Ten ways to crash the economy

Let me explain how you can inflict long-term damage to a prosperous country in ten easy steps.

Yes, that's what Australian state and federal governments have done. And each step at the time looked good to well-meaning politicians – it's just that they did not understand the implications of what they were doing and did not link their decisions to what others were doing.

Last week Alan Kohler and I wrote from different angles what was happening in energy (Australia's slow-motion energy train wreck, September 6; Contracts for closure: the real story, September 6).

Over the weekend I suddenly realised that if you combined our points and add in a few other decisions we were watching a kind of vandalism taking place that no one can now stop.

So here are my ten very sad Australian steps.

Step one: Allow three massive LNG plants in Gladstone to export all the coal gas available in the nearby area and take some from the Cooper basin. The state and federal politicians who allowed this to happen did not understand the implications to the nation – they thought they were merely creating jobs and export revenue. While this was true, the concentration of construction activity in one place boosted construction costs, stopping other projects, and the over-utilisation of the immediate gas reserves held by the exporters had national ramifications.

Step two: Effectively stop the exploitation of coal gas reserves in New South Wales on understandable environmental grounds. Given what we had done in Queensland, this ensured that our most populous state would be short of gas later in the decade or, at the very best, be forced to pay close to export parity for its gas – about twice the current price.

Step three: Introduce a carbon price to encourage electricity production to move from coal to gas. Then reduce the long-term carbon tax which lowers the incentive to make a switch.

Step four: The combination of the first three steps means that we will need to burn lots of brown coal for the foreseeable future. There is no point in buying out the brown coal generators because there is either not enough gas to enable them to be replaced with gas generators or the gas is too expensive.

Steps five and six: Start a program of high-cost renewable generation and then set the target at a fixed percentage (20 per cent) but express that target as an amount of electricity. Because demand for power is not growing at the rate expected, the current renewables target will become 25 to 30 per cent of our power. So we are going to pay a fortune for electricity but not reduce carbon greatly because of the reliance on brown coal.

Step seven: Run state government deficits in Queensland and New South Wales so that it is vital to sell power generators to reduce borrowing. In Queensland, the government slashes power prices but not costs, so hitting generator profits and lowering the value if its generators. That uncertainty will also lower any NSW generator sale price.

Step eight: Our richest state, WA, gets into a terrible mess because some years ago it did a 'Queensland' and artificially lowered power prices and now must lift electricity pries sharply.

Step nine: Just as iron ore and coal prices go through the floor we introduce a tax on them to make sure that no new mines are erected. The assumed large revenue from this tax was always a total fiction. Now not only will there be no substantial revenue from the mining tax but ordinary taxation revenue from coal and iron ore will be slashed, sending forward budgets deep into the red without spending cuts. Confidence in our ability to make sensible decisions at budget time is shattered.

Step ten: Despite step nine, politicians keep making big spending promises and don't take into account the mess we have got ourselves into.