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Regulatory attacks bringing a sad demise of the Australian economy

By Alan Moran - posted Friday, 6 September 2019

The Australian economy has been flagging for many years now.  Over the past year we actually saw a decline in GDP per capita and per hour worked.

There are many reasons for this but all come back to government intervention – excess spending on unproductive welfare measures, over-taxation of business income and the general regulatory morass that has come to characterise economic management.

An outcome of this intervention and major cause of the economy’s malaise can be traced back to private investment, the prime driver of higher income levels.  In real terms investment has declined by 20 per cent over the past half dozen years.  As a share of Gross National Expenditure, it has fallen from over 16 per cent five years ago to under 12 per cent now.


Whereas other economies can blame lacklustre performances on their position within sclerotic economic regions like Europe or lack the appropriate mix of resources, Australia is positioned within the world’s fastest growing region and has the mineral and agricultural resource potential to capitalise on this.  Clearly this is not happening.

Coincidentally, on the day of the national accounts release, the Australian Energy Council (representing generators and retailers) noted that the renewable energy target will be met next year.  It stated that renewables are now competitive and that there is no need to extend the subsidies that have resulted in wind/solar grabbing a 15 per cent market share.  Those energy forms are not, of course, competitive.  Activist, bureaucrats and subsidy-seekers, including energy lobby groups, remain supportive of a new carbon tax.  This is disarmingly shrouded in the acronym RIS – Renewable Integration Study – which would add a further cross subsidy from emission intensive electricity (read “coal”) to low emission (read “wind and solar”).

Electricity supply investment has been dominated by renewables in recent years. Bloomberg New Energy Finance estimates Australian spending on wind and solar at $58 billion ($US51 billion) 2007-2018.  Not one cent of this would have occurred without the cross subsidies from consumers and bequest from state and federal budgets, and the soft loans from Clean Energy Bank.

Sources: 2007-16, BNEF; 2017-8, REN+B12=B12=B1221

Not only has the renewables spending been wasteful, but it has been destructive in undermining the previous low cost supply system.  One feature of this is the increase in the average price from under $40 per MWh to its current level of $100 and the much debated loss of reliability that has come in the wake of renewable forcing the closure of commercial coal plant like Hazelwood.


So, renewable energy has both cannibalised the investment pool and contributed to a reduced efficiency of the existing stock of capital.  The impact of this on costs and therefore competitiveness of industries throughout the economy is immense.

Such regulatory impositions are found elsewhere.

With gas we have embargoes in all states but Queensland that have brought trebled prices and are forcing out firms dependent on it as a raw material and energy source.

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This article was first published on Catallaxy Files.

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Alan Moran is the principle of Regulatory Economics.

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