Australia’s competitiveness slipping – and energy security is key

October 5th, 2017

Western Australia’s gold mining industry is currently up in arms at what it describes as a “jobs and project destroying’ planned 50% hike in the production royalty it pays to the State.

This follows a pre-election WA Nationals proposal to jettison previously agreed long-term arrangements and dramatically increase iron ore royalties – a proposal which some argue cost the Party leader his seat in Parliament.

On the East Coast, the gas industry has been under pressure, this time from the Commonwealth, which has threatened to intervene in existing long-term liquefied natural gas (LNG) export contracts from Queensland, in order to satisfy demand in the southern States.

Though these are very different planned government interventions, they send a similar signal to local and overseas investors:  Beware investing in Australian resource development; goal posts can move, even mid-game.

Australia used to have a strong ‘safe’ investment reputation.  That has slipped in recent years, with the proposed mining tax and then the proposed escalation of the resources ‘super profits’ tax, as well as construction cost blowouts and other factors.

The latest Global Competitiveness Report, produced by the World Economic Forum, paints a downbeat picture.

Australia has dropped from 10th to 21st on the Global Competitiveness Index in the past 10 years.

Out of 137 nations, Australia ranks a dismally low 110th for workplace efficiency, and 109th for labour market flexibility.

We are 102nd for both total tax rate and effect of taxation on incentive to work.

We rank 80th for burden of government regulation.

As observed by the Institute of Public Affairs, these results place us lower than countries such as Botswana and Ghana on some of the important measures.

“It is little wonder 730,000 Australians are unemployed and one in five prime-age males are not in work,” the IPA commented.

For every economy, availability and cost of energy is a critical factor.

Australia has historically had a great advantage, with abundant coal and natural gas resources being delivered to industry, businesses and consumers at among the lowest prices in the world.  We are a global leader in coal exports and are set to become the world’s biggest LNG exporter – assuming Government intervention does not cruel the patch.

The Global Competitiveness Report does not rank all aspects of energy delivery, but it does rank quality of electricity supply.  It is no surprise, Australia has fallen badly in this area.

The IPA summarised it thus:

 “This report confirms that short-sighted government subsidisation of renewable energy is becoming a substantial drag on business investment and job creation.

“In just one year, the quality of Australia’s energy supply plummeted from 22nd to 44th.”

According to the IPA, the remedy is simple:

“The Commonwealth and state governments must abolish their Renewable Energy Targets to improve the reliability and affordability of energy supply in Australia,” it said.

Not all commentators agree with this policy prescription, but there is a rising consensus that new wind and solar developments will need to include power storage capacity so that the destabilising effects of their intermittency can be levelled out.

In the absence of satisfactory storage technology and capability, the ‘on-demand’ flexibility and reduced emissions of gas-fired power is the best practical partner to wind and solar.

 

 

 

 

 

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