Shadow treasurer Joe Hockey and shadow minister for finance, Andrew Robb, have announced $7.5 billion in planned budget savings from scrapping key elements of the Government’s Clean Energy Future package. By abolishing the price on carbon, a Coalition government would need to plug a hole in the budget estimated in the Pre-Election Fiscal and Economic Outlook at $9.7 billion over the three years from July 2014.
The savings are outlined in the Coalition statement, 'Our Plan to get the budget under control'. Let’s break down the statements in turn and see how they stack up.
Discontinuing business compensation
Discontinuing the business compensation measures introduced to provide partial relief to selected sectors and industries for the hit from the carbon tax ($5.1 billion).
These measures include the instant asset write-off threshold, the Jobs and Competitiveness program, the Steel Transformation Plan, the Clean Technology Program, the Coal Sector Jobs Package and other measures.
Let’s look at each in turn.
Removal of the increase in the instant asset write-off threshold to $6,500 ($0.2 billion)
The instant asset write-off threshold (pp. 58-59) was already increased from $1000 to $5000 from 2012-13 with the passage of the Minerals Resource Rent Tax legislation. The further increase from $5000 to $6500 was intended to make it easier for small businesses to invest in new assets, including energy efficient equipment. It was originally costed at “foregone revenue of $200 million over the period to 2014-15” (p. 122).
Verdict: The $0.2 billion quoted seems about right.
Discontinuing the Jobs and Competitiveness Program ($4 billion)
Assistance under the Jobs and Competitiveness Program (pp. 55 & 114) is in the form of free Australian carbon permits, not cash handouts. That means this measure represents revenue foregone rather than actual savings from the budget bottom line.
Verdict: Technically, judgement here hinges on whether it is appropriate to use an accruals or cash accounting basis for this “saving”. Foregoing revenue from permits that would no longer exist cannot be said to be a budget saving in the sense of making cash available in order to reduce the underlying cash deficit. Cash accounting gives a more accurate picture here and so real savings are overstated by $4 billion.
Discontinuing the Steel Transformation Plan ($0.1 billion)
Originally the Steel Transformation Plan (p. 133) was budgeted at $300 million over five years with figures for FY2013-14 and 2014-15 of $75 million each. The portfolio budget statement (p. 38) shows budget of $136 million for FY2014-15 and FY2015-16.
Verdict: Allowing for funds already committed, this announced saving of $0.1 billion appears to be in the right ball park.
Discontinuing the Clean Technology Program ($0.4 billion)
The Clean Technology Program (pp. 56-57) is made up of the Clean Technology Investment Program, the Clean Technology – Food and Foundries Investment Program, and the Clean Technology Innovation Program.
In its May budget, despite “reprofiling” some funding, the Government maintained that the Clean Technology Program “will still provide $1.2 billion over seven years from 2011‑12” (p. 213). In its August Economic Statement however, the Government announced “rephasing $200 million of funding from the Clean Technology Program and returning $162 million of unallocated funding to the budget” (pp. 39 & 60).
Verdict: The various changes to the three programs make it difficult to assess the accuracy of the Coalition’s announced $0.4 billion saving. What can be said though is that the figure appears to include “savings” from funds that have already been committed and contracted. The proposed changes would also make it more expensive for small businesses and trade-exposed firms to invest in technologies that will enable them to save on their power bills. Unless one believes that our industries will never have to face a price on carbon, these changes simply increase their future vulnerability.
Discontinuing the Coal Sector Jobs Package ($0.3 billion)
The Coal Sector Jobs package (pp. 133-135) originally allocated $1.3 in cash assistance over six years from FY2011-12 to the most emissions-intensive coal mines.
Cuts had already been announced by the Government in its May budget (pp. 68 & 250): “The government will reduce funding by $274.2 million over two years from 2015-16 for the Coal Sector Jobs package to reflect the projected carbon price. The program will now provide funding of $763.5 million over four years from 2013‑14.”
