A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017 Bills

I thank Senator Leyonhjelm for his bill, which indicates a desire to address what is one of the most significant issues facing Australians—consumers not only in a residential sense but also in a small business sense. I note news announced today that Cafe Buongiorno at Modbury in South Australia, which is a cafe I have frequented a number of times over the years, has announced that this will be its last week of operation. It is looking to close down because of high electricity costs.

Senator Farrell:
Yes, because you sold ENSA.

We are seeing a number of businesses impacted as they come off contract and get bill shocks as they go onto higher electricity costs. I note Senator Farrell interjecting from the other side. I highlight to Senator Farrell that one of the drivers of the high electricity costs that people are paying is because of our market design with the peaking gas plants that come in at the end of the bidding cycle and all of the other providers that get lifted up to that point. It’s been acknowledged in the last couple of weeks that, when Senator Farrell’s side were in government, they were warned that the approvals they gave for the export of LNG would drive up domestic prices if domestic supply was constrained and yet they did nothing about that. Senator Farrell is from the Labor Party in South Australia, where we’ve seen the Labor Premier embark upon what he called one of the greatest experiments in energy production and we’ve seen a reckless pursuit of renewable energy to the point where the excessive amount of wind power has undermined the market for thermal-based base load. So we’ve seen the state government refuse to keep open the Northern Power Station at Port Augusta, which would have been a cost that pales in comparison to what they now have to do, which is to commission a large fleet diesel generators in order to provide some kind of reliable power for South Australia in the approaching summer. The reckless ideology of the Labor Party in this regard, as evidenced in South Australia and as we see in the policies that have been enacted by Labor in the past and have been promised should they ever—heaven forbid!—return to power in Australia, will only worsen the kind of situation we currently see.

I’ve said in this place a number of times that one of the reasons these things occur is we have far too many lawyers in the parliament as opposed to engineers. If we had more engineers—people who understand systems engineering and the interface of mechanical, technical and systems-related things—instead of saying that you could push on with more renewables you would understand there is a cost to having renewables because of the interface with the electricity system and the requirement for frequency stability as well as being able to dispatch. AEMO came out with their report looking at a range of these issues. My report to Senator Leyonhjelm is that removing the GST from electricity, whilst there is a very short-term gain, does nothing to actually change the long-term structural issues causing the drive-up in price.

Let me come to a number of specific things in relation to his bill and what we need to be doing moving forward. Firstly, from a technical perspective, as Senator Leyonhjelm should know, section 53 of the Constitution requires that bills dealing with the appropriation of revenue or moneys, or imposing taxation, need to originate in the House of Representatives. From a purely technical perspective, whilst it’s a good idea, this is actually the wrong chamber to introduce it. From a purely technical perspective, even if it were to pass, it would not necessarily have the desired outcome. Putting that aside though, he’s indicated that this could result in a change of around $200 for an average household. The modelling shows that the actions the government has taken in a range of areas—such as specifically requiring that the retailers contact customers to make sure they are aware of the best deal available to them—could save the average household around $500 a year and in some cases up to $1,500 a year. Whilst I hear Senator Leyonhjelm’s case that this is a simple fix, I would point out that, technically, it may not work and there are other measures that the government is putting in place that will provide savings of a far greater magnitude than what Senator Leyonhjelm is proposing.

Lastly, when it comes to the GST, it is not explicitly a federal issue. Changes to the GST actually require the agreement of all the states. The deal we are working on to get the providers to provide that incentive and information to consumers to save them $500 to $1,500 a year is something that is within the power of the federal government. What Senator Leyonhjelm is proposing is not explicitly within the federal government’s power. It would require the agreement of the states. Therefore, even were something to pass here in the appropriate chamber, there is no guarantee that the states would agree. In the time it would take to get that agreement, there are other things we can be putting in place.

One of those is the issue of a limited merits review. In 2008 the then Labor government allowed the network providers to challenge decisions that were taken around pricing. I think some 32 out of 51 decisions of the Australian Energy Regulator have been challenged. A research note by a major broker said investors are getting this as a free option, with the upside being that it brings forward a dividend surprise. In other words, every time they are able to challenge a decision of the regulator, it actually brings forward more profit and more dividend to those network providers.

Given that one of the largest components of the price which is paid by residents and commercial users of electricity in Australia is the network cost, then one of the actions this Senate should be taking is on the limited merits review. In fact, we are dealing with an issue right now where we are seeking to have that limited merits review removed, which is in line with other things such as postal, water et cetera. We are seeking to do that now. We’re seeking to do it quickly, and yet we will have a vote in this place later today as to how the Senate deals with the government’s legislation to remove that limited merits review. I call on Senator Leyonhjelm and others on the crossbench, and the opposition: when that comes up for a vote today you should be supporting the government to bring that legislation forward as soon as possible, rather than referring it off to a committee. Bring it forward so that we can take action now to bring electricity supply, in terms of the networks, into line with things like water networks so that the people who are providing that can’t make additional profit by using what brokers in the system call ‘the free option to them’, which increases their profits at the expense of the Australian public.

Since 2008, when it was established by the Labor government, it is calculated that those 32 out of 51 decisions taken against the Australian Energy Regulator have resulted in some $6.5 billion of additional costs being passed on to consumers in their electricity bills. We are looking to make sure that the Australian Energy Regulator can make informed and sensible decisions that can’t be challenged as a free option. There’s still a judicial review if the networks want to go to that extent—if they think there is inequity or unfairness in the decision. But the limited merits review has cost consumers some $6.5 billion since it was established by the Labor government in 2008. We wish to remove it. There is a vote coming before this chamber today which will provide a passage forward for the government to take that action, and I will be calling on Senator Leyonhjelm to help us to take those steps to address something that is a substantial component of the electricity price that goes to consumers.

