Productivity Commission calls for scrapping of small business drought assistance

The Productivity Commission has called for small business drought assistance to be scrapped and wants the Government to stop subsidising premiums for business property insurance.

The recommendations are part of the Productivity Commission’s draft report Barriers to Effective Climate Change Adaptation which was published yesterday.

The report finds that while most climate change adaptation will occur without the need for government intervention, through normal risk management activities, there is a need for policy reforms and initiatives to enhance the process.

The report calls for the termination of  a number of Exceptional Circumstances associated programs including interest rate subsidies, farm exit support packages, and small business income support and state based transport subsidies in drought declared areas.

It also finds governments should not subsidise premiums for household or business property insurance, whether directly or by underwriting risks.

Presiding Commissioner Dr Wendy Craik told SmartCompany that while businesses seem to be adapting to climate change quite well the Productivity Commission is recommending that drought assistance programs should be examined and subsidies for insurance should not be offered.

“Removing the drought support and small business support is all about ensuring that people can adapt to the current climate and build their adaptive capacity to future climate,” says Craik.

“It dulls the incentive to adapt to the current climate and change behaviour.”

“If you look at the history of drought support there are places in the country which have been getting drought support for many years and it is supposed to be in exceptional circumstances, clearly if the drought support was not there the incumbents would have to innovate to adapt to the new environment.”

Craik is also critical of current government subsidies for business property insurance.

“Flood insurance should not be mandatory and it should not be subsidised as once you do that the cost of the insurance may go up or the insurance company may withdraw from providing any product on the market in that area,” she says.

“That is not to say these people should not have access to social security.”

Peter Strong, the executive director of The Council of Small Business Australia has hit back at the draft report, saying it “shows a lack of understanding of the sector”.

“Those comments do not have much connection to reality,” says Strong.

“There are people out there under major stress and to say they are just sitting back and saying ‘Next time we can just wait for the government to help’ is ridiculous.”

“Small business people are natural innovators, they are not going to stop innovating because of small grants from the Government.”

Strong says drought assistance does not stop businesses from adapting to climate change.

“It makes no sense at all, the last thing it does is stops people innovating. If we want people to innovate we should make sure they are not stressed.”

“The drought assistance does not save a business, it saves stress and gives them the opportunity to survive and innovate.”

The Commission will be holding public hearings in July and is seeking responses to its draft recommendations and a number of information requests contained in the draft report.

A final report will be submitted to the Australian Government in September 2012.