“How many billions have to be spent on these schemes before state and federal governments stop trying to buy the green vote?” demanded the Financial Review today, apropos of the government’s decision to close the solar hot water subsidy scheme that was threatening to run over-budget.
It’s a good question from the Fin under Michael “more Australian than The Australian” Stutchbury, one worth bearing in mind.
Closing the program drew criticism from the affected sector about the likely impact on jobs. It also elicited criticism that the government was always keen to provide assistance to the heavily unionised automotive sector but somehow lost its enthusiasm for industry policy when it came to renewable energy.
The closure of the program wasn’t a fit of economic rationalism from a government increasingly inclined to lend an ear to the rent seekers of the manufacturing sector, but one of fiscal rationalism, the product of Labor’s understanding it must produce a surplus next year come what (including prime ministers) may.
The closure occupied that sweet spot of public discourse where everyone can have a go — the industry criticised it, of course; the opposition criticised it for its effect on industry, the Greens criticised it for its impact on renewables investment, and conservative commentators criticised it for ever having existed in the first place.
Plenty of the latter, and especially the Fin Review, have consistently been critics of interventionist industry policy in other areas as well.
But while we’re on the subject of rigorous fiscal policy authoring good economic policy, let’s examine some handout programs that don’t normally make it onto the hitlist of the hairshirt types.
Each year taxpayers surrender between $8 billion and $12 billion in tax expenditures that encourage fossil fuel use. The higher figure is if you include the revenue lost from the Howard government’s abandonment of fuel excise indexation in the midst of a political flap in 2001. The biggest is the Fuel Tax Credits rebate for diesel, worth over $5 billion a year, which was reduced slightly as part of the government’s carbon pricing package.
In May last year the government amended the FBT car rebate to save $953 million over four years, following pressure from the Greens to start curbing some of the more blatant pro-carbon emissions tax concessions. It illustrates the sheer scale of savings available if there’s political will.
It also followed the tangle the government got itself in after it joined in a G20 commitment to wind back fossil fuel subsidies in 2009, which led to extended exchanges between Treasury and Martin Ferguson’s Resources department in an effort to define existing pro-fossil fuel tax concessions out of the commitment.
These concessions get little attention: they’re deeply embedded in the tax system, ticking over year in and year out, costing taxpayers billions, unnoticed. But they’re industry policy every bit as effective of grants programs, a taxpayer investment that dwarfs assistance to the automotive sector, skewing investment towards emissions-intensive industries.
Their continued existence reflects a double standard not merely in the media but in Canberra as well: moderate support for renewables runs the gauntlet from industry policy hardliners and the Canberra policy and fiscal process, as it should. But massive support for fossil fuel-intensive industries mostly gets a free pass, backed by a massive constituency for its continuation.
It disguises the bigger problem about Australia’s policy settings on carbon-intensive industries: we have established elaborate carbon pricing schemes and a range of grants and investment programs to curb fossil fuel use, with the other side of politics offering even bigger grants and investment programs, while our tax system directs far greater support to fossil fuel use.
It’s the sclerosis at the heart of our emissions reduction efforts. One that would actually yield money to the budget if fixed. It just needs some more will from a government that, having taken some steps in the right direction so far, needs to go much further.
Wasnt this scheme that got shut down set up by Howard?
What about Crikey doing a bit of investigative reporting and coming up with a list of these subsidies/taxes and then analysing the cost benefit for having/removing each of them. Now that would be journalism I would be happy to pay for and read.
Other than as a method of sucking up to the Greens, Labor has no real interest in saving the planet. As soon as a job is threatened in one of their union oligarchies, ministers are falling over themselves to shovel more money to save jobs(union memberships) so there is no upset to factional balance.
The so-called carbon tax is the pea and thimble trick with offsetting compensation which means that consumers are not under any pressure to reduce consumption, and therefore lose the government votes, and the serious effect on prices, consumption and employment is not felt until the life of the next government.
One can only assume that the factional decision-makers do not foresee any significant impact on union membership as a consequence of the withdrawal of this particular subsidy, or it would not have happened.
Did anyone see Foreign Correspondent on Tuesday night and weep.
