Stuff I’ve learnt from Radio National

Often when I listen to Radio National, I’ll learn something I didn’t know before. In this case, I was listening to Saturday Extra last week.

Cutting power consumption?

One item talking about electricity efficiency noted that enormous amounts of money are being invested in distribution networks, instead of being spent on measures to cut consumption (and thus GHG emissions) so you don’t need to upgrade distribution (or at least not as much).

GERALDINE DOOGUE: In the Lend Lease proposal… they say for every dollar spent on demand management, studies have shown the need for investment in energy infrastructure is deferred or reduced by $6.50. …

TOM CAWLEY (Energy Efficiency Council): In California what they’ve done is spent a lot of the money that would be spent on the electricity infrastructure on energy efficiency. And it’s easy to do in California because the power companies are vertically integrated. That is that the same company owns the power station, owns the power lines, and owns the retailers. We don’t have that situation in Australia…

GERALDINE DOOGUE: Keith Orcharison, who’s been a very prominent commentator over many years, writing in Business Spectator last week wrote something I think most of us wouldn’t know: that there will be forty to fifty billion outlayed in the next four to five years on distribution and transmission network systems. …

TOM CAWLEY: There’s no business case for the distributors to spend money on energy efficiency. There’s no structure for them to do that. … The other problem here is that with energy efficiency, you’re talking about [spending] at the point of use. Now, if demand keeps growing, then they need to keep spending money on infrastructure to deliver that energy. The idea is that if we can spend that money at the usage point, then we can reduce the demand.

So basically the electricity industry is structured in such a way that they can’t do the sensible thing and spend those billions on making electricity consumption more efficient; instead they have to assume demand will grow and so all that money goes into building capacity to distribute more power.

That’s just silly.

The mining “super tax”

Who coined the phrase “super tax” in its current context (that is, a proposed 40% tax on “super profits” on the mining sector)? According to a search of Google News (hardly the most scientific method, I know) It appears to have been Joe Hockey, shadow treasurer, quoted in an AAP report on April 24th.

With a nickname like that, it’s no wonder the mining companies joined in.

But it was interesting to hear the Financial Review’s Laura Tingle talking about it — both the negatives and the positives, which haven’t really got an airing:

LAURA TINGLE: The resources we’ve got in the ground are a finite item, they’re owned by all of us, and therefore when people go to buy them, you should try to get a return to the taxpayer for that…

There is a very potent argument to say… well, even if it does slow the pace of resources development a bit, that’s not a bad thing because we’ve got infrastructure problems, skilled workforce problems flowing from the resources boom in the rest of the economy, and it helps even-out the level of activity across the economy, so you don’t have interest rates rising, you don’t have the exchange rate making the rest of business uncompetitive.

(The issues around infrastructure were echoed the other day on 774 when the editor of The Weekly Times, I forget his name, noted that rail transportation of grain had dropped markedly, in part because so many grain hopper carriages are elsewhere serving the mining industry instead.)

And Tingle made the point that the government’s done an absolutely hopeless job attempting to tell people what the benefits are, so it’s not surprising that the Opposition and the mining companies have dominated the debate.

It’d be nice to see this debate become a little less one-sided. It’s hard to gain an informed view when one side is completely dominating.

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11 thoughts on “Stuff I’ve learnt from Radio National

  1. I was just lamenting to myself this morning (while listening to Radio National) about how ‘dumbed down’ the arguments from all sides has become on the ‘resources tax on super profits’ issue: The Labor party’s inability to explain the benefits and workings of this tax, the liberal party’s simplistic ‘tax = bad’ equation, the media’s inability to probe the pros and cons of the argument, the mining companies’ apocalyptic visions of economic wastelands, …

    In particular I’m frustrated with the way the media has let the word ‘super’ be detached from the word ‘profit’ and attached to the word ‘tax’ -which changes the meaning dramatically.

    Oh how I wish that there could be some intelligent debate on this issue.

  2. My God, do I have to go through this again? What is it with you people and your hunger to tax others! Here’s a simple explanation- a tax is a retardant on growth. Taxes are also necessary for governments to function- no argument from me there! The issue is finding the balance which will maximise tax revenue! Refer to the Laffer Curve:
    http://en.wikipedia.org/wiki/Laffer_curve
    Our country’s most profitable industry has been mining over the last decade, to the point where it has driven our economy! Increasing taxes puts the breaks on that! If mining companies decide that the tax is too high, they’ll shut up shop here! Remember, we aren’t the only country which has a huge mining sector- Canada is jubilant at the thought of Little Kev raising our mining taxes:
    http://www.reuters.com/article/idUSN0412376920100504
    Canada has a mining tax of 23%, that’s right, only 23% in the leftist utopia! What stops BHP or Rio Tinto from moving there? So instead of, “Yeah, we screwed the evil rich fat-cats, and got our fair share”, we’ll be saying, “Too bad for those thousands of poor, innocent miners who are out of a job!”

    What people don’t get is that by keeping taxes low, that encourages growth in that sector, which in turn results in higher tax revenues, and increased employment. By increasing these taxes to such a level, you halt further investment, possibly driving it offshore, thus ultimately losing out! And why is it that the mining companies are being demonised in this? Remember, mining is a risky industry, thus the higher the risk, the higher the rewards, otherwise no one would do it! Remember, it costs these companies millions to set up mines to process ore, that in itself is a huge financial risk- what if a mine doesn’t produce what it should, or countries like China experience a downturn, thus having less demand of our resources! And before you whingers complain that they’re just using that as an excuse, think about this- they’re in it to make as much money as they can- if they can’t who is going to stop them from moving on? This is a free country after all!

