“There is no history that tells us that government intervention works,” Santos chief executive Kevin Gallagher told a conference in Sydney, adding that intervention had contributed to the problems in the east coast market today.
“You’ll get the same outcome that you always get when governments intervene in free markets: eventually you’ll pay the price for it, and that will be jobs, it will be higher gas prices, it will be less gas to market,” he said.
Loose voting bloc
With Labor divided and undecided over the tax cuts, the government is just three votes shy of securing the crossbench votes needed. The Centre Alliance, which has two senators, wants measures implemented to reduce the gas price which is linked to power prices.
It has forged a loose voting bloc with Tasmania senator Jacqui Lambie and is inclined towards supporting the full tax cut package but only if the benefit to taxpayers is not gobbled up by energy companies.
Centre Alliance senator Rex Patrick and Resources Minister Matt Canavan discussed short and long-term options to lower the gas price at a lengthy meeting on Monday that was also attended by Finance Minister and tax cut negotiator Mathias Cormann.
Labor’s gas quota, first announced by Chris Bowen in 2016 and taken to the last two elections, would apply a national interest test to new or significantly expanded gas projects that would be assessed by a Foreign Investment Review Board-style independent board.
The board could then recommend a quota of gas be reserved for the domestic market in the national interest.
We are paying more for gas than our Asian friends who are using our gas, it doesn’t make sense.
— Senator Rex Patrick
As well as the domestic gas quota, Monday’s meeting discussed making the Domestic Gas Security Mechanism more robust in order to force more gas into the domestic market and lower prices.
The mechanism arms the government with a trigger to force the companies to direct ore export gas to the domestic market to meet supply and to stop prices rising.
Due for review
Senator Canavan said the mechanism was already due to be reviewed next year and the government was also already looking at “operational changes to ensure its effectiveness”.
Senator Patrick, Nick Xenophon and Senator Canavan negotiated the Domestic Gas Security Mechanism in return for their support in 2017 to lower the company tax rate for businesses with turnovers of up to $50 million.
Senator Patrick said the gas companies, however, were ensuring just enough gas was available on the domestic market to ensure supply but not lower prices.
“In South Australia we have very, very high power prices, which are set by the gas prices, and we are paying more for gas than our Asian friends who are using our gas, it doesn’t make sense,” he said.
“We don’t want the tax cuts to be funnelled into energy costs.”
Another option discussed was to ensure greater transparency around long-term gas supply contracts to enable customers to negotiate a better price.
This included removing commercial-in-confidence provisions so prices are in the public domain and a commercial gas user can negotiate in the knowledge of what prices others have secured.
Senator Canavan also said global gas prices had fallen over the past six months “but Australia’s have largely stayed the same”.
He expected over time local prices would follow and warned he would use the gas mechanism is need be. “I want to see prices come down. I remain prepared to use the trigger,” he said.
Senator Patrick was confident of a deal, given the government was already looking at the changes to lower gas prices.
The $158 billion in tax cuts augment the three-stage, $144 billion in tax cuts that were legislated before the election.
Problem for Labor
For Labor, the most contentious elements are the already legislated stage three – which in 2024-25 applies a 32.5 per cent tax rate to incomes between $41,000 and $200,000 – and the unlegislated augmentation of stage three which would apply a 30 per cent rate to incomes between $45,000 and $200,000.
The Australian Financial Review revealed on Wednesday that there was a strong view in Labor that not only should it block stage three but go to the next election pledging to also repeal the part of stage three that had been legislated.
Shadow treasurer Jim Chalmers did not dispute this on Wednesday.
“About half of the $300 billion (in tax cuts) has been through the Parliament, but about half of it hasn’t. And all of those discussions and all of those issues about the latest stages can be considered separate to stage one, which needs to be passed at the earliest possible opportunity,” he said.
Part three, legislated and unlegislated, is worth $137 billion of the $304 billion cost of the tax package.
Senator Cormann again urged Labor to pass it.
“Any Labor MP who thinks that even before the Parliament has reconvened they should fight for $137 billion in higher taxes and continue to prosecute the politics of envy, class warfare argument that the Australian people have rejected is just arrogantly thumbing their noses at the Australian people,” he said.
“The truth is that our plan for income tax relief is in the national interest. It puts more money into workers’ pockets. It prioritises low and middle-income earners, but it addresses bracket creep, which holds the economy back.”