep areas of warmth and cold separate, because when it comes down to it all an Esky really is is a well insulated box and almost every Aussie home seems to have one. It’s the extension of that to living in a much larger well insulated box that seems to be pretty rare.

But while I understand where the Federal Government is coming from that doesn’t make government intervention the answer, particularly when the decision is also influenced by its beliefs that warble gloaming demands energy efficiency (as if simply saving money isn’t a good enough reason) and that the global financial crisis means government needs to spend money (taxpayers’ money, natch) where it wants instead of allowing individuals to spend money where they want. This goes double when the government intervention takes the form of simply offering ‘up to’ $1,600 towards getting insulation fitted which would be paid directly to the company fitting it (link to PDF).

Under the Home Insulation Program the assistance is paid directly to the insulation installer, on behalf of the Householder, and $1,600 is expected to cover the cost of insulating an average home, so for most people there should be no more to pay.

The first thing that should have been expected from this is that many smaller jobs would now come in at around $1,600 regardless of size. The second is that having created an artificial boom in the supply and fitting of insulation it’s natural that new companies would jump in to try and grab a share of all the taxpayer’s money being hosed around. This is fine if the demand created by a subsidy becomes self sustaining, and I’m sure the wonks in Canberra hoped that this would happen, but if that doesn’t occur by the time a subsidy scheme ends then suddenly, almost overnight really, the market is oversupplied. I’m no economist but this does not seem like A Good Thing from where I’m sitting. People like Tom Black, who started up an insulation installation company some months before the scheme began and who now faces bankruptcy, might well agree.

… Tom Black is due to be evicted from his home next week after the sudden closure of Kevin Rudd’s $2.5 billion insulation scheme left his installation business without a single customer.

[…]

But Mr Black said that since the government suspended the scheme last month, business had dried up as customers waited for a new $1000 rebate program to start on June 1.

[…]

Mr Black said his business had failed through no fault of his own. He said while backpackers and others had come into the area and used sub-standard batts, or in some cases not installed insulation at all, he had done everything properly.

Mr Black said he was still owed $1600 by the government for an installation job last November. He said Assistant Climate Change Minister Greg Combet’s office had told him they would try to ensure he was paid next week.

“By the end of the week it will be too late,” he said.

Following on from the issue of new entries to the market, and mentioned in that article, is the third and most serious problem: that whenever the government gets out its chequebook almost inevitably cowboys and fraudsters are attracted in the hope that the government is too busy giving away taxpayers’ money to look too carefully at the work it was supposed to pay for. Sure enough the Home Insulation Programme, despite supposed safeguards such as a government approved list of companies, saw everything. There was the merely deceitful, such as falsely telling people that insulation batts need to be replaced periodically. There was the fraudulent, such as submitting claims to the government for non-existent work. And there was the downright dangerous: fires blamed on ceiling downlights igniting the insulation and even whole roofs becoming electrified because of badly installed foil insulation.***

All this would have been avoided had the simpler option of taking less money from taxpayers been chosen instead. If householders have surplus money and high bills for heating their homes in winter and cooling them in summer then some will decide for themselves to get improved insulation, and some of their friends will do the same when the chat comes round to bills and how much insulation has reduced them by. Eventually insulation becomes the norm because word has got round that it makes financial sense for most homeowners. Unfortunately this becomes harder and harder when the government takes more and more money in tax in order to pay for subsidising its pet projects, and this is what happens in practice because governments like to take on these things and deal with them the way they deal with everything they think is a problem: bury it with money and hope it goes away.

Some might argue that lower tax will only benefit owner-occupiers and not renters since landlords might not bother spending their extra disposable income on insulation, but that assumes that well insulated properties would not then become more desirable (and perhaps attract slightly higher rents) than poorly insulated rentals. But even if you assume, as governments apparently tend to do, the mathematical impossibility that the whole population is of below average intelligence and therefore nobody can be trusted to decide for themselves how and on what they should spend any spare money they have, and that no landlords will choose to insulate their rental properties, is paying the subsidy to the fitter the best option? Looking at things from a wider point of view, by paying the fitters the government has put $2.5 billion of its stimulus into one small sector. Had the government taken the simpler option of taking $2.5 billion less tax that money would have been spread more or less evenly throughout the whole economy. Sure, money circulates and naturally plenty will go from the insulation fitters’ pockets out into the wider economy, but that ignores the fact that there is always an administration cost with any subsidy. Simply taking less tax should require no extra administration and, with a little thought, might even mean administrative savings. Instead, having thrown $2.5 billion in a well intentioned but, as it turned out, ill considered and poorly controlled attempt to insulate more houses, the Federal Government has had to offer to pay for safety checks or remedial work on the 50,000+ houses where foil insulation was installed and a full audit of the standard of work carried out at 150,000 other properties. As much as $1,000 per house is being budgeted for the 50,000 or so homes where foil was used, which means more than $50 million for that alone (though some estimates are far higher). If the government is eventually forced to check all homes the cost will be substantial, since more than a million houses were insulated as part of the scheme.

This leads me to finish in the way I began, by quoting Ronald Reagan.

Government is like a baby. An alimentary canal with a big appetite at one end and no responsibility at the other.

Which also implies that there’s often an unpleasant mess involved that then needs to be cleared up. With an election in the UK in under four weeks time Britons want to consider this when the usual suspects stand up and say their government will be there to help.

* Of course it can be argued that some of those jobs may have existed only because of the scheme rather than because the market for home insulation demanded them. However, unsustainable jobs being created and then lost aren’t really anything for a government to be proud of.
** I have to admit that this is something of an assumption on my part. Based on the house I live in, the loft of a much newer property that we looked at and the fact the Federal Government thought there was a need to subsidise loft insulation on such a large scale in the first place, I’m guessing that poor insulation is fairly common. So yes, an assumption, but I think it’s a fair one.
*** Metal roofs are fairly common in Australia and are sometimes still used even on brand new houses despite costing more than concrete tiles.

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Posted on April 10, 2010, in Uncategorized and tagged , , , , . Bookmark the permalink. Comments Off on I’m from the government and I’m here to help..

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