Renewable Energy Subsidies – Phase Down or Abolish?

The future of the Renewable Energy Target remains a hot policy potato and is likely to gain further publicity from a conference starting tomorrow on the electricity market. According the AFR Bill Shorten is willing to renegotiate the target “but only if Prime Minister Tony Abbott renounced the findings of the Warburton review”.

Somehow I don’t think he means reject Warburton’s advice that would mean a further 15 years of subsidies, albeit less than is presently in prospect, to the inefficient electricity producers.  The cross subsidies to wind and solar from commercial energy have caused prices in Australia to rise to the top of the international table, having been among the cheapest in the years before the madness started.

Meanwhile in The Australian, Sid Maher reports the AWU is calling for aluminium smelting to be made exempt, a position supported by coalition MPs with aluminium suppliers in their electorates.  Electricity comprises 30 per cent of aluminium production costs and in a world where all developing country competitors dismiss any thought of doing something as suicidal as taxing inputs into supply, with the present impost all the smelters will leave our shores as soon as they can.  The RET and similar state-based measures may raise the costs of aluminium smelting in Australia by 5-6 per cent, an amount that the callow would consider affordable.  But that cost wipes out all profits and in the dog-eat-dog world we live in that means irresistible relocation pressures.

The questions raised if aluminium is exempted are, first does this mean a correspondingly greater load to be carries by others; and secondly, if aluminium why not concrete, steel and other high energy using industries?  Or, if the impost is to be retained,  in line with the normal practice of not levying taxes on inputs into production, why not exempt all industries, leaving it like the GST solely on household consumers?

The impost should be wound back as soon as possible, on all industries  not only those where it most savagely distorts costs and competitiveness.

The general hostility to renewables now that their costs have been better understood is increasing the risk of governments subsiding new investments and even the risk that existing fifteen year “obligations” will not be honoured.  This is causing intensified lobbying by those who have taken the speculative position that a government can bind the next six Parliaments to a policy that makes no economic sense.  But those who think iron clad guarantees are possible should take a look at the balance sheet write-offs that the vehicle assemblers are having to incur once governments cut them loose from the subsidy teat in spite of continued guarantees of on-going support.  The car firms were given no restitution for their misplaced faith in government assurances  firms.

As far as new renewable energy facilities are concerned, the increased risk means a higher premium for new ventures and is, at least temporarily, drying up the negative valued investment they entail.

Moreover, the regulatory arrangements covering new facilities have an unusual provision that allows the Industry Minister to simply declare that for the coming year he will not approve new subsidised proposals.  At the very least we can therefore hope for a standstill, perhaps an indefinite one, in the productivity sapping expenditures that renewable energy represents.

Posted in Uncategorized | 1 Comment

The rising price of houses

The RBA is worried about rising house prices in Australia. But at the end of the article, Kelly O’Dwyer MHR, the chair of a parliamentary inquiry into foreign investment in residential real estate, put her finger right on the problem:

There was evidence to suggest current foreign investment restrictions were not being enforced by the Foreign Investment Review Board (FIRB), she said.

We used to pay for our balance of payments deficits through increased investment and the revenues that previous investments had brought about. Now we pay for our imports by selling off the farm. The first could go on for ever and made us prosperous. The second will be a disaster but no one is willing to stop the inbound flow of funds.

Posted in Economics and economy | 53 Comments

Q&A Forum: September 15, 2014

Posted in Open Forum | 197 Comments

Confound it

sea ice stats

Climate scientists are possibly the only people more surprised by how the world is unfolding than Keynesian economists:

ANTARCTIC sea ice has expan­ded to its greatest coverage since records began in 1978, continuing to confound climate scien­tists and proving even more hazardous than usual for shipping in the Southern Ocean.

Yet there is no one politically more dangerous than someone who has been shown to be wrong. Saving a billion or two makes no difference since nothing related to the real world will get these people to change their minds. There was then this the other day:

NOAA – 246 Low Max Records Broken or Tied From Sept 1 to Sept 10. Some records broken by 16F.

