My understanding of at least some of the subsidies given to European agriculture is that they are there to partly prevent over-farming: farmers are paid not to farm a certain percentage of their land, so as to ensure that in times when external events (e.g. the weather) are responsible for unavoidable drops in productivity, there is 'backup land' available. This makes sense in a densely-populated region where leaving land fallow is forgoing significant short-term profits. While perhaps less of an issue for Australia, as we have no shortage of land, I would suggest that current water availability crisis could have been prevented by similarly long-sighted policies, that accept short-term economic pressure to farm land intensively will tend to outweigh the collective need to recognise long-term limits.
Cutting payroll tax on exported products sounds eminently sensible to me...and I do want to address the whole "government picking winners" debate next anyway, but just to answer your other points:

a) Where is the evidence that productivity is lower in countries with higher taxes? Better productivity is not to be gained by having anyone work more hours for a start, so your "preferring to put the feet up and have a beer" argument doesn't make a lot of sense to me. FWIW, personally I intend to switch jobs next year to one that will pay less, but where I am confident I will be more productive: and I know others in similar situations.

b) I'd like to see figures backing up your claim that Keating's attempt to reduce property investment incentives was responsible for less housing stock being built. It doesn't make a lot of sense to me: most investors are buying existing stock and renting it out. Releasing more land sounds fine in theory, but you only need to look at current property prices to realise that most people want to live in existing residential areas, close to urban centres - not out in the sticks where plenty of land exists. But a lot of the property in existing residential areas is owned as investment property, thus crowding out first-time buyers.

European farming subsidies have now started to change. They were consuming a larger and larger portion of the EU budget
and distorting world trade.

As EU prices were well above world prices, they created lakes of wine,
mountains of butter, freezers full of meat etc, all which were then dumped
on global markets at a huge loss. Australian farmers, African farmers,
EU taxpayers, were all huge losers from all of this. The plan now is to
pay farmers for guardianship of the environment, rather then dumping
more fertilisers and sprays onto crops, because subsidies deem it economic
to do so.

Putting your feet up to have a beer, makes perfect sense to those working
hard physically to earn their money. In the country it’s a common argument
heard from people like shearers, although its less now, since tax rates are
a bit more reasonable. If one would ask them to finish a mob on the weekend,
the common answer was, that it was not worth it due to tax, but cash would
make it worthwhile. People act out of self interest in the end, a great deal of
the time.

I’ve read articles about workers in Sweden, where high tax rates encourage
labour bartering. If I’m a plumber and you are an electrician, it pays us
to do a deal of hours worked, rather then face punitive marginal rates.

I think they did some studies on all of this when Reagan dropped tax rates.
I didn’t like Reagan, but apparently they collected more taxes then before,
as people had less reasons to cheat.

I don’t have the figures on hand about the Keating attempt, it’s a fair few
years ago now, but I remember it and have since seen it mentioned in a number
of economics articles. Perhaps there is somebody like Rhian reading the
thread, who have their fingers on the statistical pulse of economics, as
I certainly don’t.. The stats that normally interest me are global in nature
and for that my subscription and access to the Economist website tends
to be enough for those things.

Wiz, if you google "Keating negative gearing" there are
a number of references as to what happened last time
and why he had to reverse his decision, as rents
skyrocketed as a result.

There's no doubt that important lessons have been learned from experiments in what we would now see as excessive protectionism. But the solution to excess isn't necessarily abstinence. I have no problem seeing tariffs and subsidization as a last resort or special case measure where a significant but assumed-to-be temporary imbalance exists in the international playing field, or where it is necessary to counterbalance the tendency of free markets to overly discount the future in favour of short-term profit, and abolishing protectionism completely carries just as many economic risks as letting it grow to unsustainable levels.

