Could ARENA defy Abbott's axe?

It's possible the ARENA board could do a 'CEFC', where its board simply ignore government's cuts to its budget because their funding is defined by legislation that can only be overturned by a majority in the Senate. How do the senate numbers stack-up and does the WA senate election matter?

As explained in yesterday’s column, the indications are that in the May budget the Coalition will attempt to effectively abolish the Australian Renewable Energy Agency by cutting its budget to the bone.

However, it’s not that easy.

ARENA was established under special-purpose legislation which explicitly sets out its available funding for each year from 2012-13 to 2019-20, as detailed in the table below.


Funding allocation

















Now, both Labor and the Coalition governments have chosen to allocate in the general government budget amounts lower than those specified in the legislation. However, the legislation states under section 64 that if the government provides less money than specified under the legislation, then the underspend is rolled over into subsequent years. 

This should mean that any money specified in the table above which ARENA fails to spend it can draw down from Treasury at a later date. 

So far ARENA management have chosen to voluntarily abide by the budget allocations that Labor and the Coalition governments have specified. In the end, ARENA management has wanted to take their time to get things right in establishing programs and selecting projects. So funding deferments haven’t been much of a concern.

But if the government were to slash ARENA’s budget in May to something that’s next to useless, management may decide that they no longer wish to co-operate.  

Instead, just as the Clean Energy Finance Corporation have done, the board might choose to distribute funds according to legislative provisions, in defiance of the government’s budget provisions. 

In which case the government would have to repeal or amend the ARENA legislation, which requires the Senate’s approval.

The table below outlines the likely distribution of senator votes in relation to such a move by the government, excluding WA senate seats up for election this Saturday. Given Xenophon and the DLP’s John Madigan both voted against the abolition of the CEFC I’ve assumed they’d vote with the Greens and Labor to oppose any cuts to ARENA’s budget.

This is not certain but seems a reasonable assumption.

The position of the Palmer United Party and the Motoring Enthusiasts' Ricky Muir is unclear at present. One could safely assume the small government, libertarian Liberal Democrat senator and the 'climate change is a con' Family First senator will vote with the Coalition cuts to ARENA.

The end result is 35 votes blocking repeal or amendment of ARENA’s legislation, which falls short of the 38 required.

Graph for Could ARENA defy Abbott's axe?

There are then three possible scenarios:

  1. ARENA is saved irrespective of WA senate election result because Palmer United and Ricky Muir block ARENA cuts;
  2. ARENA is saved because Labor plus the Greens plus possibly some other pro-renewables candidate (e.g. Sex Party) in combination obtain three senate seats.
  3. ARENA is doomed because Coalition obtains three WA senate seats and Palmer or other anti-renewables candidate gets elected who votes with Coalition.

Yet even if any amendments to ARENA legislation were unsuccessful there are three other mechanisms available under the legislation for the Coalition to hinder ARENA from spending its money:

  1. Section 12 of the act states grants exceeding $50 million can’t be paid out without the approval of the Industry Minister. But this is easily circumvented by ARENA breaking up grants into amounts below the threshold.
  2. Section 62 states that ARENA can’t employ its own staff and instead must use public service departmental staff. In addition section 63 says it can’t employ consultants to “do duties of a kind that are performed, or are capable of being performed, by [departmental] staff”. So the government could potentially starve ARENA of the people it needs to effectively function.
  3. Section 32 states that appointments of board members must not exceed two years. Once board members’ appointments expire the government simply replaces them with people compliant to their wishes.

Overall, things don’t look good for ARENA unless there is a major push-back from stakeholders which persuades the Coalition to honour its pre-election statements that it “fully supports” ARENA.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles