Regulatory attacks bringing a sad demise of the Australian economy

The Australian economy has been flagging for many years now.  Over the past year we actually saw a decline in GDP per capita and per hour worked.

There are many reasons for this but all come back to government intervention – excess spending on unproductive welfare measures, over-taxation of business income and the general regulatory morass that has come to characterise economic management.

An outcome of this intervention and major cause of the economy’s malaise can be traced back to private investment, the prime driver of higher income levels.  In real terms investment has declined by 20 per cent over the past half dozen years.  As a share of Gross National Expenditure, it has fallen from over 16 per cent five years ago to under 12 per cent now.

Whereas other economies can blame lacklustre performances on their position within sclerotic economic regions like Europe or lack the appropriate mix of resources, Australia is positioned within the world’s fastest growing region and has the mineral and agricultural resource potential to capitalise on this.  Clearly this is not happening.

Coincidentally, on the day of the national accounts release, the Australian Energy Council (representing generators and retailers) noted that the renewable energy target will be met next year.  It stated that renewables are now competitive and that there is no need to extend the subsidies that have resulted in wind/solar grabbing a 15 per cent market share.  Those energy forms are not, of course, competitive.  Activist, bureaucrats and subsidy-seekers, including energy lobby groups, remain supportive of a new carbon tax.  This is disarmingly shrouded in the acronym RIS – Renewable Integration Study – which would add a further cross subsidy from emission intensive electricity (read “coal”) to low emission (read “wind and solar”).

Electricity supply investment has been dominated by renewables in recent years. Bloomberg New Energy Finance estimates Australian spending on wind and solar at $58 billion ($US51 billion) 2007-2018.  Not one cent of this would have occurred without the cross subsidies from consumers and bequest from state and federal budgets, and the soft loans from Clean Energy Bank.

Sources: 2007-16, BNEF; 2017-8, REN+B12=B12=B1221

Not only has the renewables spending been wasteful, but it has been destructive in undermining the previous low cost supply system.  One feature of this is the increase in the average price from under $40 per MWh to its current level of $100 and the much debated loss of reliability that has come in the wake of renewable forcing the closure of commercial coal plant like Hazelwood.

So, renewable energy has both cannibalised the investment pool and contributed to a reduced efficiency of the existing stock of capital.  The impact of this on costs and therefore competitiveness of industries throughout the economy is immense.

Such regulatory impositions are found elsewhere.

With gas we have embargoes in all states but Queensland that have brought trebled prices and are forcing out firms dependent on it as a raw material and energy source.

For coal the near decade-long obstruction to Adani has brought immense costs and delivered a message to those seeking to invest in mining.

In Victoria, the government is not only doubling-down on its assault on low cost electricity and gas but is attempting to seal off areas from (gold) mining, as well as timber-getting and a range of leisure activities by declaring them National Parks.

And attempts are being made in seveal states to prevent new activity by impeding land clearing as another chip in the global warming waste.

With water, the hapless David Littleproud is defending the policies initiated by his green left predecessor, Tony Burke.  This involves taking of one third of available supplies from Murray Darling irrigators and flushing it out to sea as environmental flows and to ensure the maintenance of the artificial fresh water lakes at the mouth of the river.  The region is responsible for 40 per cent of agricultural output and, notwithstanding booming overseas demand, is in severe decline as a result.

Josh Frydenberg might be right when he says the economy has shown “remarkable resilience” but this is in face of the blows to which it is subjected by the different Australian governments.  Government policies work both to deter investment and reduce the productivity of the expenditures made.  Those Ministers aware of this seem impotent to address it.





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12 Responses to Regulatory attacks bringing a sad demise of the Australian economy

  1. The Pugilist says:

    You forgot Steven Marshall and Anastascia Palusczuk and their land tax hikes. These will invariably lead to rent increases for commercial property.

  2. egg_ says:

    Over the past year we actually saw a decline in GDP per capita and per hour worked.

    When you import third world knuckle draggers en masse, what do you expect?

  3. RobK says:

    Well said Alan.
    With the advances in electrical power technologies our electricity prices should be reducing as costs of maintenance, monitoring and billing have been slashed over the years. Renewables have driven complexity.

