Dog Days: Australia After the Boom (Redback) (19 page)

Chinese observers who hoped well for democracy, as well as those who took comfort from the power of money in Australian politics, would both have taken a close interest in the 2013 election, when an Australian mining magnate decided to do away with the political middleman and secure his own representation in the Australian Parliament. The Palmer United Party went on to win three Senate seats. Clive Palmer, to his credit, has recognised the potential for conflict of interest. How this conflict is managed is a crucial matter for the reality and the perception of the integrity of Australian democracy.

For all its flaws, the MRRT that was legislated through this fiasco is now yielding some revenue. It will yield much more in any future years of exceptionally high commodity prices, in all the years that follow a large and durable currency depreciation, and after the exhaustion of the ‘market value’ transitional deductions in the 2020s. Removing the MRRT will have virtually no effect on mining companies’ decisions regarding new investments, so it will not increase economic growth. The only practical economic effect of removing the MRRT will be to make the long-term budget challenge harder.

The RSPT conflict has inspired political campaigns to change policy by a large number of interest groups. It was followed by campaigns or threats of campaigns along similar lines by the gambling industry to block reform to restrict access to people with gambling problems; by the automotive-leasing industry to block reform of the fringe-benefits tax; by the pharmaceutical retailers to block reform of prescription drug supply; and by the tobacco industry to block plain packaging. The Opposition promised to give the corporate lobbyists the outcome that they sought on most issues. This helped to entrench the new political culture for the time being. It will be a rod for the back of the government, the breaking of which will require strong leadership from the prime minister, with support from the independent centre of the polity.

MINING-TAX POLITICS WAS ONCE DIFFERENT

To understand the extent of the change in political culture involved in the campaign against the RSPT, it is instructive to go back to the end of the Japan resources boom: the lift in minerals and energy prices of the early 1970s following the first oil shock of 1973. Global coal and oil prices rose several-fold in 1973 and 1974.

Australia’s large coal exports, then mainly metallurgical coal from Queensland, were immediately subject to greatly increased rail freights by the monopoly Queensland railways, and an export tax by the commonwealth government. Australian crude oil, then mainly from Bass Strait, was entirely sold at fixed prices into the domestic market under a scheme established by the Menzies government in 1965 and modified by the Gorton government in 1970. The Fraser government allowed prices to rise to international levels in 1976, but imposed a crude-oil levy that absorbed for the commonwealth government virtually all of the increase in revenue from the higher price (amounting to 71 per cent of gross sales revenue in 2012–13, in addition to a royalty of 12.5 per cent still applying).

By the Fraser government’s last full financial year in office, the levy (ignoring the old royalty) contributed about 1.9 per cent of GDP to revenue. If the same marginal rate of taxation had been applied to the increased revenue from higher coal and iron ore prices from established iron ore and coal mines in the China resources boom from 2003, these two parts of the mining industry on a conservative estimate would have contributed an additional $21 billion in revenue in 2012–13 after taking into account reduced corporate income-tax receipts. The 2012–13 budget would have seen a surplus rather than a deficit of $19 billion.

I do not draw on this history to commend the actions of Australian governments in the 1970s. Far from it. I was the most persistent critic of the Whitlam and Fraser governments’ approaches to taxing mineral rents. A series of my papers with Anthony Clunies Ross was influential in the eventual replacement of the crude-oil levy by the PRRT. The Hawke government removed the crude-oil allocation system on my advice during the prime minister’s first term. Free export prices and the PRRT generated large amounts of revenue – less than the crude-oil levy in the short term, but more in the long term due to the more efficient development of the petroleum sector.

I draw on this history only to demonstrate the huge change in political culture. The main company managing relations with government in both oil and coal was BHP. Then a mainly Australian-owned and Australian-managed company, it ran relations with government for its foreign 50:50 joint venture partner in Bass Strait. BHP and the smaller Australian companies affected by the policy changes grumbled but accepted the decisions of the democratically elected government. BHP’s partners did not grumble publicly. The changes made by the government were seen as the sovereign right of governments and not as sovereign risk.

The PRRT is now seen as having made a substantial contribution to revenue, with minimal distortion of production and distribution decisions. Nevertheless, it was greeted critically by the Coalition Opposition of the day. ‘Nothing could better illustrate the counter-productive nature of the Hawke government’s energy policies,’ said the shadow treasurer, John Howard. ‘The Hawke government’s RRT will effectively destroy the incentive for offshore exploration …’

As it turned out, offshore oil and gas exploration, development and production all expanded enormously. Prime Minister John Howard thought that the PRRT worked just fine – fine enough to leave it in place and generating substantial revenue for eleven years. If the new Abbott government were to retain the MRRT, it may be disappointed with the revenue yield for quite a while, but would find that the tax generated worthwhile amounts of revenue later on.

Like Howard before him, Prime Minister Abbott might come to think that the MRRT did no harm and generated an increasing amount of useful revenue. It would be helpful in meeting Australia’s challenge in the years ahead if, after a respectful pause from the heat of recent opposition, the current government or its successor reassessed the limited coverage of the MRRT, as well as its anomalous differences with the PRRT. This should be done in the context of the new federal compact on financial relations discussed in Chapter 8. Otherwise we will have to start again on resources taxation within the reform of federal financial relations.

CARBON PRICING: A GOAL AGAINST THE RUN OF PLAY

The contest over climate change policy is more complex. This has been a big issue in the last three federal elections and, separately, in the last four changes of leadership in the major political parties. It will play a central role in the longevity of the Abbott government. The policies with an ETS at their centre that were legislated in 2011 and described in Chapter 9 are working as they were designed to do. This experience has eased anxieties that they would be economically disruptive. They have majority support in the electorate if viewed as a package, and there is stronger support for meeting emissions reduction targets than for the removal of the ETS. Nevertheless, the new government is committed to repealing the ETS.

