AUSTRALIA AFTER THE 2022 FEDERAL ELECTION

With the votes still being counted in many seats following the 2022 federal election, The Sydney Institute held a briefing on what might be expected on Wednesday 25 May 2022. Ticky Fullerton – Editor-at-Large at The Australian Business Review  – joined Gerard Henderson, executive director of The Sydney Institute to pose some scenarios. At the time of the event, it was not clear if Teal Independents would have the balance of power in the house of Representatives or even if some Liberal seats challenged by the Teals would hold out. The papers from the event are edited transcripts of the speeches given.

AUSTRALIA AFTER THE 2022 FEDERAL ELECTION

Ticky Fullerton

Thank you Anne, and great to be back at the Institute. I’m going to be a little bit broader than I was in my last talk those years ago on water. But I won’t be a Cassandra about wars and supply chains, Gerard.

I thought instead I’d be a little controversial and ask, is Anthony Albanese Australia’s best shot at a reformist government in the next decade? He needs time.

A reformist government, this one?  At first glance, there is nothing to see at all, is there.  There’s absolutely nothing to see.

Universal, 90 per cent, subsidised childcare is the centrepiece of government reform. You’ve got to be joking.

To give you an example – say we had a 100 per cent subsidy for all women in Australia to use childcare.  It won’t be just the Teal seats where women decide “I’m not working, but I’ll just chuck the kids in for the day.” Or “We’re all working three-day weeks and for everything else, maybe we’ll put them in there as well.”

This is going to be put out to the Productivity Commission according to Labor. Well, I should hope so, and let’s hope the PC does more with it than they did on working from home, which was a rather disgraceful exercise. There was no productivity analysis whatsoever. But we’ll see.

So to be a reformist Prime Minister, what does one have to be?

Well in my view, let’s start with politically brave, you should be across your brief with a knowledge of history.

When our new Prime Minister had that moment, where he couldn’t remember the unemployment level or the RBA cash rate, it was breathtaking, literally. Not because the figures were mentioned often before, but because the unemployment figure and the cash rate are so fundamental to the running of the Australian economy, that’s why. And yet this man, our leader, a consensus politician, has business welcoming the new Labor leadership. Go out and ask them.

Anthony Albanese and new treasurer Jim Chalmers have been doing a lot of hard work on that front. And if you compare them to the world’s greatest treasurer, Wayne Swan, there is quite a difference on that front. Business has to be part of a lot of this reform. I think that is very important.

On Monday, the market hardly blinked on the election result. They were so grateful for some certainty; I think it opened 0.2 per cent up. Energy stocks didn’t fall at all. Labor is starting out being careful.  Chris Bowen is holding the line on emissions targets, as Gerard said. Anthony Albanese is pushing down in the South Pacific; obviously that’s strategic.

But they’re being very careful. And you can expect the Labor Party to be very good to the Teals. I imagine you will see them giving the Teals credit for climate change progress. You’ll see them giving the Teals credit for the integrity commission, if and when it comes in. It’s a way of keeping them in those seats and keeping the Coalition out.

In my view, there will be at least two terms of a Labor government, and that’s an opportunity for reform. It really is.

I’m going to concentrate mainly on energy transition, because that is the really big agenda item. And a little bit on productivity.

The election yelled a message about progress on climate change, didn’t it? It wasn’t just the Teal seats; it was a lot of regional seats, a lot of people who were on the pointy end of fire and flood. This means if Labor doesn’t get this right soon, I believe the government will intervene in the gas market, using the ADGSM, because the government will have already intervened on retail electricity prices.

This will risk the sort of investment that Labor is looking for to transition the economy. So, we’re not at Kerry Schott anarchy, but it is a real bloody mess, isn’t it?

We’ve got a cost-of-living crisis; we’ve got higher electricity prices this week. Labor promises to reduce prices for families by $275 by 2025. Talk about promising too much.

Then there is Labor’s Powering Australia policy – fully costed. It is going to spend to build infrastructure that attaches renewables in energy zones to the grid. And it says it is going to do it faster. That Labor is going to push infrastructure fast in itself, is probably a good plan.

Then there is Snowy 2.0 estimated to be ready in 2024. But the Hume Link is something Angus Taylor was very quiet about. I don’t think there is a date for the Hume link. But that has to be built to link Snowy to Sydney, Newcastle and Wollongong. This is the infrastructure challenge that we’ve got.  So I don’t understand how power prices – family power prices – are going to go down. That’s a problem.

Labor is going to spend $20 billion to connect 25.6 gigawatts of new renewable energy to the existing grid. This is supposed to unlock $58 billion of private company financing. In other words, it’s really hard to see how transmission costs are not going to go up, and they’re quite a big chunk of the household energy bill.

So, how is this going to work? If prices go up, we have intervention, and we have investment risk on a Labor build. The Labor modelling underneath this is flawed; the RepuTex model is absolutely flawed. Just ask Frontier Economics, Danny Price and Tony Wood at the Grattan Institute.

The modelling assumes that an 18 per cent drop in wholesale electricity prices will also lead to an 18 per cent drop in household prices in 2025. But we know that wholesale electricity prices only take up about 35 per cent of a household bill. There’s also transmission costs and a few other costs. That is one problem they have. The numbers literally don’t add up.

The second problem is that wholesale prices are going up. We’ve seen this coming through with the regulator announcements this week.

The other part of this is grid stability. Here we’ve got a whole lot more politics. Business has backed Labor’s plan to use the safeguard mechanism to increase limits on industrial emissions. The issue now is about the speed at which those emissions intensive trade exposed industries are forced to come down.

