Team Abbott largely rode to power by tearing apart the climate change consensus and targeting the carbon price. It seems pretty clear that it did so based upon a mix of skepticism about climate change and political opportunism. But it also made a lot of the likely investment upsides from removing the carbon and mining taxes.
This line of reasoning has continued. When the South Australian Premier asked Prime Minister Tony Abbott what his state was going to do for jobs after the car industry was sent packing, the PM answered that when the carbon and mining taxes were cut BHP would revive the massive Olympic Dam project. BHP publicly denied any such outcome, as it has done repeatedly, but the episode raised the uncomfortable possibility that PM and his team actually believe their own drivel about the impact of cutting the taxes.
More evidence of that is available today from The Australian:
…Tony Abbott and Mr Robb held talks with some of the world’s biggest oil and gas companies in Houston, Texas, in recent days, seeking investments to exploit the soaring demand for liquefied natural gas. The Australian has learned that some of the investors in the meetings — which included representatives of ConocoPhillips, Chevron and ExxonMobil — told the Prime Minister that Australia’s high labour costs made it harder for them to approve new projects.
Mr Robb said the government had to prove it could drive costs down as it has promised by repealing the carbon tax and mining tax, speeding up the approval of new developments and cutting red tape…Mr Robb said the talks in Houston indicated that Australia had a chance to attract many of those new projects.
“We’re very well placed. If we can follow through with the repeal of the carbon tax and mining tax and improvements in approval processes, I think they’ll have the confidence to move,” he said. “Now we have to demonstrate in the next few months that all that is happening.”
Don’t get me wrong. I’m all for improving competitiveness. But cutting the carbon and mining taxes won’t do it. Not for LNG, or anything else. LNG is being rolled into the old Petroleum Resource Rent Tax regime anyway so there’s no tax cut there. As well, the carbon price is responsible for only a tiny portion of power price increases. Most of that has come from network over-investment. It may help very slightly at the margin by sustaining coal usage and helping ease the price pressure on locally sourced gas but none of it is anywhere near enough to overcome Australia’s cost disadvantage vis LNG. The current magnificently expensive seven projects are some 30% more expensive than US equivalents and well behind Canadian break evens as well. Not to mention Russia’s cheap as chips gas!
There is no second round of gas projects coming, except perhaps an FLNG ship or two.
As for benefits to broader industry from the tax cuts, need I remind the government that the mining tax hasn’t collected any revenue? How is cutting a non-existent tax going to boost investment, especially in a post-boom environment in which miners can’t cut investment fast enough? The sovereign risk argument is ridiculous, especially since cutting the carbon price is creating just that. That brings us to a second article at The Australian about the Renewable Energy Target (RET):
The RET, which has prompted electricity retailers to source a rising share of energy from high-cost wind farms, is forecast to lead to the loss of 4900 full-time jobs by 2020, and more than 6000 by 2030 as higher power prices ripple through the economy, undermining competitiveness and household budgets.
Only weeks before the government’s review of the RET is due to report on the policy’s efficiency and effectiveness, new modelling by Deloitte Access Economics, commissioned by the Australian Chamber of Commerce and Industry and the Business Council of Australia, shows keeping the RET entails a $34 billion hit to Australia’s economy, including a near $3bn cut in exports by 2020.
“The current scheme is likely to impose a considerable cost to the Australian economy going forward,” the report concludes, noting the RET is abating carbon at an effective cost to the economy of $125 a tonne — or about five times more than the current carbon tax, which the Coalition plans to repeal from July.
Sheesh, partial analysis anyone? What about offsetting the job gains in green industry? And again,it is network investment that accounts for 70% of power price rises. Wholesale power prices are plumbing contemporary lows as we speak. It’s the transmission of that power that’s killing everyone. Even cutting the RET isn’t going to do much to save power-dependent manufacturing.
Cutting the two taxes is not necessarily without economic benefit. Households have already been compensated for the carbon price via tax cuts so once they are removed and some prices fall than that is stimulatory although, ludicrously, that gain is already being clawed back via cuts to welfare owing to the hole punched in the Budget by cutting the carbon price!
In sum, cutting the carbon price and mining taxes will hit the budget, ensure the nation’s take on its own resources remains historically low relative to mining profits, do nothing to boost mining or energy investment and guarantee that Australia pays more than it should to meet emission reduction goals. It will do next to nothing to improve competitiveness in broader industry while killing investment in renewable power.
It’s one big , fat policy donut!
