In the next month, Kevin Rudd faces a bleak choice — will he backflip on a commitment he made to his favourite global body, the G20, or will he open a new front in the pitched battle with the mining industry?
The only comfort for the Prime Minister is that the dilemma is over an issue that, while very important in policy terms, has never managed to get much public traction: subsidies to fossil fuels.
In the debate around carbon pricing, here in Australia and globally, one of the elephants in the room has long been the fact that, presently, the playing field is skewed dramatically in the direction of “carbon discounting”, with a multibillion dollar array of fuel tax credits, exploration subsidies, fringe benefits tax concessions, accelerated depreciation, research grants and much more.
It doesn’t make that much sense, frankly, to increase the price on high polluting goods and services to send a signal to investors and consumer to use them less, if we have not first removed all those subsidies that enable cheap production and encourage pollution. We are left with a highly inefficient system for moving money from one pocket into another with little gain for anybody.
The most obviously egregious case is the fringe benefits tax concession, which actively encourages people to drive more. Giving a greater tax concession for the larger distance driven is famous for creating the autumn derby, when those with company cars drive long distances towards the end of the financial year to reap the tax benefits. That brilliant idea costs Australian taxpayers about $1.2 billion a year and increases our greenhouse emissions and our fuel insecurity.
The fuel tax credit for primary producers is meant to bring costs down for farmers and fishers facing rising fuel prices, and this is understandable and worthy in the circumstances. It also applies to public transport, which the Greens welcome. But applying the tax credit to mining and logging companies, subsidising the fuel they use to dig up coal and chop down trees, is intensely perverse. We all subsidise the extraction of massive carbon stores to the tune of about $2.3 billion a year.
There are many more examples, from the direct ($50 million grants from Geoscience Australia to look for geosequestration sites) to the indirect (governments paying for electricity grid upgrades around coal-fired power stations, but requiring renewable energy developers to pay themselves to connect to the grid). We all pay for a concessional excise on aviation fuel and accelerated depreciation on fossil fuel intensive assets. All told, it’s easy to identify in the order of $5 billion a year of perverse subsidies that encourage the use and extraction of fossil fuels.
Some of these were addressed by Ken Henry in his tax review. All were ignored by the government.
After years of being ignored, this issue finally broke onto the global scene last year in the frenetic lead-up to the Copenhagen climate summit. At the G20 leaders’ meeting in Pittsburgh in September, Kevin Rudd joined his peers in committing to “phase out and rationalise over the medium term inefficient fossil fuel subsidies”. The leaders agreed that “inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change”.
In what might now become an embarrassing problem for Rudd, he and other leaders called on their “energy and finance ministers to report to us their implementation strategies and timeline for acting to meet this critical commitment at our next meeting”.
That next meeting is in Toronto on June 24-25. And, just last night, Treasurer Wayne Swan jetted off to Busan, Korea, for the final preparatory meeting of finance ministers and central bank governors before the Toronto summit. In Busan, the ministers are supposed to review these plans before presenting them to the leaders a few weeks later. The Toronto meeting, of course, will be only days after President Obama’s expected visit to Australia. In the light of the disastrous oil spill, Obama has ratcheted up his stance on fossil fuel subsidies, promising in a speech this week to roll back “billions of dollars in tax breaks” for oil companies and invest the savings in alternatives.
With this in mind, I asked Treasury officials in Estimates hearings on Wednesday if they could tell us what plan Australia would be laying on the table. They refused to do so, batting some questions off to other departments and taking others on notice.
This presents a new dilemma for Prime Minister Rudd. Having promoted the G20 as the great hope of middle-power diplomacy, the last thing he will want to do is to treat it as another talk-fest and conspicuously fail to meet his obligation to lay some implementation plans and a timetable on the table.
But, on the other hand, one thing he probably wants even less right now is to open up a new front in the battle with the cashed-up miners.
This is a problem purely of Rudd’s making. If he was serious about fossil fuel emissions he would have seen this conundrum coming and avoided it. The fact that he didn’t speaks volumes.
If Rudd had taken a bold leadership position from the start, including standing up to the rent-seekers over emissions trading, he would now be able to stand up and do what’s right on subsidies and taxes as well. As it stands, particularly so close to an election, I fear he is most likely to reward bad behaviour again and attempt to have his cake and eat it, pretending to fulfil his G20 commitment by bravely redefining “subsidies” into meaningless oblivion while pretending to stand up to the miners.
As usual, Christine Milne has gone straight to the point. Why is the country subsidising coal and so allowing it to be sold at an artifically low price while renewables are made to pay even more? When people argue that the cost of renewables is too high compared with coal they are of course not getting the full ipact of what is the real cost of coal to start with. I would wait a little longer for an emissions price on coal if the subsidies were removed right now. Wit the sort of stupidity of subsidising coal at the every time when we should be replacing it, it is no wonder that our children and grandchildren (and us) feel the drastic effects of climate change from now on.
Now let’s see Rudd squirm when he has to face the G20 in Toronto. He’s a one term P.M. no doubt. Subsidising fossil fuels at the expense of renewables is no way to convince our children that we did something constructive.
My vote, as always, goes to the Greens. Never, ever the major parties as they’re both morally bankrupt.
@Nicolino…you wont see them govern in a year of lifetimes, what makes you think they would be any different?
This is one of those things easy to propose when you are not actually in power. Who I wonder will ever have the guts to remove Queenslander’s fuel subsidy? (Anna Bligh brought in water fluoridation soon after her re-election because she knew that it has been medically negligent not doing so all these decades. The neanderthals are still agitating about it. But fuel excise subsidy? One revolutionary step into the future per term of office.) People convince themselves they have “earned” them or “deserve” them. It is something that can only be done right at the beginning of a term in office so with some luck, the great uproar of affronted voters will be forgotten by the next election.
Seems to me, the only political strategy for the Greens is to make sure their policy on this is widely known before an election, so that when they make it a condition of passing relevant legislation in the Senate no one can claim they were not warned. (And alas, I don’t mean an article in Crikey.) Of course the opposition and the MSM will shriek that the Greens want to destroy the world as we know it. Most people know this stuff is not justifiable but just not to those subsidies they themselves receive.
Christine Milne has perhaps failed to distinguish between a subsidy and an exception or reimbursement of a tax. One is a payment, the others may be either a direct refund of dollars, or an accounting offset against income generally.
A tax which has been charged generally but then is subject to either exemption or refund does effectively resemble a subsidy in its effect, but is not, formally, a subsidy, unless for the purposes of the current argument a wider definition is established. Otherwise, every allowable offset against income before tax is, arguably, a subsidy. Is payroll tax a subsidy? Land and property rates? Stamp duties? Workers’ Compensation Insurance? Public liability insurance? The list could be very long, indeed.
Every Government-imposed or prescribed charge or tax thus could be caught in Christine’s web, purely because it has been allowed as a business expense for taxation purposes.
While agreeing with the general thrust of this article, I must object in part to the lack of clarity, which leaves exposed weaknesses into which the more aggressive and GHG doubting elements of the press to drive their lying wedges.
Credit marks for an effort which would otherwise have ranked a Distinction mark.