Regarding Keating's negative gearing rollback, I would argue that simply because it failed previously doesn't prove that the adjusting investment incentives was the wrong call entirely - for a start, it obviously makes sense to provide incentives for property developers to build new housing (and/or refurbish existing housing that has become unlivable). But what possible reason is there for encouraging investors to buy up existing housing stock, when there is already an excess of demand from first-home-ownership aspirers?
Again, most people do NOT want to live out in the sticks where new land exists, and further, the risks of allowing current patterns of urban sprawl to continue should be obvious to anyone who has been paying the slightest attention to world oil supply and demand forecasts (not to mention the myriad other costs associated with a car-dependent society).

Regarding your statement “People act out of self-interest in the end” – indeed, that’s exactly the reason why significant government oversight of free enterprise is necessary. Decades of research in game theory, sociology and psychology have shown that individuals will act for their own short-term gain, even when cumulative result makes everybody ultimately worse off. When living in tight-knit communities where your actions are transparent to all, these tendencies are held in check, but given the nature of the global economy, the natural mechanisms that have evolved for that purpose don’t tend to function so well: I’m sure exploitative sweatshops wouldn’t last long if we had to walk through them before buying the products made there.

The last issue I wanted to address was government picking winners.
This to me depends a lot on what exactly is meant by the phrase. The reality is that governments are required by their very nature to be competent economic managers, and have to "pick winners" all the time anyway, when they decide what types of infrastructure to build, what tenders to accept when contracting out work to private enterprise, what equipment/IT systems to buy etc. Further, there's an abundance of technological success stories that owe their existence to government-funded programs (especially military and space research in the U.S.).
Why is this fundamentally different to a government, using the best advice it has available, determining that a particular industrial sector has the potential to flourish, but is struggling due to conditions outside its control? A good example is the renewable energy industry - the Australian recently had an opinion piece with the usual "MRETs are bad because governments shouldn't pick winners" line. But it hardly takes a genius to see that a) renewables can’t compete with existing energy technologies on a level playing field, due to existing infrastructure and historical subsidies, and b) while certain renewable energy technologies may end up being dead ends (or at best niche markets), no-one is seriously doubting that renewables are going to be an essential part of reducing GHG emissions and fossil fuel dependency. Now, if the government grants to renewable energy developers were significantly disadvantaging other potential candidates for GHG emission reduction, the criticism might have some validity, but given what the government is also pumping into clean coal and nuclear, this could hardly be said to be the case.

Having said that, if 11 years ago (when the necessity to reduce emissions was already quite apparent), we had introduced a simple emissons tax, and allowed low-emission technology to thrive naturally as it become more economically competitive, we probably wouldn’t need such direct government interventions like MRETs. But 11 years ago Howard was so opposed to any government influence on the market that we’re now forced to take more extreme measures.

Wiz, I think that what Keating’s experiment shows, is that there can be unintended
consequences, as people reacted differently to what was expected. At the end of the
day, the problem is a lack of houses for the given population. Whether they rent
or buy, is not even the major factor. If there were far more houses available then
buyers, both rents and house prices would drop.

Many people buy houses as a nest egg for their super fund. They rent out those
houses, they don’t stand empty. That has the effect of lowering rents in the end.

One option would be to make interest on houses by owners tax deductible,
but then as long as they paid capital gains tax on the huge profits made, when
they sell them. There are some people making multi million $ profits on their
homes, all tax free.

I don’t see why you are concerned about urban sprawl, you being concerned
about energy etc. I remind you that the most unsustainable form of living is
high density living. Go back 50-100 years, people had a quarter or half acre,
ran some chooks, grew some veggies, fruit trees etc, worked locally, the
kids cycled to school. People coped with very little oil, life was about
the surrounding local community. If an energy crunch comes, we could well
go back to that kind of lifestyle, its quite a pleasant one.

Young career types might not want to live in the sticks, but look at the sea
changers and tree changers in their 50s. More and more are putting lifestyle
above money and are moving onto lifestyle blocks on the outskirts of cities,
as by then they realise that the rat race is not all its cracked up to be.

I disagree that 11 years ago, reducing emissions was so apparent. If the Govt
jumped, every time some scientist raised a concern, they would be jumping
at shadows. The real problem is the China-India story. Australia hardly
matters in the big scheme of things.