Now, we’ve had a lot of floods, we’ve had fires and we’ve had droughts. We haven’t had a lot of blackouts recently. That has coloured the mood very much. Imagine if we’d had a few blackouts before this election.

Coal still makes up 60 per cent of the national energy grid. Kerry Schott at the Energy Security Board said, “Just get on with it” when she delivered her report a few months ago. This was all about delivering a capacity mechanism where employers in resources such as hydro, gas and coal were paid to have firm capacity.  But there’s been no progress on that under the Coalition government. So, what is Labor going to do about that?

Moreover we have an incredible UK precedent looking at us. I’m not talking about the effects of the war in Ukraine. I’m talking about before that when the wind didn’t blow across England Europe. Sadly the UK’s coal had already been hollowed out.

Tony Blair sold nuclear a long time ago the Japanese. It was a complete disaster, and we can see now what is happening to prices. Of course they’ve soared, even more, given the constraints of war.

Back in Australia today if you are being pushed to go faster into more renewables, and you’re running a coal fired power station today, you’re in a very tricky position.

Coal prices have gone up dramatically – certainly in NSW on the Hunter rail system, which goes out to Newcastle for export.  So, you’ve got the export price and you’ve got the coal miners wanting to push it out to export. Prices are going up, so what do these guys do? Do they lock in three-year contracts, thinking, ‘Well, maybe something will happen, and the renewables will actually work; batteries will come in that will actually work?’ Or do they not lock in the coal and then risk having to buy in the spot market?

Mike Cannon-Brooks has blinked; he had previously said that he wanted coal out of AGL by 2030, now he’s saying by 2035. I think that’s quite significant. Even he is rethinking – it’s a bit of a reality check.

AGL had a very interesting development today, if you haven’t caught up with it; Hesta, who is only a small holder in AGL has backed Cannon-Brooks. It’s significant because it is an industry fund looking to do something a little bit different for its members. Instead of getting out of coal altogether it is looking to be part of the transition. That’s how I read it. Mark Carney, the former governor of the Bank of England, and now at Brookfield, says it’s about going into those fossil fuels and being part of the transition; helping to do that.

The other thing I want to talk about which is really important, is carbon capture and storage.

The International Energy Agency, or IEA, says there is no net zero without carbon capture and storage.  Fifty per cent of hydrogen by 2050 is going to be made from natural gas, in their net zero scenario. The CSIRO said it should have spoken out earlier in support of CCS.

Chevron failed to deliver 4 million tonnes of annual CCS in Australia, in the world’s biggest project. But you know what? They’ve succeeded in delivering 2 million tonnes.  Chevron had a clip at Andrew Forrest last week, who used the phrase lipstick on a pig when talking about these gas companies. Chevron made the point that since 2019, it has actually captured the same amount of carbon that Fortescue Metals Group (FMG) has emitted.

CCS expectations are huge for net zero; a total of 200 times more than is being done today. It’s a big challenge. In July the federal government’s CCS acreages are coming out; it will be very interesting to see what Labor does, and the pressure the Teals put on that, because it is a big part of the plan for the future.

For the last part of my talk, I did want to talk about productivity.

As I see it there are two really big problems and this is why productivity is becoming more and more important.  One is the wages growth problem – 2.4 per cent to March is sluggish. Real wages are going backwards with inflation at 5.1 per cent. And we know what Anthony Albanese has said about what he would like to see come out of the Fair Work Commission.

The second is that government spending will go up. Forget the $8.4 billion greater spend of Labor over the Coalition; the $30 billion you’re going to get now in terms of commodity for the budget, given that the extra spending is over the forward estimates, is nothing. It’s more about ongoing deficits; a trillion dollars of debts.  A 1 per cent interest rise on a trillion is $100 million. It is a problem. So, productivity has to be the way out of this.

There’s a lot of cynicism about Anthony Albanese; he’s no Hawke, and in any case it is very different times, isn’t it? In the 1980s, there were strong unions and Hawke got the unions to agree to have a real wages cut in return for a social wage.  It was all about restoring profits and growths and jobs. But the point is that it is about compromise.

Paul Keating is still alive, Bill Kelty is still alive; and these people, I think, should be talking to the current leadership. Does industry super want productivity? You’d think it would. Sure, they’re union rooted, but there will be some different views happening there.

At the Prime Minister’s unemployment summit, a deal on EBA’s has to be something that they should be aiming for. Obviously, the BOOT (Better Off Overall Test) has scared away everybody during this election.  It’s quite funny because BOOT and no disadvantage seem to reflect the reverse of what they really are. The Better Off Overall Test seems to be more like no disadvantage to me, but that’s semantics.  The point is, there is work going on.

There was work done in 2020 between Jennifer Westacott and Sally McManus, who found common ground not to get rid of the BOOT, but to soften it in exchange for preferential treatment of union backed enterprise agreements.  Now, others in business didn’t like it, but it was a start, and Albanese is collaborative.

It’s important to scrutinise Labor, but also to encourage them with reform. Whether the unions are going to use it as an opportunity to try and look at things like move back onto the worksites, and what Anthony Albanese does with that, that’s very interesting. I don’t think anybody is very focused on that. But there are real areas of opportunity.

The gig economy is another very interesting area. There’s a bit going on with DoorDash at the moment in not forcing rosters, but perhaps getting a bit more in terms of super, or sick pay in return for flexibility. There might be something in that down the track. Some of my friends and colleagues are very cynical about all this. But I do think we need some reform.

To sum up, I think under Scott Morrison, sadly, we had no real reform. We were coasting, even ahead of Covid, and we’re now at a time where a leader, whoever it is, needs to get on with it.