    By the way, those of you calling for this tax, don’t you DARE ever complain about rising electricity prices, or any other cost of living increases! What do you think will happen when mining costs increase? The companies will pass the cost on to the consumer! And if anyone starts complaining that they can’t do that, they are in the business of making money, and will not take a loss, thus raising the overall cost of living! By they way, can anyone answer me what is a “super profit”? Who determines when someone has made enough money!? And no, I’m not being paid by the mining companies (wish I was!), I’m looking to the overall future of this country, which has prospered through individual success, not through the collective!

  3. Calm down Andrew, try and relax, you’re getting way too stressed!

    “By the way, those of you calling for this tax, don’t you DARE ever complain about rising electricity prices, or any other cost of living increases!”

    OK. For a start, the companies involved in earning “super profits” are not, as far as I can make out, the ones digging coal out of the ground for electricity, at least not in Victoria. (For instance, Loy Yang A is owned by a power company consortium, Loy Yang B and Hazelwood by International Power, Yallourn by CLP/TruEnergy.)

    Secondly, you seem to have ignored the point that the resources boom is (at least in part) driving inflationary pressure on the whole economy (eg those cost of living increases you’re referring to).

    There’s a good Australian article here which also talks about this:

    http://www.theaustralian.com.au/news/opinion/we-should-be-economically-rational-about-mining/story-e6frg6zo-1225866340058

    …which notes “Reported comments from [Reserve Bank of Australia deputy governor Ric] Battellino at a closed dinner suggest he also thinks that a slowing of mining investment would help prevent the economy overheating and take pressure off interest rates.”

  4. Once you replace real economics , with merchant-banker crim-nomics, then this is the sort of outcome you have to expect.

    A large part of Australia’s urban electricity distribution network was built during the big expansion in the 50′s, and has never been replaced. A lot of it is getting worn out. The large workforce prunings of the 1990′s have resulted in lack of preventative maintenance, defects get ignored until a failure occurs.

    We now have a very expensive oligopoly in the engineering services field which results in outrageous prices for any sort of work on roads, railways or electricity networks, because nobody cares what the cost is, and everything is suffused with merchant-bank inspired huge cost overlays.

  5. “The issues around infrastructure were echoed the other day on 774 when the editor of The Weekly Times, I forget his name, noted that rail transportation of grain had dropped markedly, in part because so many grain hopper carriages are elsewhere serving the mining industry instead.”

    I think that is complete nonsense. I don’t think you can carry minerals in a grain wagon. And most of them would be the wrong gauge and in the wrong places.

  6. I apologise for my anger, I get upset at this form of class warfare! It does nothing but divide people.

    By the way, you said that the mining boom was increasing inflationary pressure, and true, it probably was- 3-4 years back! Right now, the main driver of inflation is our Glorious Leader’s grand stimulus plan- you know, the one where he saved the insulation industry (oopps, my bad!), and has provided schools with useful and cost effective halls (uh oh, bad example)! Inflation is the increase in the money supply of a country, while there are the same number of goods. By implementing his stimulus, he increased the overall cash supply, thereby implementing inflation. These past six interest rate rises are a result of that! It is my opinion that the stimulus didn’t save our economy- our lack of debt and sound economy got us through it. Other countries have tried the same thing, with no success.

    The big difference is those other countries had significant debt levels. Indeed, the problems Greece is facing are only the beginning- Spain, Portugal, Ireland, Italy, even the UK are facing significant economic issues with regards to their high debt levels, which will likely see Europe’s economy tank in the next year or so. Indeed, I suspect that these debt problems are what’s scared Rudd and Swan with this week’s budget.

    What I’m trying to say is that we don’t need to eat each other up to save our economy- lower taxes help spur economic growth, and as they say, a rising tide raises ALL boats! Class warfare doesn’t help the poor- it keeps them there. A free economy gives most people opportunities, there will unfortunately be some that miss out. Redistributing wealth doesn’t create it! Once again, I apologise for my tone earlier.

  7. @AndrewV, “Redistributing wealth doesn’t create it!”

    Well, I’m going to disagree with you on that specific point. Sometimes it does, and sometimes it doesn’t. Sometimes it helps people come up the ladder and pay back more in taxes than they’ve been paid in the first place, as well as contributing to the productivity of the economy, and I offer myself (and my sister) as an example of that.

    http://www.danielbowen.com/2010/02/05/giving-a-hand-up/

  8. I’ll have to disagree with Bill O’Rielly (oops my bad, Andrew V) free markets and rampant capitalism have 1 major flaw, people. In a perfect world Andrew’s points would be valid but people are greedy and without Government intervention will exploit each other. The current mining tax was reviewed and found to be wanting, it was not in the best interests of the Australian people.

    Mining companies are profit driven, they will exploit resources and move on, that’s their job and there’s nothing wrong with that, unless your in a corrupt country where the government is in the companies pocket or one of your political parties is more interested in scoring political points than the national interest.

    Mining in Australia should produce wealth for the mining companies and the Australian population in proportions dictated by the owners of the resource not the mining companies.

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