Australian businesses, and their economists, talk a load of rubbish sometimes. Other times, it’s their silence that is especially contemptible.
Today our old friend Innes Willox of the Australian Industry Group will, The Australian Financial Review tells us, deliver yet another speech about the need for industrial relations reform. Seriously, someone needs to reboot the Willoxbot’s system — he keeps saying the same thing over and over like his programming is stuck in an eternal loop and all he can utter is “low productivity… high wages… IR reform… urgent need.”
Earlier this week, the Fin also gave us a rendition from The Four Bank Economists, who came together to sing from the same hymn sheet about how the budget impasse in Canberra was hurting “confidence” and that parliament needed to “pass the budget or risk destroying already fragile consumer confidence” because “uncertainty” was leading to “businesses diverting their capital spending plans.”
It’s a strange kind of argument — that consumer confidence will be boosted by the passage of budget measures that consumers, everyone agrees, hate passionately. It’s the kind of argument that came from European austeristas — that voters may not like austerity, but at least it gave them confidence that problems were being fixed — even as demand was ripped out of economies and the ranks of the unemployed swelled by millions. Nobel economics laureate Paul Krugman talks about the “confidence fairy” that — along with the (inflation) “expectations imp” — is claimed by some economists to improve the confidence of consumers and business, and their expectations about the future, so that harsh austerity measures are accepted, or there’s no need for actual policies designed to stimulate demand.
And the Four Bank Economists’ lament is at odds with what the confidence surveys are showing. Yes, the budget had an immediate negative impact on consumer confidence, enough that consumers slowed their spending — as we saw from mid-May onwards and reported by a host of companies, from retailers to car sellers and some manufacturers. But retail sales data show that the downturn has since eased. For example, two mid-level retailers — Specialty Fashion and Super Auto Group have both noticed an upturn of sales growth in the first weeks of the new financial year.
Westpac’s Bill Evans should know this: Westpac’s monthly consumer sentiment survey, conducted with the Melbourne Institute, reported improving consumer sentiment at the start of this month, saying “the index is now only 1.2% below its level prior to the government releasing its tough Federal Budget on 13 May.” And NAB’s Alan Oster should know this — his business surveys have shown a remarkable improvement in business confidence in the past two months.
“At at a time when we need non-mining investment as the resources investment boom slows, Warburton and his cronies are content to blow up estimated billions in investment … “
And there was no mention of the greatest threat to investor certainty under current debate: the Coalition’s assault on the Renewable Energy Target. That’s the RET that the Coalition swore on a stack of bibles before the election that it would keep — it was, after all, a Howard government policy — which it is now setting out to gut.
Gutting the RET will kill over $10 billion worth of investment and the thousands of jobs associated with it at the exact moment that policymakers are trying to manage an economy with falling mining investment and soft employment. It will also kill one of the few high-tech industries that Australia has a huge comparative advantage in, in areas like solar power.
It’s also — courtesy of the direct contradiction between what the Coalition promised before the election and what it has done since then — an elegant example of sovereign risk, in the proper sense of that much-misused term. Not the “sovereign risk” continually claimed by the mining industry, which is basically any regulatory change it disagrees with, but the real thing — investors having made decisions based on what the Coalition said before the election will now find they have lost their money as it moves to gut the scheme. Climate denialist businessman Dick Warburton doesn’t like the term “sovereign risk” when it comes to gutting the RET — his review prefers the term “regulatory risk”. But what exactly the difference is isn’t spelt out.
Where’s the business community to lament this sovereign risk and complain about the impact on investment? Where are the business economists to note that gutting the renewables industry is directly at odds with the “open for business” mantra that we used to hear from this government? Of course, if Labor had appointed Bob Brown to review mining industry subsidies and then proceed to remove them without consultation, you would still be hearing the shrieks from the business peak bodies. Actually the silence wasn’t total — the creeps and rentseekers of the Minerals Council welcomed the review, and the Australian Aluminium Council welcomed it as well — hilariously, that’s the industry that has received hundreds of millions of dollars in taxpayer subsidies in recent years.
At at a time when we need non-mining investment as the resources investment boom slows, Warburton and his cronies are content to blow up estimated billions in investment, the sort that slots into the broad “other selected industries” group in the Bureau of Statistics quarterly investment data, the latest of which, for the June quarter, was issued yesterday. That showed a 12.2% rise in expectations for investment for this group to more than $55 billion, compared to a year ago. That should see it top $65 billion, compared to just over $58 billion for 2013-14 — exactly what we need as the mining boom cools down. But that’s without the decision to gut the RET.
What’s Warburton’s argument for dumping the RET? Not that it increases power prices — the review is reluctantly compelled to admit the RET places downward pressure on wholesale electricity prices and, in the long run, will see lower prices for consumers. No, it should be gutted because in the presence of lower-cost mechanisms for driving carbon abatement, it’s not necessary.
That’s a sound argument — similar to Ross Garnaut’s, who said that an RET wasn’t needed if you had a functioning carbon price. Of course, we no longer have a carbon price — the old white male climate denialists got rid of it. There are no lower price abatement measures on the horizon. Even if Greg “like a rolling stone” Hunt’s Direction Inaction scheme gets up, we know from the experience of similar schemes during the Howard years that the cost of abated carbon will be hundreds of dollars per tonne.
Except, we know the real reason why the government wants to gut the RET — it has an ideological obsession with destroying renewable energy, regardless of the facts. It associates renewables with the Left, and therefore renewables must be destroyed, regardless of the investment and jobs that it will destroy along the way.
And the business community stays silent.