The Band-Aid Economy (or go about your lives citizens, nothing to see here)

Matthew Drennan

9 February 2026

Our leaders should be dealing with the serious problems we have, not simply applying a few Band-Aids and dreaming up new schemes to spend massive amounts of taxpayer dollars on. Trump thinks he has found his miracle economics in tariffs, Albanese and Chalmers appear to be backing subsidies. 

Don’t Address the core problem, just subsidise it!

• It has been stated that energy is the economy. In today’s modern world that is basically true. It doesn’t take much imagination (or in my case experience) to test this theory. A significant blackout means no aircon and very limited computing power with no internet. Result – workers sent home, shopping malls empty, manufacturing production lines (if we had any) halted.
• Not content to use our natural advantage of cheap and plentiful coal and natural gas to foster an orderly transition to more renewables, Australians have seen the default market offer for electricity rise by an average of 30%–32% in NSW and Queensland, and around 25% in South Australia over the last 3 years as we proceed to net zero at breakneck speed. These increases were despite State and Federal Government subsidies. We are repeatedly told that renewable energy is the cheapest form of electricity. Sure, if you don’t factor in the costs and carbon emissions from producing wind turbines and solar cells and you don’t need to build 20,000 kilometres of new poles and wires to get the electricity from where it is generated to where it is needed. That’s before you even look at environmental costs like land clearing or costs associated with firming the stability of the grid.
• As of July 2025, the Australian and South Australian state governments have committed a total package exceeding $2.6 billion in combined support and investment for the Whyalla steelworks. This includes $659 million in direct funding to keep the plant operating during bankruptcy administration and a $1.9 billion long-term investment for future upgrades. In December 2025, the Australian Government also announced a major long-term taxpayer funded bailout to keep the Tomago aluminium smelter in the Hunter region operating beyond 2028, with this deal involving (undisclosed) billions of dollars in subsidised power. These businesses were humming along in the past based on Australia’s competitive advantage of cheap electricity. Whyalla and Tomago – address the core problem of high and rising electricity prices? No, just subsidise it. Not sure we have learnt much from the folly of subsidising a local car manufacturing industry all those years ago…
• When I think of industry support, the mining sector does not immediately spring to mind as candidate. Nevertheless, the Australian Government recently established a Critical Minerals Strategic Reserve Fund supposedly to secure supply chains for rare earths and other key minerals. Initial funding will be $1.2 billion with government deciding on the worthy recipients of this largesse. In addition to this, the Government recently granted a loan of $1.65 billion on very favourable terms to industry heavyweight Iluka Resources to build a rare earths refinery. I am not sure why if these minerals are so critical that the development of such projects would not be funded by the private sector?
• China is of course distorting the market in such areas, but perhaps a better course would be to restrict trade from Chinese State controlled companies and form trade alliances that provide support for Australian companies to develop and market their products to Western allies. The US appears to be taking this approach with the Secretary of State attempting to establish a new critical minerals trading bloc with Western allies to reduce dependence on China. This will no doubt come with the quid pro quo of lower US tariffs for participants. With our recent trade agreement having created a new market in the US for Australia’s critical minerals, I’m not sure why the Government also feels it needs to subsidise mine development and processing?
• The mother of all subsidies is surely the NDIS. The Federal Government is attempting to limit expenditure growth to 8% p.a. and congratulating themselves for setting a target which is more than double the CPI, not to mention that they are yet to achieve it. “Rent seekers” is a fancy economic term for parasites who recycle taxpayer dollars in subsidised schemes into their own pockets. One analysis of the public record showed within a 5-kilometre radius of the western Sydney suburb of Lakemba, there are more than 1,300 listed NDIS businesses. This concentration equates to roughly one NDIS provider for every 13 residents in the area. Unsurprisingly this has raised concerns regarding the legitimacy of some businesses, with the potential for fraud. Unquestionably there is a genuine need for disability support, but the NDIS was set up hastily and it is only now after massive cost blowouts that some focus is being brought to bear on auditing both providers and recipients.

Our Miraculously Low Unemployment

• Public sector employment in Australia surged between 2022–2025, with total headcount approaching 2.6 million by June 2025. The accolades were shared between State and Federal governments. Federally, the number of public servants rose by nearly 25%, with the Australian Bureau of Statistics (ABS) reporting there were 385,900 Commonwealth employees as at June 2025. Meanwhile state government roles rose to nearly 2 million. This growth was partly justified as a way to reduce reliance on consultants. Fair enough you think?
• A short anecdote here. I have a mate who was employed directly as a consultant by the NSW Government. In their wisdom, they decided to get rid of all consultants, employ more public servants and outsource various functions to a range of private companies. Result: my mate now works for a private company after receiving a stonking pay rise and the company bills the Government at almost twice what he was being paid previously. Genius. To para-phase the late Kerry Packer – I don’t evade tax, but I certainly minimise it because as a government I can tell you, you’re not spending it so wisely that we should be donating extra.

Economic Growth at Any Cost

• Over the last 5 years, the simplest measure of our standard of living, GDP per capita, has been abysmal. The often negative results have substantially reduced living standards for Australians. In 2020 we recorded two quarters of negative GDP growth per capita, one quarter in 2021 and then we had 7 consecutive negative quarters from March 2023 through until September 2024. This was the longest such streak since records began in 1973. In December 2024 we managed a paltry 0.1% growth, before subsequently falling in the March quarter 2025 by-0.2%. Since then, it has been basically flat.
• What has been the “solution?” Band-Aid the lack of GDP growth per capita and zero productivity by running persistently high immigration above what the economy can absorb. Further buttress this by increasing public spending like there is no tomorrow. Government spending now exceeds 27% of GDP which is the highest level since 1986 excepting the COVID spendathon. And it is not over yet. The mid-year economic outlook from Treasury has real government spending increasing by a further 4.5% this financial year. Much of this is financed by debt (as well as our taxes) with Government debt now over $1 trillion dollars and counting. All this manages to keep headline GDP positive, albeit anaemic.

The Rest

• There are plenty of other questionable subsidies such as discounted interest rates on loans for new electric vehicles to encourage take up and a poorly designed rooftop solar subsidiary which is seeing people install far bigger systems than they realistically need because it generates more revenue for the suppliers, to name but two.
• Defence is a different beast in my view. It is a key responsibility of government. But why are we pretending we can build anything to do with nuclear submarines locally after the Collins Class disaster? This is not a direct subsidiary, it is an extremely expensive and inefficient make work program perpetrated by governments of all persuasions over many decades. At least the current Australian Government is now attempting to bring some degree of focus to the lumbering and costly procurement process within Defence. Notwithstanding, the Auditor General is not happy with the degree of transparency concerning delays in major projects. Estimates are that around $80billion dollars worth of procurements are running a cumulative 33 years behind schedule.

A Final Word

• Apart from obvious core functions that must be performed by the public sector, generally the best thing Governments can do to encourage economic growth is get out of the way. Our political leaders have adopted the opposite approach, effectively forcing the RBA to back pedal and raise interest rates in February. This is unlikely to be an isolated increase as fiscal and monetary policy continue to pull in opposite directions.
• Churchill said “You can always count on Americans to do the right thing, after they have tried everything else“. Sadly, the Australia of today cannot even claim this lowly accolade, at least for our economy. Governing is choosing and our governments at all levels over many decades have chosen to apply Band-Aids rather than undergoing painful surgery to solve the core problem on every occasion. We just keep on subsidising.

Matthew Drennan is an Independent Market Analyst and Financial Newswire’s Economics Correspondent