Energy crisis is a symptom of a much bigger malaise

With inflation, interest rates and energy prices rising and a sound rejection by voters of Labor’s first budget as lacking impact on tackling the cost-of-living crisis that Anthony Albanese said he would fix, we must brace for difficult times ahead. The government should resist the urge to panic and should continue to focus on the long term rather than make kneejerk responses to current events. Tackling the spike in energy prices must be a priority. But it must be done in a way that does not cause long-term structural harm to one of the nation’s most important export industries.

A starting point must be an acknowledgment that state governments control mineral developments and the federal government is being set up as a scapegoat, most keenly by states that literally have turned off the tap. Western Australia has a gas reservation policy because it is a state issue. Queensland found another way, releasing gas permits solely for domestic consumption. South Australian Energy and Mining Minister Tom Koutsantonis is correct to say that the loudest voices in favour of an east coast gas reservation policy were from states that did not allow gas exploration and development to proceed in their areas of responsibility. Had Victoria not imposed a moratorium on new gas production and NSW not slowed development of the Narrabri gas field by Santos, the current problems of gas supply and price would be much easier to solve.

Rather than Band-Aid solutions such as price caps and export controls that risk scaring off investment and breaking trust between gas exporters and their customers, the Albanese government must insist on a holistic approach. This includes demanding that states work together to increase domestic supplies. More immediate solutions no doubt are demanded but they will be fraught with risk.

A full reckoning of the energy problem also must acknowledge it is not entirely due to Russia’s invasion of Ukraine. Electricity prices on Australia’s east coast have been affected by the scale and timing of the withdrawal of coal-fired power generation that had held the system together. A rush by state leaders to bring forward the date for future coal closures will make a bad situation only worse. The federal government does not give confidence that it fully appreciates the dimensions of the problem.

Moving forward, the Albanese government’s judgment no doubt will be coloured by the poor verdict given by voters to the budget. As we reported on Monday, almost half of all Australian voters believe they will be worse off across the next 12 months, with the number of people who believe it will be good for the economy at the lowest levels on record. According to Newspoll, Jim Chalmers’ budget was the most poorly received for helping the household budget since the Coalition’s 2014 failed austerity drive, from which Tony Abbott and his treasurer, Joe Hockey, never really recovered politically.

The poor response has enabled Peter Dutton to turn Labor’s message on cost-of-living pressures, used to great effect in the federal election campaign, back on to the Prime Minister. The political temptation for Labor might be to abandon fiscal restraint and increase both taxation and spending. This would be a disaster. The hard work is in making states take responsibility for their share of the problems in energy and to set realistic goals for putting things right. The federal government must let the Reserve Bank continue to do its job to rein in inflation. And, rather than pander to union demands for new ways to strike across the board, the government must focus on building productivity to lift the wages of those who need it most, without impoverishing the nation with mindless intervention and red tape.