by Richard Denniss
It’s easier to develop long-run visions than solve short-term problems, which presumably explains why governments facing election defeat seem to care more about what future governments should do, than what their government isn’t doing.
Once upon a time treasurers were responsible for the current year’s budget, but back in the late 1970s they started publishing four-year forecasts. Then, Peter Costello gave us the 40-year-fantasy of the Intergenerational Report. It’s been a boon for forecasters and a bust for accountability.
The only thing more ridiculous than economic forecasts is the seriousness with which they are taken. Costello’s 2002 IGR didn’t see the mining boom, the GFC or climate change coming. There is a simple reason that no ASX company forecasts its profits four-years out – knowingly misleading your investors is a crime.
But it’s not just future budgets that seem to interest governments more than current ones, it’s policy as well. While constitutionally no parliament can pass laws that bind a future parliament, the contracts entered into by one government are usually honoured by the next. Which is presumably why after the Coalition spent five years failing to introduce a national energy policy, Mr Morrison is determined to write contracts subsidising coal-fired power stations for decades to come.
Of course it’s not just the feds that are determined to govern from the grave. The NSW government is determined taxpayers fund the demolition and rebuilding of a football stadium, that it has signed a $730 million contract for a project that is yet to even achieve planning approval.
So determined is Premier Gladys Berejiklian to shape Sydney after she is gone from office that she is signing long-run contracts without even having the final design. Intriguingly the NSW Opposition Leader, Michael Daley, has warned the Sydney Cricket Ground Trust, the owners of the stadium, that they should not expect “one cent” in public money if Labor wins the next state election.
Daley’s gambit raises some important questions about the overused concept of “sovereign risk”. While some business leaders demand certainty and warn of the chilling impact of uncertainty on investment, others like the backers of the Sydney Stadium switcheroo seem enthusiastic about rushing ahead with a poorly planned project. If uncertainty was truly a deal breaker they would wait until the state election. And if the business community wants to be taken seriously in public debate, they really need to get their story straight.
Which brings me back to energy policy. While the abolition of the carbon price created risk and uncertainty for most energy investors, it made investors like Trevor St Baker a fortune. The NSW government was kind enough to sell Mr St Baker the Vales Point Power Station for $1 million back in 2015, an asset now valued closer to $1 billion due to the lack of new investment in power generation.
Having made an enormous profit from political uncertainty once, Mr St Baker is – quite understandably – at it again. The “big stick” divestment powers that Minster for Energy, Angus Taylor, wants to wield would allow Mr St Baker to compulsorily acquire the ageing AGL power station that they want to knock down. His determination to profit from lengthening the life of old coal-fired power stations has made him a hero to some conservative coalition MPs.
No one knows exactly what the world will look like in 50 years, we only got iPhones a decade ago, but that doesn’t mean that we avoid making decisions today. The need to reduce emissions will not vanish after the next election but it is almost certain that the Coalition government will. While it’s hard to say exactly how much investment in renewables and batteries we will need, it’s a safe bet that we will need a lot less coal. Similarly, while it’s not clear exactly what infrastructure Sydney will need in the coming decades, smaller stadiums to house smaller crowds seems like a strange priority.
There is nothing in the Australian constitution that prevents governments from signing long-run contracts to lock in bad ideas, long after they lose office. But if the business community is serious about the need for certainty then they should lead the fight against governments spending large amounts of money on their way out the door.
Richard Denniss is chief economist for The Australia Institute