Until July 2014, the government will not have a majority in the Senate by which to repeal the legislation. After then, repeal depends on the votes of a number of senators who are not aligned with either major party. The repeal has been described by the prime minister as part of his mandate to govern. If it is blocked in the Senate, the prime minister has said that he will dissolve both Houses of Parliament and call a general election to resolve the deadlock. The polling says that only a minority of the electorate supports a double dissolution of the Parliament – while a substantial majority stands by its election choice of prime minister.

I am not going to tell this richly textured and continuing story. It will take enough time and words to make a few observations about the role of private interests in the wider political story of climate change, and discuss how they interacted with other forces to influence policy and shape the perceptions of the electorate.

Australia has the highest emissions per person of the developed economies. Our exports contain an unusually high proportion of fossil fuels. Australian industry therefore contains a higher proportion of wealth generated from emissions-intensive industries than that of any other developed country except Norway. (Norway is different, because a major share of economic rents are generated within a state-owned corporation that does not play a private role in the political process.)

Australia also has unusually rich opportunities for developing low-emissions energy, but the established industries are currently small. The main developments will occur in the future, and the corporate and personal beneficiaries do not yet know that they stand to gain.

For the export industries, other countries’ policies are more important than Australia’s own. The Chinese and US discouragement of coal-based power generation has, in different ways, reduced the expected profitability of Australian coal more than any action taken here to reduce its use.

It is inherent in the human condition that where most people stand on an issue depends at least to an extent on where they sit. Many senior Australian businesspeople have a vested interest in the failure of global efforts to mitigate the dangers of climate change. One consequence is that our business leadership contains an unusually high proportion of people who express the opinion that the best of climate science is wrong on global warming.

There are exceptions. The implications of climate change are so large that they challenge deep allegiances in the minds of intelligent people. The chief executive of one of the world’s largest exporters of coal, with whom I discussed my work on climate change at length, shared with me the discomfort that he felt about the implications of coal use for the future human condition. He took comfort, he said, from the possibility that expanding coal use might be reconciled with climate stability by the successful capture and storage of carbon dioxide wastes. He was personally troubled by what he saw as the increasing probability that work on carbon capture and storage would not be successful, so that it may become necessary to acknowledge a contradiction.

It is more common for business leaders with interests in the fossil fuel industries to find other justifications for resisting policies to reduce emissions. Something should be done, they say, but now is not a good time. Or there is no point in Australia doing things before others. Yes, others are doing things, but they are not doing the same things that are being proposed for Australia. We should do something, but what is now being proposed is not achieving its objectives, or is unfair to my industry.

The most common and important initial stance of the major emitting industries in the Australian debate was to insist on more compensation for their activities. This went well beyond any economic justification. While the demands for greater compensation did not amount to direct opposition to the policies, acquiescence to them would have made the package as a whole irresponsible from the perspective of budget stability, or favoured corporate interests over ordinary households. This made these industries opponents in practice, if not in principle, of effective policies.

The business lobbies, including the Business Council of Australia, tended to relay the views of their most concerned members. Something should be done, they said, but what was being proposed contained ‘flaws’ that required its rejection. The fact that, by the criteria applied by the lobbies, all alternative policies had greater flaws was of no account.

Some business interests also participated in the political process by providing funds to organisations campaigning against climate science or mitigation policies. This usually reflected the strong personal views of particular people.

The most important role of private interests in practical policymaking on climate change was to weaken support for any particular measure. Something should be done in general to mitigate climate change, but nothing in particular. The private interests contributed to the political smog through which policymakers had to find their way.

Leaders of large firms and the business lobbies remained silent when the Opposition, now the government, committed itself to replacing carbon pricing with an interventionist approach to mitigation that will make it much more expensive and disruptive for Australia to meet its international commitments.

As with the RSPT, the popular memory of the carbon-pricing package, promoted by the majority of the print media, is that it has been highly unpopular. ‘The hated carbon tax’ became a stock phrase in the News Corp majority press and on page two of the
Australian Financial Review
.

The reality is more complex. Despite the smog blown out by Australian business and its lobbies, the systematic distortion of the issues in the majority News Corp press, the relentless criticism from the Opposition since its change of leadership in December 2009, and the absence of advocacy of legislated policies from the Labor government, there has been continued public support for action on climate change in general –
and
for the 2011 measures when viewed as a package. That support has been stronger when comparisons are made with any alternative policies.

Attitudes to the policy depend on whether people think climate change is real; if real, whether they think it is caused by humans; and if caused by humans, whether they think that the policy represents a good response.

Newspoll provides consistent findings. Australians have overwhelmingly considered climate change to be real: 84 per cent in July 2008, falling to a low of 73 per cent in February 2011 soon after the change of Opposition leadership, and rising gradually from there. Nearly all who considered climate change real thought that humans were wholly or partly responsible, at the beginning and at the end. A majority supported a price on carbon to slow it down, even at the cost of higher petrol, electricity and gas prices (57 per cent in December 2010, 54 per cent in May 2011).

Australians expressed overwhelming support for the Rudd government’s Carbon Pollution Reduction Scheme (CPRS) when it was also supported by the federal Opposition (72 per cent in October 2008, 67 per cent in September 2009), and merely strong support after the change in Opposition leadership and policy (57 per cent in February 2010).