I’m sure that confounded a few people as well. The “I’m a Global Warmist and I Vote” crowd are doing an awful lot of harm but how do you stop it?

Posted in Global warming and climate change policy | 105 Comments

Shocking tax evasion … oh, wait.

In June the Sydney Morning Herald had this breathless story:

Australia’s largest coalminer, Glencore, paid almost zero tax over the past three years, despite income of $15 billion, as it radically reduced its tax exposure by taking large, unnecessarily expensive loans from its associates overseas.

At up to 9 per cent, the interest rates on these $3.4 billion in loans were double what the company would have had to pay had it simply borrowed the money from the bank.

As it was claiming tax breaks in Australia on these inflated interest payments, the secretive Swiss-based multinational actually increased its lending to other related parties interest free. This may include its executives. Nobody from Glencore, which used to be called Xstrata, was available for comment despite repeated requests.

Along with the blatant irregularities in its borrowing and lending, the study also found a hefty increase in Glencore’s coal sales to related companies (up from 27 per cent to 46 per cent of total sales, with no explanation), indicative of transfer pricing – also known as profit-shifting – and an activity that appears to breach Section IVA of the Income Tax Assessment Act – the part that deals with schemes designed to comply technically with the law but whose ”dominant purpose” is really to avoid tax.

Shocking.

What is the source of this terrible news? (emphasis added).

The aggressive tax avoidance tactics of Glencore Coal International Australia Pty Ltd have been identified in an independent analysis of the company’s accounts for Fairfax Media by an expert in multinational financing.

The source of the analysis is a former multinational executive who is independent of Glencore and its commercial rivals, prefers to remain anonymous but is personally concerned at the rampant levels of tax evasion and tax avoidance by multinationals operating in Australia.

Yes, well – given the subsequent clarification by Fairfax I’m not surprised (emphasis original).

NOTE: Reports, including this one, say that Glencore had paid little or no income tax for the past three years. This is incorrect. The company has stated that it paid more than $400 million in corporate income tax in Australia over this period. Fairfax Media also wishes to clarify that the $15 billion presented as taxable “income” in these stories relate to revenue and not taxable profits.

An international expert who can’t tell the difference between revenue and taxable income? Really? A journalist that doesn’t bother to check? Wow. Simply wow.

(HT: areff)

Posted in Mining, Taxation | 30 Comments

Australia Institute gets belted

THE Australia Institute has been caught out using a massive economic deception to attack the mining industry and the jobs of mining workers across NSW. The Australia Institute must now be held to account for the jobs they have put at risk by presenting their anti-mining propaganda as “economic research”.

That’s Stephen Galilee – CEO of the NSW Minerals Council – writing in the Daily Telegraph.

It is long overdue that lefty claims about mining subsidy be met head on – not just refuted – but the authors of these claims challenged.

Here the Minerals Council explain the extent of the deception:

Of the Australia Institute’s concocted $17.6 billion figure, … :

  • $3.6 billion (about 20 per cent) isn’t associated with the mining and resources sector and “appear(s) to have been incorrectly categorised”.
  • $3.7 billion (about 21 per cent) is general government expenditure “socialised across all sectors of the economy or subject to fees and charges” and therefore “there isn’t any explicit or inherent subsidy”.
  • $10.3 billion (about 59 per cent) is government investment in infrastructure/services via Public Trading Enterprises which are legally bound to charge commercial rates for their use. The cost of industry’s use is therefore “fully recoverable” and “there is no subsidy”.
  • On the Australia Institute’s claim that government funds invested in Public Trading Enterprises could be better spent on government services such as health and education, the report explains that each is supported by separate funding sources and “capital expenditure in one sector is not at the expense of capital expenditure in the other sector” and that “far from being a major receiver of State funds, the mining and resources sector is actually a substantial source of State and Territory revenues”.

