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Income Related Loans for Drought Relief

Author

Listed:
  • Bruce Chapman
  • Linda Botterill
  • Michael Egan

Abstract

There is arguably a consensus that the current approach to drought relief is in need of reform and possibly replacement with an improved government financial assistance mechanism. Grants to farmers, in the form of interest rate subsidies, have several difficulties, which in summary are as follows: i. There are typically too few financial resources to be drawn from government to address adequately and equitably the needs of farms in a dire drought situation. ii. The rationing arising from (i) means that access to assistance requires complex eligibility criteria, resulting in application and administrative processes that are complex and thus expensive for both farmers and government. iii. Grants for drought relief are financed by contributions from all taxpayers, and it is very likely to be the case that this is regressive. Average taxpayers will be less wealthy and have fewer other economic advantages than the majority of farmers assisted through drought relief. This paper outlines the potential advantages and challenges associated with the implementation of income related loan arrangements for drought relief as a possible alternative to the existing interest rate subsidy scheme. The conceptual basis of income related loans is explained, and reference is made to the application of policies of this type in other areas of government financial intervention. The paper addresses the administrative challenges associated with such a policy reform, with reference to the idiosyncrasies of agricultural financing. An illustrative example is offered of what an income related loan applied to drought assistance might mean for the time stream of both revenue for the Commonwealth budget and repayment obligations for farms differing by economic size.

Suggested Citation

  • Bruce Chapman & Linda Botterill & Michael Egan, 2004. "Income Related Loans for Drought Relief," CEPR Discussion Papers 472, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:472
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP472.pdf
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    More about this item

    Keywords

    income related loans; drought policy; agricultural subsidies;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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