The Grattan Institute isn’t normally to be found advocating for industry policy and support of manufacturing. Its latest report, on industry policy in the context of the drive to net zero, is both critical of existing industry policy — crafted by both sides in worship of the great god of manufacturing — and supportive of government assistance to help create a manufacturing sector that will prosper without carbon emissions.
One of the biggest criticisms of industry policy traditionally is that governments should avoid picking winners. “More important than not ‘picking winners’ is ensuring that the government is not propping up ‘losers’,” the report suggests. And in the context of existing industry policy and net zero, we’re propping up plenty of losers — wasting taxpayer money supporting high-emission projects. Some examples:
- the Olive Downs coal mine in Queensland, which is underwritten to the tune of $175 million by the Northern Australia Infrastructure Facility, amounting to a subsidy of $8.18 per tonne of CO2
- subsidies for gas exploration and production
- the propping up of the Mount Isa copper smelter, the owners of which threaten to close it every time a Queensland election comes around
- the Victorian government’s propping up of the Portland smelter at a cost of $200,000 per job.
The only way to stop such abuses — and this is a story that’s becoming common — is to prevent politicians from having a role in funding allocation and to make sure decisions are made to a clear mandate, targets and milestones by a body at arm’s length from government.
(In fact, is there any area of government spending that wouldn’t be better with politicians removed from decision-making?)
There’s a flipside to propping up losers — failing to tax winners properly. That’s the colossal, and extraordinarily expensive, mistake that’s been made by successive governments in relation to Australia’s offshore gas reserves, which are being sold for tens of billions a year right now with virtually no tax being paid by their exporters and no interest from the new government in ending that theft.
“The federal government seems unlikely to fix the petroleum resource rent tax, which is poorly structured and provides almost no revenue,” the report concludes. “However, at times of extreme international prices, it should consider a windfall profit tax on gas and coal exports above a fair return.”
But the report also recommends ensuring the benefits of the extractive industry boom, in minerals like copper that will be in huge demand from renewable industries in coming decades and that are put to good use. With the Queensland government already receiving half a billion in minerals royalties and the value of the global copper market expected to quadruple, the report recommends states establish sovereign wealth funds to invest the growing royalties from renewables-critical minerals, which even at current, low royalty rates would produce multibillion-dollar funds relatively rapidly.
The report, by Tony Wood and his team, points to a subtler issue that’s likely to be lost sight of once the Albanese government gets established. In a way, Scott Morrison and the band of spivs and shonks who made up his government did us a favour in demonstrating how unfit for purpose Australian policymaking institutions really are — how easily policymaking could be perverted into state capture, thievery, jobs for mates, policy for sale and outright corruption. Labor’s ambition appears to simply be to restore business-as-usual policymaking, without the egregiously corrupt aspects that marked the Morrison years.
But the opportunity for real change that would embed higher-quality policymaking in Canberra, to not just set a higher standard but change the system to make it less corruption-prone, is there for the taking, and it’s what the electorate voted for. An Albanese government that simply reverts to bog-standard industry policy, with heavily unionised manufacturing getting billions in handouts and assistance doled out for political needs rather than a coherent agenda, won’t get too much criticism. But there’s a much better way to spend taxpayer money.
If one concludes that the earth and all who sail within it is facing an urgent existential crisis, then the next conclusion must be that Hayekian incremental policy-development is not fit for purpose. It is time to be bold, even if that means making mistakes, mistakes that must be corrected by another bold move.
And whilst I appreciate Tony Woods’ criticism of picking winners and creating losers, the corollary of that is not ‘leave it to the market’.
We know in broad terms the future ‘winners’ that must be encouraged and accelerated:
– renewable energy.
– hydrogen.
– decarbonisation of everything.
– research and development of new technologies to facilitate those objectives.
– lastly, steel and aluminium will continue in strong demand. Join the dots: cheapest energy in the world + proximate access to the necessary ores = world leader in low cost, high quality steel & aluminium. And a lot of manufacturing can be built on cheap local steel and aluminium.
Get there and China becomes an economic irrelevancy.
Yes it seems ultra stupid not to have industries adding value to our raw products, especially our minerals. But thats what we have been stupidly doing for 200 plus years. China cant believe our stupidity. The libs actually had policies to reduce us to nothing but exporting agricultural products, education and minerals. No added value plan at all. Hence our current dilemma where we cant get anything from overseas but cant make anything either. Our politicians might look after their mates but they are no mates of the rest of us.
The total failure to ‘value add’ has astonished me for years. When you dig (no pun intended) a little deeper you realise the tactic is an early form of ‘transfer pricing’ assuming there is self interest and non-arms length transactions involved.
The most painfully stupid thing I’ve seen in quite a long time was cheap-arse t-shirts at KMart labelled with “made from Australian cotton!” – the shirts were made in Bangladesh, no idea where the cotton was actually turned into fabric but it sure as hell wasn’t Australia. So people were growing cotton in one of the countries it’s /least/ viable as a commercial crop unless you ignore externalities like water use and the impact of pesticides, then shipping the raw cotton off somewhere to be made into fabric, then shipping the fabric somewhere else to be made into garments at the lowest possible labour cost, then shipped back to Australia to be sold at bargain-basement prices. And they were proudly advertising their stupidity.
You know, this distrust of politicians is kind of problematic – yes, they’re prone to various levels of corruption and incompetence, but the idea that we should just hive off any policy area where politicians might let their corruption and incompetence get in the way of good decisions kind of misses the /point/ of democracy. We /want/ our politicians to be making decisions on our behalf, not some technocrats deep in the belly of the bureaucracy (or worse still, in some “independent” policy organisation) – that’s what we /have/ a democracy for. If we can’t trust our politicians to make good decisions we need to fix /that/, not set up non-democratic power structures that make them (and democracy itself) irrelevant. And if we /can/ trust them, then we damn well shouldn’t be taking away their power to make decisions on our behalf.
The proposal of an independent non-political body to allocate funding for industry assistance is a non-goer from the start. Its merit exists only in the mind of a wonk. As soon as such a body is created by a party, when it’s opposition gains government eventually it will abolish it after years of discrediting it as Labor has done rather well with Sports rorts. there was an independent body called Sports Australia who decided which sporting organisations and clubs should receive federal government funding. These ‘impartial’, arms-length decisions were overturned and interferred with by the Minister, Bridget Mckenzie. The same will happen with such a body for industry assistance. the federal government shafted infrastructure Australia real good. You must be living in fairy land if you think an independent body like for industry assistance won’t be rorted, discredited and abolished. Let a Labor government run such a program through the Industry department or the Environment department.