What's on the budget chopping block?

Last year’s budget was the story of a grant program expenditure deferral merry-go-round.  All up $341 million was shuffled from one year to the next. But this year the merry-go-round may come to a screeching halt as the government desperately tries to plug a gaping fiscal hole.

The merry-go-round starts with the government making a grand announcement involving a large monetary figure but precious little detail. It then turns out little of this money is spent as the public servants desperately attempt to work out how to convert grand political rhetoric into something practical and useful. The funding is consequently pushed out into later years.

After deferring the expenditure a few times, one of two things happens:

1. They rebadge the initiative with rearranged or even increased funding and re-start the merry-go-round; or

2. When things get desperate for money they cut the program short, replacing it with nothing.

The odds this year are on number two given the government’s rhetoric about a great big hit to the budget from plunging revenue.

So what’s on the chopping block?

ARENA

Funding above in thousands

The Australian newspaper last week carried a report that ARENA’s funding would be cut by about $200 million. Given ARENA is likely to substantially underspend its allocated budget, it wouldn’t come as a surprise that Treasury & Finance would be targeting such a cut.

However there is a complication to this story – the legislation governing ARENA specifically sets out the money that it can claim from Treasury each year. In addition it states that any underspend is rolled-over into the subsequent year. So such a cut would require amendments to the ARENA legislation requiring the co-operation of the Greens or the Coalition in the Senate.

It seems incredibly unlikely that the Greens would support any legislative amendments reducing ARENA funding.

Climate Spectator asked the Coalition’s shadow climate minister Greg Hunt whether the Coalition could rule out supporting such amendments to ARENA’s funding. We were told that the Coalition strongly supports the establishment of ARENA, and would not be drawn into speculation around what it would or would not do.

Given this, ARENA may well be at risk if the Coalition chose to play ball with the government.

Clean coal/carbon capture and storage

Funding above in thousands

There are five discrete programs involving funding for clean coal/carbon capture and storage, with a large underspend in prospect this year and over the forward estimates. 

Under the CCS Flagships, which involves the largest expenditure, one of the two selected projects (Perdaman Chemicals) has been mired in a legal dispute that has left it without a long-term agreement over supply of coal. Financing for the project, let alone construction, appears some time away. 

The Low Emissions Technology Demonstration Fund is also likely to have spare funds given the decision to pull $100 million in funding for HRL’s IDGCC power plant, as well as the major construction delays that have been reported at the Gorgon LNG plant. 

The Global Carbon Capture and Storage Institute managed to escape through last year’s budget reasonably unscathed. This year it may not be so lucky.

Given the coal industry have recently repurposed its tax-deductible Coal 21 initiative from being solely about reducing emissions to now being about “promoting the use of coal”, the government may ask why it’s doing all the heavy lifting.

Connecting Renewables to the Grid

Funding above in thousands

This program was one of the many poorly considered thought bubbles to come out of one of the most populist elections this country has had the misfortune to experience. 

Since last year’s budget, when $72 million was deferred, we’ve heard virtually nothing on this program’s progress. Ideally its funding should have been rolled into ARENA but I confidently predict it will be killed in this year’s budget.

Low Carbon Communities

Funding above in thousands

So far the government has announced funding to applicants via a first funding round of $42 million under the Community Energy Efficiency stream of this initiative and nearly $40 million under the Low Income Energy Efficiency stream. So on face value the program appears to be on track.

The government, however, is still to announce the winners of the second funding round which closed several months ago. In addition while they may have allocated a sizable amount of funding, whether this has actually materialised into installed equipment and funding in applicants’ hands is another matter. 

While this program was the result of the Clean Energy Future deal with the Greens and Independents, it doesn’t contain any legislative safeguards around its ongoing funding. Compared to ARENA, cutting funding from this program is relatively straight forward.

At the same time politicians love these community programs because they provide great photo opportunities for local members. It also means many local community facilities will see very little net negative impact from the carbon price.

Clean energy and energy efficiency grants for industry

Funding above in thousands

Feedback from energy efficiency equipment and service providers suggests that both Clean Technology Investment programs have been quite effective at shovelling money out the door, as has been the Green Building Fund.  

So far $121 million in grants have been publicly announced from the Clean Technology Investment program. Essentially these programs take an administratively simple tick the box approach to funding qualification rather than highly involved competitive tenders incorporating highly subjective and complex evaluation criteria.

The Clean Technology – Innovation program hasn’t found it quite so easy, so far announcing grants of $4.1 million. Given the greater technical difficulty and uncertainty surrounding innovation projects, it is common for successful applicants to subsequently delay or even not proceed with their funded project. Scaling the program up to $54 million next year and then $74 million the year after may be difficult.

It’s hard to say whether the government will cut these programs. On the one hand the Clean Technology Investment programs are providing highly tangible and badly needed assistance to the manufacturing sector to reduce their energy costs. This must be highly valued by climate change minister Greg Combet in fending off criticism that the carbon tax is hurting manufacturing. Plus manufacturing is one of the few last strongholds of union membership, another matter dear to Labor’s heart.

However the more than $200 million annual average expenditure is a big ticket item in the climate and clean energy budget. If the government is really serious about cutting expenditure you’d think these programs would be unlikely to escape unscathed.