Further changes were announced in the Government’s August Economic Statement (p. 39): “updating the Coal Sector Jobs package allocation in 2014-15, consistent with lower expected carbon prices, saving $186 million” (Actually $186.4 million, Table B2, p. 62).
Total budget for FY2013-14 and the following three years implied: $763.5 million – $186.4 million = $577.1 million total.
Verdict: The multiple changes to this package make figures hard to estimate, but with funds already committed for this financial year, an estimated saving of $0.3 billion over the next three years is about right.
– Discontinuing other small Clean Energy Future business compensation measures including the Energy Efficiency Information Grants, the Clean Energy Skills package, and the Clean Technology Focus for Supply Chain programs
Implied savings as the balance remaining from the $5.1 billion subtotal: $100 million.
Energy Efficiency Information Grants (pp. 58 & 87) are to “help small businesses understand the implications of the Government’s clean energy plan and how they can reduce energy costs.” Cost: $40 million program over four years.
The Clean Technology Focus for Supply Chain (p. 59) initiative is an additional $5 million over four years for the delivery of programs to small and medium businesses in clean technology industries to “enhance the clean technology focus of industry supply chains, which will help local businesses secure contracts for major projects”.
The budget (p. 131, fn 6) for Energy Efficiency Information Grants & Clean Technology Focus for Supply Chain programs is:
We also know that the great majority of funds under the grant schemes have already been committed, and so it is hard to see how some of the proposed savings could be made without breaking contracts.
The Clean Energy Skills package (p. 131, fn 6) “has been allocated $32 million over four years, which is to be fully offset from existing resourcing”. This implies zero additional funds from the budget.
Verdict: Savings here seem to be overstated by $60 million.
Energy market compensation
Discontinuing energy market compensation measures which will no longer be needed once the carbon tax has been scrapped ($0.5 billion).
Verdict: Compensation measures are generally in the form of free carbon permits so again, this would not be a saving from the budget bottom line. Real savings are overestimated by around $0.5 billion.
Land sector initiatives & cuts to departments
Discontinuing various land sector initiatives which Labor has already slashed, as well as bureaucracies like the Climate Change Authority ($0.4 billion).
The budget of the Climate Change Authority (p. 11) is:
This implies that some $364 million will come from “various land sector initiatives” and other “bureaucracies”. That’s not good news for the environment – though the vast majority of the remaining Biodiversity Fund money is already committed as are funds for the Carbon Farming Future program, and the Regional Natural Resource Management Planning for Climate Change Fund.
Verdict: The only verifiable figure here is less than 10% of the supposed $0.4 billion in savings, allowing a great deal of wiggle room and a black box of major cuts to other important energy and environment initiatives, some of which are already committed and contracted.
Abolishing other measures linked to the carbon tax that are wasteful or will no longer be required once the carbon tax is abolished ($1.5 billion).
Verdict: $1.5 billion is an enormous figure to state with no detail on what is being targeted. The implications for Australia’s renewable energy future would appear grave.
The claim to save the budget bottom line $7.5 billion with these measures significantly overstates the practical reality, primarily because of the misclassification of $4.5 billion under the Jobs and Competitiveness Program and energy market compensation measures. A more accurate figure for the total cash saved by this set of measures is more like $3 billion – nowhere close to the loss of $9.7 billion in revenue from abolishing the price on carbon.
These cuts also have serious adverse implications for Australia’s preparedness to tackle climate change in the future, since they discourage investment in renewable energy and energy efficiency and imply drastic cuts to vital climate adaptation funds.
Brett Parris is an adjunct research fellow in the Department of Econometrics and Business Statistics at Monash University and the senior economist at the Australian Conservation Foundation.
I am grateful for the assistance of Claire Maries, Climate Change Campaigner with the Australian Conservation Foundation in the preparation of this article. Any errors are my own.