More economists have backed Productivity Commission chair Danielle Wood’s critique of the Albanese government’s “Future Made” subsidies for low-emissions manufacturing.
Former Reserve Bank of Australia (RBA) governor Bernie Fraser contends that the plan represents a risk to taxpayers. He notes that governments do not have a good track record when it comes to ‘picking winners’ in terms of identifying successful industry sectors.
“My observation over decades is that when governments try to pick winners … they have a pretty poor record”, Fraser told The AFR.
AMP chief economist Shane Oliver also described the policy as “depressing”.
“I think it’s a joke. My kids both did economics in high school, and the downside to protectionism is a key facet of high school economics”, Oliver said.
“It reminds me yet again that there’s no learning from history”.
Meanwhile, the peak body for manufacturing, Manufacturing Australia, identified the real problem facing the industry: local producers are forking out 50% more for electricity and 200% more for gas than their US competitors.
“Input costs in Australia are increasingly uncompetitive with other jurisdictions”, CEO Ben Eade said.
“This applies to transport, construction and regulatory costs, but is most stark in energy costs, where Australian manufacturers now pay, on average, 50% more for electricity and 200% more for gas than their competitors in the US”.
I made precisely the same points in Friday’s interview with Sky News’ Erin Molan:
This policy is a classic example of the government trying to pick winners.
It will also be inflationary because it will throw subsidies at areas where Australia will never be competitive, such as solar panel manufacturing.
Australians are being compelled into renewables, but the government will increase their costs by requiring them to either purchase Australian-made panels or subsidise such panels. So, they will pay one way or the other.
The government should instead let the market import the lowest-cost renewable technology from wherever.
Moreover, if the Albanese government genuinely wants to boost manufacturing, it should fix the gas market and deliver cheap energy.
Australia is a gas superpower – we export around 80% of our gas, mainly to China.
Yet, on the East Coast, we pay some of the highest gas prices in the world because we don’t have any domestic gas reservation.
These high gas prices feed into electricity prices, pushing up costs for businesses and households.
If the Albanese government followed Western Australia and every other gas exporter on the planet and set aside some of our export gas for domestic reservation, we would have cheap gas and electricity prices, and our manufacturing industry would be competitive.
Then, manufacturing would grow independently rather than through artificial subsidies.
Western Australia has among the world’s lowest gas and electricity prices despite being a major gas exporter.
The USA is now the world’s largest gas exporter, but because of its gas reservation, it has low domestic prices. It has also lowered its emissions by switching from coal to gas.
If you fix the gas market, you fix everything regarding energy costs.