More broadly, we also need to look at market design—the whole concept of how we retail electricity in Australia, or, in fact, how the providers put it into the National Electricity Market. If you look at other nations, other models and other ways of pricing that, there are different models that could put significant downward pressure on electricity. That’s something that we need to be looking at, as well as the other levers that talk about how renewable energy is introduced into the system.

As I’ve looked at the Finkel report and the modelling that’s been done out of that, I believe the government has been right to adopt the 49 recommendations there. But we also need to understand whether the optimum modelling has been done around that last recommendation and where we should be moving to. Finkel himself said it could take a number of months for the government to examine what was proposed there, to look at alternative modelling and to understand how best to move forward in that area. Personally, I believe that the market in Australia, without the extent of government interference that we’ve seen—particularly with the state governments pushing for the very high renewable targets—would have delivered more investment in base-load energy over the last couple of decades and would have been providing Australia with more reliable and affordable power than we currently have.

What are some of those policies? Well, the opposition has put forward that it wants a 45 per cent emissions reduction target by 2030 and a 50 per cent renewable energy target by 2030. It is talking about forcing the closure of coal-fired power plants. This is despite people, like AEMO, looking and saying that that rapid closure is actually going to ramp up costs as well as decrease reliability.

People who want those really high renewable targets have to look no further than South Australia to see that what Premier Weatherill called his great big experiment has in fact failed. Here we are in a First World country, with supplies of coal, gas and uranium—if we had the courage to move down that path—and yet we had state-wide blackouts in this nation. The cost to South Australian businesses was huge.

Senator Farrell:
It was a catastrophic storm! Come on, be honest!

Senator Farrell interjects again with the normal claim that comes from South Australian Labor, which is that there was a storm. Well, Senator Farrell, you know that my background was as an experimental test pilot. I was dealing with the design of systems that had to be able to cope with a range of environmental factors. When you design an aircraft well, it can cope with turbulence and interruptions without failing either structurally or in terms of its systems. Those trigger events highlight good design or poor design.

And so the fact that there was a storm in South Australia merely points to the fact that the system was poorly designed; it had low redundancy; and it didn’t take account of the failure modes. Basic systems engineering has a thing called failure mode criticality effects analysis. I would argue that nobody ever did the level of systems engineering to understand what the failure modes were in the South Australian system as a result of the rapid increase of renewable, unreliable, intermittent energy as opposed to reliable, frequency-stable, base-load energy. So don’t come into this place and say that it was a storm. The storm was merely a trigger event. The storm was merely a trigger event that highlighted the poor system design that resulted because of the policies that have seen that incredible growth in renewable energy in South Australia.

Having seen that there, why would we then impose that same kind of system instability and poor design on the whole nation? Yet that’s what federal Labor’s plans are for Australia. Labor said in its climate action plan that it would kickstart the closure of coal-fired power stations. It teamed up with the Greens to pass a motion that would encourage the closure of coal-fired power stations, saying:

The question is not if coal fired power stations will close, but how quickly …

This would lead, as we’ve seen in Victoria and other places, to the destruction of jobs in Australia’s coal-fired plants and thousands of jobs elsewhere. The Australian Energy Market Commission has said that the forced closure policy could cost up to $24 billion around Australia. In Hazelwood, in Victoria, as a result of their closure, energy companies AGL and Energy Australia have increased bills by up to $135 in 2017. In South Australia, as a result of pushing out the Northern Power plant, at Port Augusta, contract prices for large industrial users jumped 50 per cent, and spot market prices tripled in the months following.

So there are a range of issues with taking the view that we can just push renewables without doing the engineering behind it and realising that there is a cost associated with the integration of renewables. Doing that systems engineering, understanding the failure modes and understanding the true costs of those inputs, is what we need to be considering as we look to see whether we would expand the RET. Consequently, we should also be considering what we can achieve in terms of optimising the three critical parameters that we’re concerned about, which are energy price, keeping it low; energy reliability; and emissions. The whole concept of modern use of big data in modelling is to test those various parameters and variables and iterate your modelling until you come up with the optimal mix. I would lay odds that the answer would not be a 50 per cent renewable target, as is being pushed by the ideologues. As the Prime Minister has said, rather than engineering, it’s ideology and in some cases idiocy that have brought us to this point.

I will come back to Senator Leyonhjelm’s bill. As I said, this is not the chamber. If it’s to do with appropriation and taxation it needs to come into the other place. You’ve quoted $200. Some of the interim steps that the government is seeking, around the dealing with retailers, could save families orders of magnitude more than that—$500 to $1,500.

Importantly, in terms of things that this chamber can do, today there will be a vote in this chamber about how we deal with the limited merits review. The indications are that those opposite want to push it off to a committee and kick it down the road, as opposed to dealing with it today. I would challenge them: if they are concerned about the of closure of businesses, like Buongiorno Cafe in Modbury, and if they are concerned about the impact of prices that are impacting families in South Australia then they will be voting with the government today to enable us to deal with the limited merits review, given that network costs are one of the most significant inputs to the costs paid by consumers and businesses in Australia. So I won’t be supporting Senator Leyonhjelm’s bill, not because I don’t share his concern about electricity prices, but because technically this is not the chamber and because there are other measures that we could be dealing with today that could have a far greater impact on prices that go to Australian consumers.