  4. Pyrmonter says:

    Alan – broadly agree, but really private investment, the prime driver of higher income levels?

    Not opening up markets, allowing for product and production process development and innovation; moving labour from low to high productivity uses; applying new techniques and improving the productivity of the state sector? If capital accumulation alone was sufficient for growth, all those benighted countries led or advised by 50s graduates of the LSE or Cambridge would be wealthy today. But they’re not: because aggregation loses information; and because growth proceeds from the individual choices of economic actors, not some master plan. In this eve of the centenary of Mises’ writing on the Socialist Calculation problem, let’s be careful to avoid falling into the technocratic terminology of the social democrats.

  5. C.L. says:

    I can’t see any possibility of a cultural change in the nation’s economic governance until we do away with three year terms – which have actually been fewer-than-three years in recent times. Coupled with this should be the even more important reform of the senate. There is not a serious advanced economy and democracy in the world that staggers from one two-and-a-bit years term of government to the next as Australia routinely does in the modern era.

  6. Alan moran says:

    I agree that investment needs to be directed to genuine productivity enhancement. That is essentially what I am arguing

  7. Rayvic says:

    ” Government policies work both to deter investment and reduce the productivity of the expenditures made. Those Ministers aware of this seem impotent to address it.”

    Three examples of Government low productivity investment that immediately come to mind:

    . spending over $50 billion on new submarines that use obsolescent diesel-powered technology, when billions could have been saved by buying modern nuclear-powered versions off the shelf. Besides, new marine drone technology could reduce the need for submarines;

    . spending over $50 billion on the high-cost NBN network, involving the payment of billions of dollars to Telstra for acquiring its obsolescent PSTN networks. The Government will need to write down NBN assets by billions of dollars to enforce lower NBN wholesale prices to make them competitive with 5G mobile services;

    . wasting billions of dollars on converting from the world’s cheapest electricity generation to the world’s dearest by subsidising high-cost, unreliable renewables at the expense of coal-fired baseload power. Ironically, the alleged resulting reduction in CO2 emissions will have no measurable effect on global warming.

  8. Rockdoctor says:

    They are addicted to regulation, or at least the gormless bureaucrats behind the scene. I am hearing a bit at the moment about the smoke alarm provisions at the moment up this way. Absolutely over the top every hall, room being interconnected like a Hotel and can cost up to $1500 along with the make work add on’s they added to have to be professionally checked (More ticket clippers) annually and replaced every 10 years (Continuation of ticket clipping and unintended waste by sending thousands of perfectly serviceable smoke alarms to land fill). For what, I am tipping there will be no noticable reduction in house fire deaths but voila expansion of an industry previously dominated by commercial interests for “public safety.”

    What I deal with daily in the workplace & rubbish like this that the LNP so called opposition waved through hardens my resolve that the public service needs to be cut by at least half in all levels of Government & a KPI based tenure introduced but that would take a Jeff Kennett type…

  9. Herodotus says:

    We need to replace the dictum “eat the rich” with the more sensible “eat your greens”.

  10. John Bayley says:

    It is quite remarkable, in a sad way, that most of us Westerners thought ‘socialism was dead’ with the fall of the Berlin Wall.

    In fact we can see now that the socialists have won.

    That it will be a Pyrrhic victory leading to general impoverishment is of course not a bug, but a feature of this particular ‘revolution’.

    It is, in other words, a movie we have seen on numerous previous occasions, always with the same unhappy ending. Alas, as before, it will need to play to the bitter end once more before another generation may wake up.

  11. Adelagado says:

    It was a good article until Alan repeated the ridiculous claim that “one third of available supplies from Murray Darling irrigators are flushed out to sea”.

    Do the pictures lie? If any less water flowed out to sea it wouldn’t flow at all.

    Murray mouth images.

  12. V says:

    All of that investment in renewables and yet at 6am this morning (5 September 2019), wind was producing just 400MW (out of a total installed capacity of 6700MW) and solar was producing 0MW (out of a total installed capacity of 8000MW. Meanwhile, demand was 20.6MW

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