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Feb 18, 2014

The tough life of Australian companies under the carbon price

Australian companies are doing very nicely, thank you, despite the apparent burden of a carbon price. Bernard Keane and Glenn Dyer find that the alarmism surrounding the carbon tax is rubbish.

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As debate unfolded last week over Toyota, Qantas, SPC Ardmona – which found another host to latch onto – and the government’s view of manufacturing in general (which is, pretty much, loathing unless someone’s engaged in a war with unions), the government kept coming back to what it insisted was its plan for jobs: getting rid of the carbon and mining taxes.

“Abolishing the carbon tax alone will add almost $1 trillion to our GDP over the next few decades,” the Prime Minister told Parliament last week, echoing a line he had used before the election.

Really, $1 trillion? How did he get that figure? The derivation of the number isn’t clear, although a similar, indeed more grandiose, claim appeared last year on a climate denialist blog, where it was argued the carbon price would cost $1.35 trillion in lost growth.

Treasury modelling of the most likely carbon price scenario showed that in 2050 Australia’s GDP would be 2.8% lower than it would otherwise be — $3.56 trillion instead of $3.66 trillion. Yes, that’s only $100 billion  in 2050, but the idea is that the annual accumulation of slightly lower GDP outcomes between now and 2050 produces the trillion-dollar difference. Sounds much scarier than 2.8%, right?

This is one of the oldest climate denialist tricks in the book: add up the difference between the slightly lower GDP resulting from climate action and a base case scenario over many decades and then parade the figure as though it represented a single massive slug to the economy. It was a favourite of the Howard government and its good friend Dr Brian Fisher, who ran the Australian Bureau of Agricultural and Resource Economics for years and made it in effect a statistical clearing house for denialism (Fisher has now returned, appropriately, to help climate denialist Dick Warburton “review”, i.e. kill, the Renewable Energy Target). We discussed this trick way back in 2008, and John Quiggin has been onto it since 1996.

What Abbott and the denialists won’t mention is that their $1 trillion figure is a tiny fraction of the collective economic output of Australia over 35 years, which is likely to be in excess of $80 trillion, meaning that $1 trillion is actually… hmmm, around 1-2% of GDP.

Putting aside the impact on GDP in 36 years’ time, however, Abbott and the Coalition argue that the carbon price and the mining tax are weighing the economy down (ignoring, for a moment, that they also criticise the mining tax for not generating any revenue). After all, data out late last week said the carbon tax gathered $6.5 billion in revenues.

But the current interim business reporting season is exposing that for the rubbish it is. Profits are up and, more importantly, companies are paying out more to shareholders by way of dividend increases. A story in The Australian Financial Review on the weekend said corporate Australia paid out a record $53 billion in shareholders in 2013, despite the carbon and mining taxes, with fund manager Perpetual calculating dividend payments rose 6.1% in 2013 from 2012.

AMP chief economist Dr Shane Oliver has also hailed the news from corporates in the December half year reporting season, saying “it’s early days as we are only 20% or so through the December half earnings reporting season, but so far the results have been impressive”. He said:

“So far 55% of companies have exceeded expectations (compared to a norm of 43%); 73% of companies have seen their profits rise from a year ago (compared to a norm of 66%); a whopping 78% of companies have increased their dividends from a year ago (compared to an average of around 62% in the last two years)… Key themes are a massive turnaround for the resources stocks (notably Rio), banks doing very well (with great results from CBA and ANZ), help coming through from the lower $A, ongoing cost control, improved outlook comments from cyclicals (like Boral) and soaring dividends.”

The Commonwealth Bank, Rio Tinto, JB Hi Fi, Goodman Fielder and Country Road (which both surprised by resuming paying dividends) and of course Telstra. And on Monday we had more companies upping dividends, including Aurizon, Australand, Ansell and Bendigo and Adelaide Bank. It’s no wonder the market rose last week — despite of all the words written about Toyota’s decision to close from 2017 and the rise in the jobless rate to 6%. The ASX 200 was up 3.7% last week, its biggest rise in two years. And the strong rise continued on Monday with another half a percent rise.

Let’s hope Tony Abbott and his Coalition colleagues don’t really believe their rhetoric about the fundamental importance of dumping the carbon price and mining tax: the evidence from corporate Australia is that they don’t matter.

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