Governments Must Consider Unintended Consequences of Policies

Personal reflections by Gene Tunny, Director, Adept Economics

The alarming reports of rampant fraud in the National Disability Insurance Scheme (NDIS) and the thriving black market in tobacco in Australia, a direct result of the very high excise duty, serve as stark and timely examples of the unintended consequences of government policies. These instances, along with the historical warnings of renowned economists like Milton Friedman and Frederic Bastiat, underscore the need for governments to carefully consider the potential perverse incentives their policies may create. Unintended consequences, as we’ve seen, can significantly undermine the positive outcomes governments aim to achieve.

In the latest episode of my Economics Explored podcast, Economic Freedom and Efficiency: Lessons from Australia’s Competition Policy Reforms, I discussed unintended consequences with fellow economist Darren Brady Nelson. Here’s a relevant clip from the video recording of the podcast:

You can listen to the full conversation on the audio podcast via the embedded player below or wherever you listen to podcasts.

Some unintended or unexpected consequences may be benign or positive. For example, the increasing prevalence of vaping among teenagers may be an indirect result of high tobacco excise, as teenagers substitute vapes for more expensive cigarettes, according to University of Queensland research based on worldwide evidence. To the extent that vaping is less harmful than tobacco smoking, this could be a positive development, but further research is needed on this point.

This illustrates that policy measures can have many consequences, and governments must consider all significant consequences when designing and implementing policies.

Published on 13 June 2024, Adept Economics Director Gene Tunny prepared this article, and Research Economist Arturo Espinoza contributed. For further information, please email us at or call us at 1300 169 870.

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