A woman is in a serious condition after a shark attack in Sydney's harbour, an incident that has reignited debate over the cost of beach safety measures. The attack occurred off the coast of Elizabeth Bay, a popular swimming spot, just days after the New South Wales government announced a new trial of drone surveillance. The victim, a 29-year-old local, was mauled while swimming in the early evening, and was pulled from the water by surfers who applied tourniquets before paramedics arrived.
This is the second serious shark incident in Australian waters this month, following a fatal attack in Queensland. The timing is unfortunate for the tourism industry, which is still recovering from the pandemic. But it also brings into sharp focus the economics of risk mitigation.
The state government has invested heavily in shark prevention, including SMART drumlines and helicopter patrols. Yet the market is clearly not clearing. The marginal cost of another patrol is easily calculated, but the marginal benefit is harder to quantify when human life is at stake. Economists call this the value of a statistical life, a grim but necessary calculation.
There is also talk of exporting British beach safety protocols. Australia has long looked to the UK's Royal National Lifeboat Institution as a model. But the RNLI is a charity, not a state budget line. It relies on donations and legacies, which have been volatile in recent years. The idea of a public-private partnership for shark surveillance has been floated, but insurers are wary. As Lloyd's of London knows, underwriting risk in the South Pacific is a tricky business.
The central problem is that beach safety is a public good. It is non-excludable and non-rivalrous. No one can be barred from swimming, and my safety does not diminish yours. This leads to free-riding. Fund it through general taxation and you spread the cost across all taxpayers, including those who never set foot on sand. Charge a fee for beach access and you price out the less affluent. The government prefers the former, but with a debt-to-GDP ratio heading north of 40%, every dollar counts.
The New South Wales budget has allocated AUD $8.4 million for shark mitigation this year. That is about 0.01% of total spending, but every bond trader knows that small deficits add up. The state's net debt is projected to reach AUD $100 billion by 2025. Gilt yields are rising globally, and Australia is not immune. A spike in insurance premiums could be the next shock.
Meanwhile, the British model is not without flaws. The RNLI spends over £200 million annually, and its investment portfolio has taken a hit from falling equity markets. The charity is also grappling with rising fuel costs for its fleet. Exported to Australia, these costs would only multiply.
The irony is that shark attacks are rare. Your chance of being killed by a shark is 1 in 3.7 million. But human beings are bad at assessing low-probability, high-impact events. That is why we buy insurance. And it is why governments feel compelled to act, even when the numbers do not add up.
As a financial editor, I see this as a classic case of risk mispricing. The market has failed to price in the true cost of safety. Politicians, ever mindful of the 24-hour news cycle, are happy to throw money at the problem. But in the long run, fiscal discipline must prevail. If not, the only thing that will be attacked is the state budget.