The report can be downloaded here.

Posted in Hypocrisy of progressives, Mining | 24 Comments

Monday Forum: September 15, 2014

Posted in Open Forum | 1,050 Comments

Nanny stater hectors us with stolen money

There is an op-ed in the Herald Sun about alcohol abuse:

THERE was a time when Victoria led the way on public health measures; when the state was not afraid to embrace bold measures to reduce harm and to save lives.

In 1970, Victoria was the first state to require people to wear seatbelts, with other states and Territories following. Victoria introduced random breath testing in 1976, six years ahead of NSW and 12 years before Queensland and West Australia.

Victoria has also led the way on tobacco control. The Victorian Tobacco Act, 1987, was a model for Australia and abroad.

However, a damning report released last week chronicling alcohol harms in Victoria suggests leadership on important matters of public health has long since lapsed.

Good – and not before time too.

That op-ed was written by Andrew Fairley, chairman of the Foundation for Alcohol Research and Education. So I thought I’d have a look at this organisation.

Established in 2001 by the Australian Parliament with a $115 million grant, the Foundation was set up to distribute funding for programs and research that aimed to prevent the harms caused by alcohol and licit substance misuse.
The initial funding for the organisation came from the additional excise charged on draught beer, which was later refused passage through the Senate. Within the one year that the Government collected the excise, $120 million had been accumulated.

That’s right – a 100% government financed foundation, wait for it, from excise revenue on draught beer that was disallowed.

That is one of the very nasty tactics the government has – announce an excise start collecting the money immediately and only later attempt to gain Parliamentary approval.* There was a time when raising revenue without Parliamentary approval was viewed as tyranny and Charles I, quite rightly, got deposed and executed for this very crime. Now the government uses its ill-gotten gains to establish nanny-state foundations.

* No doubt some hippy lawyer is going to say that the Parliament has “authorised” the executive to raise revenue in such a manner until the Parliament itself makes a final determination.

Posted in Take Nanny down | 43 Comments

Alarmed and unarmed

There is a rather alarmist op-ed in the Sunday Herald Sun (emphasis added):

The fears we had after the World Trade Centre strike — that the Grand Final or Melbourne Cup or the Rialto tower could be targeted — are now more real than ever. Ken Lay this week confirmed that Australian special operations police and their military counterparts are rehearsing responses to the sort of butchery that happened in a Kenyan shopping centre last year. The anniversary is on the 23rd of this month. Spooky thought.

The truth is, it’s too easy for a few loons with guns and grenades to commit mass murder in a shopping centre. Or anywhere a crowd gathers.

Tony Abbott gets bagged for a lot of things but describing Middle Eastern murder squads as “death cults” shouldn’t be one of them.

As the world has seen with the deaths of James Foley and Steve Sotloff, and Daniel Pearl before them, unarmed people make easy targets for robbers and sadists passing themselves off as religious zealots.

Is it time to discuss John Howard’s gun control laws and the risk those laws now pose to the Australian public?

Posted in Tough on Crime, tough on criminals | 195 Comments

Preserving Say’s filature at Auchy-lès-Hesdin

Auchy-lès-Hesdin

say filature

New Lanark

new lanark

I have put up a post on the history of economics discussion thread that discusses the incredible historical significance of J.-B. Say’s textile mill (filature) at Auchy-lès-Hesdin. I fear, however, the astonishing uniqueness of this place is not fully appreciated nor is there an apparent will to see it preserved if it can be done. J.-B. Say was one of the greatest economists of all time, mentioned in virtually every history of economics text ever written. He was not only amongst the first economists to insist on the importance of the entrepreneur in the study of economics, he was himself an entrepreneur and we have almost intact the remains of the factory he commenced. The textile mill he built at Auchy-lès-Hesdin in 1805 remains along with the house he had commissioned. It was while he was living at Auchy that he completed the second edition of his Treatise and it was there that he provided the first ever textbook treatment of what we now call Say’s Law. There is nothing like it on the face of the earth. The nearest approximation are the buildings at New Lanark, where Robert Owen, who was not an economist, tried his own experiments in entrepreneurship, and the Thünen Museum in Germany.