Personally I find the rebates for solar little things to be ridiculous.
Far better for the government simply to use that money for solar big things.
Like on all schools as Rudd wanted and Gillard cancelled.
Like on hospitals and big things.
Not piddly little things that end up with the poor subsidising the rich three times over for their small thing.
They should scale back half of the fossil fuel subsidi.es . I think that is pol.itically viable and does not have major impact on people’s budget. What I find disappointing in the government is that it does not have a sense of proper planning and just abruptly change the post and enforce new rule. The ending of the Solar Hot Water rebate is not the only one, there was the insulation scheme, and the immediate $2 jack up on cigarette price, then banning of l.ive cattle export.
You have to take into consideration that business have customers, workers, stocks and inventori.es, budget planning, they need to be given sometimes to wind down their stocks and plan for the market condition ahead and give notice to workers. Instead of the immediate l.ive cattle ban they should have lodged a formal complaint with the Indonesian government and request remedy with a two month dead l.ine, if the issue was not resolved within two months then the ban come into effect. Although I am a vegetarian I still do not bel.i.eve the way the government rushed into it was necessary and it caused harm to business and workers.
I was shocked when they jacked up $2 on cigarette packet overnight without warning a few years back. I know how business owners and customers must have felt. I used to have to spend quite a fair bit of time to change cigarette price when tax increase in Feb and August come, and had to deal with customers complaining.
What I don’t understand is why the overcompensation in the Carbon Pricing scheme. That does not inform customers to change their energy consumption behaviour and push up inflation. Then the trading credits with other countri.es, I doubt that there is a proper auditing and accounting system and it can also be a one way trading environment where we buy credits from overseas but no one else buys credit from us; this means that the billions of tax from those who are not el.igible for compensation under the Carbon Pricing package is not only subsidising wasteful consumers but also flow to overseas compani.es.
This is without doubt the biggest load of garbage I’ve read from Bernard Keane so far, and considering some of his recent mind-numbingly deluded efforts, that’s saying something. In particular I take issue with Bernards implications that the two big concessions, as he incorrectly calls them, were put in place as some kind of pro fossil-fuel agenda.
Let’s examine what Bernard describes as the two biggest ‘concessions’. Firstly, the abandonment of the fuel excise indexation by Howard. That indexation, along with the alcohol excise, was introduced in the Keating budget of 1983. It was NOT introduced as some kind of environmental measure, but as a way of increasing the tax collected from these sources each year in amounts that roughly equated to the increase in annual pensions being paid by the government – completely inequitable but it probably seemed like a good idea at the time. By 2001, the government was under incredible public pressure to DO DOMETHING about petrol prices, and this was one of the few things they could do, but it wasn’t the least bit motivated by a desire to promote the use of petrol – rather, to just help family budgets, made easier by the fact that the Federal budget was now in much better shape 18 years later. Sorry if that’s too cerebral for you Bernard.
The second ‘concession’, the Fuel Tax Credits rebate on Diesel was simply a logical response to an initially flawed policy. In the 1980s a number of European car manufacturers started producing very good diesel powered cars, but almost as soon as Australia started importing them various elements in the Green movement began an elaborate and woefully dishonest campaign to increase the tax on diesel (because diesel was supposedly dirty) to a point where it wasn’t economical to run cars in Australia on that fuel. The only trouble was that this extra tax would have either destroyed the road transport, agriculture, fishing and forestry industries to name just a few, or acted as a huge inflationary factor, so the Fuel Credits tax rebate was created. The rebate is not there to promote the use of the fuel – it is there to mitigate the consequences of an incredibly stupid tax that should never have been created in the first place. Have a look at the price of diesel the next time you’re in the USA or NZ to see how much less it costs there, and indeed elsewhere, compared to petrol.
Finally, Bernards comment that these ‘concessions’ cost “taxpayers billions” would make Trotsky proud. No Bernard, these concessions SAVE us, the people of Australia, billions…money that we can now use to pay our other bills…money that was taken from us in the first place for flawed policy reasons that had nothing to do with restricting the use of fossil fuel, and everything to do with political expediency.