Originally published in The Australian Financial Review on April 17, 2017

Barnaby Joyce says the federal Coalition’s desire to subsidise Adani’s Carmichael coal mine means the government will attract “some flak” from environmentalists. No doubt there will be, but he might do well to prepare for some friendly fire as well.

[This article was first published in the Australian Financial Review – here]

The government should expect some flak from the mining industry itself who, like the Coalition, are not nearly as united as some would like. Glencore’s head of Australian coal said in 2015 that “bringing on additional tonnes with the aid of taxpayer money would materially increase the risk to existing coal operations”.

Even the former Coalition resources minister, Ian Macfarlane, now the head of the Queensland Minerals Council, admits that some mining companies are opposed to Adani’s subsidies, stating “it’s a competitive world and some of our members see it as giving an advantage to one of their competitors”.

Totemic significance

Subsidising the world’s largest export coal mine at a time of declining world demand for coal has taken on totemic significance for the National Party. It has become a way to prove the Nats can get things built and to show their rivals in the Coalition that the junior partner has some real power. Indeed, it is no mean feat to force Malcolm Turnbull to pivot from launching a plan in 2014 to make Australia 100 per cent renewable to leading the charge to subsidise coal mines today.

But populist claims from the Prime Minister that a new coal mine will create “tens of thousands of jobs” are not only baseless, they are helping to delay the transition in Australian politics, and in the Australian economy, that powerful voices like the Business Council of Australia’s Grant King are trying to achieve.

In his first speech as president of the BCA King raged against populism in modern politics and stated: “In this age of political populism my concern is we are putting the end before the means.” He’s right. The government can’t take the public on a long-term reform journey when leaders keep making populist, and undeliverable, promises.

In order to ensure politicians don’t put “ends in front of means”, as King would say, ministers and statutory bodies are not allowed to just spend public money on projects they personally believe in. While some people find the checks and balances associated with spending public money cumbersome, those who are keen on small government are understandably supportive of such scrutiny and accountability.

The NAIF has rules

Luckily for taxpayers, but perhaps not for Joyce, the Coalition’s new Northern Australia Investment Facility has quite strict, if surprising, lending criteria including the remarkable requirement that a project’s eligibility is contingent on it being uncommercial. What could go wrong?

The problem for Adani is that, in order to keep shareholders in India happy, the coal company has repeatedly declared that its mine will be profitable. So how to get subsidies for a project that claims it doesn’t need them?

Joyce’s solution is to argue that while the mine will be profitable, the monopoly railway line that would connect the coal mine to the port will not be commercial and, in turn, that the railway line will be eligible for a NAIF subsidy. Perhaps a court will have to decide if the monopoly railway between a profitable mine and a healthy world market could ever be considered “uncommercial”. Imagine if Amazon argued online retail was profitable, but only if someone subsidises the home delivery.

Joyce and his National Party colleagues are determined to depict the Adani coal mine as a giant struggle between the “builders” and the “blockers” in Australia. But in reality, it’s a simple case of whether taxpayer subsidies for risky commercial ventures will be supported by the BCA, the rest of the coal mining industry and the government.

Given the business community’s newfound determination to fight populism it seems that the Coalition couldn’t have picked a worse time to flip the switch to vaudeville. Oh, and if you think it’s about the “tens of thousands of jobs”, not even Adani think that. They have promised investors the project will be automated “from pit to port”.

Richard Denniss is chief economist at The Australia Institute @RDNS_TAI

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