These three sites are exceptional in their interest, but only one at the moment remains unattended and in near ruins. Please do look at the three websites below to see the comparison:

Jean-Baptiste Say

Robert Owen

Johann Heinrich von Thünen

This is the note I have received from M. Zéphyr Tiliette, the archivist at Auchy, based on my posting:

We have to remain modest but we agree with you : Auchy-lès-Hesdin is a very special place given its history and particularly the association of the presence of Jean-Baptiste Say, an already great figure and a famous economist, and the industrial revolution he introduced in this remote place of the north of France. Strictly speaking, he went not there into exile but he certainly enjoyed more freedom there about 200 km away from Paris and distant from the Napoleon’s government. He also prepared in Auchy the 2d edition of his « Traité d’Economie Politique » published in 1814 ; as he wrote, he had some time for that in 1811 / 1812.

Locally, it is still easy to imagine how was the site 200 years ago when Jean-Baptiste Say lived there with his family : the abbey church, park limits, surrounding walls, river, waterfall, are practically unchanged. Most of the industrial buildings have been rebuilt, their equipment continually modernized and the hydraulic power device has been rearranged in order to continue to generate some electric power additional to the main steam and electric power systems. It is under maintenance presently.

The massive « Château Blanc » was built shortly after the Jean-Baptiste Say‘s departure by the Grivel family. Our economist lived right in the same area, probably in the best abbey’s appartments, likely as his partner Grivel. Auchy « a kind of Versailles for economists » as you say !! Thank you very much for Auchy !! But a lot of things would be to be done to approach this designation. Nevertheless, the presence and the work of J-B Say there corresponds to an event very significant by many aspects related to an example of industrial revolution in a rustic place at that time. This would deserve an historical research including regional human consequences and may be the other factory of the « Say C° » in Abbeville (35 km away ) ( of the brother Louis Say ), also in relation with other industrial developments nearby.

The future of the existing industrial buildings of Auchy is a concern, of course. But I entirely agree with you : the site deserves a significant place of memory devoted to J-B Say, to his history, his work, the economy science and so on, a kind of « museum for the history of economic thought » as you write. May be such a concept could collect a part of « archives » related to studies on J-B Say carried out at the Lyon 2 University as Pr. André Tiran, the Say expert, mentioned at Auchy on August 30th. It also could be combined with a valuable, historical documentation about the regional history and with antique library pieces for instance concerning « The Âge of Enlightenment », the XVIIIth century, J-B Say being a heir of it. We also could emphasize the great interest of J-B Say in the people’s education.

Such a project has to be discussed ; it is not yet finalized. Cognizant people and officials should be met. Auchy needs money for that.

Surely it would be an attractive place to visit « midway between Azincourt and Crécy » !! as you say.

This is not some graveside or an office in an economics department or some other flotsam and jetsam from the vast history of economics. This is a living, existing embodiment on a vast grounds within an industrial estate that was the work of one of the greatest economists who ever lived who also built a factory at the very start of the industrial revolution. This is not, moreover, a pin factory. This was a cotton mill built at the very dawn of a new age. You can stand on the site and see across the last two centuries.

This is something that historians of economics should be interested in. It is something that all economists should be interested in. It is something anyone with an interest in history should be interested in. It is here now, and there are many possibilities for the site including demolition in some fit of distraction. As M. Tiliette states, the restoration is in need of money, but it is not a vast ocean of money. And until you wander the park surrounding the buildings you will not see why I have described this place as the Versailles of Economics. If you are close, you should go and look. There is nothing else like it and it will be to our shame if we let this place go to ruin when it could just as easily become a World Heritage site in the same way as New Lanark.

Posted in Classical Economics, Cultural Issues | 1 Comment