Tax firms to deliver power bill relief

The head of Treasury backs intervention to push down coal and gas prices and redistribute the profits earned by ­energy companies to poorer households.

Treasury secretary Steven Kennedy says the disruptive effects of the Ukraine war on the power market were hitting poor Australians the hardest. Picture: Gary Ramage

The head of Treasury has backed direct intervention to push down coal and gas prices and redistribute the super profits earned by ­energy companies to poorer households, as a temporary relief measure to address soaring power bills.

As the Albanese government scrambles to put together a potential package of regulatory and tax measures aimed at containing a 56 per cent increase in electricity prices over the coming two years, Treasury secretary Steven Kennedy said “direct intervention” in the domestic energy market was justified by the extraordinary ­circumstances associated with Russia’s invasion of Ukraine.

Dr Kennedy, in prepared ­remarks to a Senate estimates hearing, also warned of a “marked” deterioration in the global outlook and said it was ­“becoming probable that major developed economies will soon experience recessions”.

He revealed this year’s devastating east coast floods would cost the economy $1.3bn through the final three months of this year or a quarter of a percentage point from GDP growth in the December quarter.

As Resources Minister Madeleine King vowed to reveal Labor’s response to the unfolding energy crisis by Christmas, Dr Kennedy said the disruptive effects of the Ukraine war on the power market were hitting poor Australians the hardest and threatening the ­viability of energy-intensive ­businesses.

“Policy responses could take many forms but in the current ­circumstances of generalised price pressures, they need to be mindful of not contributing further to ­inflation,” he said.

“This would suggest to us, that interventions that directly address the higher domestic thermal coal and gas prices are more likely to be optimal. Australia is uniquely placed to pursue this type of intervention given it is a net exporter of energy.”

Dr Kennedy made it clear that energy exporters’ soaring profits were coming at the expense of ­increased hardship among lower income households.

“The current gas and thermal coal price increases are leading to unusually high prices and profits for some companies; prices and profits well beyond the usual bounds of investment and profit cycles,” he said.

“The same price increases are leading to a reduction in the real incomes of many people, with the most severely affected being lower-income working households. The energy price increases are also significantly reducing the profits of many businesses and raising questions about their ­viability.

“I would add that as the shock to Australia varies by state and territory reflecting their individual energy policies, any response should also take this into ­account.”

The October budget forecast consumer electricity prices would increase by an average of 20 per cent nationally in this financial year, and 30 per cent next year.

Jim Chalmers a fortnight ago signalled the government was ­focused on developing a regulatory response to surging power bills, including potentially ­imposing price caps.

The energy regulator warned that any steps needed to be taken soon to avoid baking in sky-high electricity prices in 2023.

The Treasurer has not ruled out other measures, including raising more revenue from energy companies, potentially via a ­higher petroleum resource rent tax.

In contrast, the opposition has backed boosting domestic supply of gas and coal, and accused the government of “demonising” ­exporters. Ms King on Tuesday criticised the “opaqueness” of the market, saying it must be properly examined before the government could announce how it was going to ­intervene to drive down prices.

“There will be responses (by Christmas),” Ms King said. “It’s very important we don’t just drag things out of thin air in response to what is a crisis because that can make things worse.”

Ms King conceded that if the government restricted gas sales to international partners, those countries would “quite rightly be worried about that”.

Anthony Albanese rejected a Greens proposal to freeze electricity bills for two years at “pre-crisis levels” funded through a windfall tax on coal and gas corporations, saying it was unclear how that sort of intervention would be legal.

Amid a gathering backlash among resources firms, the chief executive of LNG exporter Santos, Kevin Gallagher, on Tuesday warned energy policy in Australia was at a “very dangerous tipping point”.

Mr Gallagher told investors the looming threat of government intervention risked delaying needed investment in new oil and gas supplies.

Treasury deputy secretary Luke Yeaman, standing in for Dr Kennedy in Tuesday’s Senate estimates hearing, said price-control measures that were quick and direct would be most effective in helping consumers to deal with the current energy price shock”.

Mr Yeaman said he did not think energy companies’ profits and price increases in commodity markets were a “natural feature of the market”.

“They are coming about because of a war in Ukraine which is driving very significant increases across these markets, and that’s transferring income from low-income households towards the companies and producers of these goods,” Mr Yeaman said.

“That’s not to our minds a normal market adjustment; that’s a one-off geopolitical event that’s driving these factors, that we hope will be temporary.”