And, also yesterday, the Australian Bureau of Statistics released the latest – Business Indicators, Australia<\/a> – for the December-quarter 2016 as a precursor to tomorrow’s national accounts release for that quarter.<\/p>\n Here is a graph that captures what is wrong with neo-liberalism. It shows the percentage change in wages and salaries (blue) and gross operating profits (red) for all sectors in Australia in the December-quarter 2016.<\/p>\n For workers, their real wages went backwards given inflation is running around 1.5 per cent. For capital, they boomed.<\/p>\n Here is a breakdown by sector of the same data. It is hard to see the wages outcome because they are so small and mostly negative.<\/p>\n Mining profits grew by 49.9 per cent while wages and salaries fell by -0.8 per cent. In Financial and Insurance Sector profits rose by a staggering 105.4 per cent while wages and salaries fell by -3.1 per cent. In Construction, profits up 27.5 per cent, wages down -2.3 per cent. And so it goes.<\/p>\n And, given this data, you would be shocked then to know that the Australian government’s main policy agenda (other than to make life hard for the poor, stack the national broadcaster’s board with mining business types with no experience in broadcasting etc) – to cut company taxation by $A50 billion (that is, lots).<\/p>\n And what about Mining? The Australian government is into climate change denial like many and is pumping public cash into coal mining ventures just to show how it can give the bird to the ‘Greenies’.<\/p>\n Mining profits are booming but Australian’s get very little of that action. Why? A huge proportion of mining operations in Australia are foreign-owned and the conservative government scrapped the mining tax to make that discrepancy even more stark.<\/p>\n A report a few years ago estimated “that overseas interests own about 83 per cent of Australia’s mining industry” (Source<\/a>).<\/p>\n The industry claims that a high proportion of the profits are “reinvested into expanding Australia’s resources sector”.<\/p>\n While the proportion is disputed it is rather moot – mining produces very little employment (relative to total), causes massive environmental damage (just take a small plane flight over the upper Hunter Valley west of Newcastle to see it), and pays very little back for the use of our<\/strong> resources.<\/p>\n Further, the reinvestment also results in a “further increase the level of foreign ownership”. And where it does go to buy equipment and heavy machinery “much of the expenditure on heavy mining equipment goes overseas”, given our lack of a capital equipment industry.<\/p>\n To put this into a wider perspective, last week, the ABS published the latest capital formation data – Private New Capital Expenditure and Expected Expenditure<\/a> – for the December-quarter 2016.<\/p>\n The data showed that:<\/p>\n 1. Actual new capital expenditure fell a further 2.1 per cent in the December-quarter 2016, and by 15.5 per cent over the 12 months to December 2016.<\/p>\n 2. Investment in Buildings and structures fell by 4.1 per cent in the quarter and 25.5 per cent over the year.<\/p>\n 3. Expected investment for 2016-17 is 9 per cent lowere than in 2015-16 and 3.9 per cent lower for 2017-18.<\/p>\n So investment is not going to drive any growth over the for the foreseeable future.<\/p>\n This is all background to the next issue.<\/p>\n There are two elements to the next issue:<\/p>\n 1. Why Australians are being forced to pay higher prices for natural gas we produce ourselves than foreigners who use the same natural gas (that we export)?<\/p>\n 2. Why, when there are electricity blackouts being imposed by the national authority in Australia, which are damaging enterprises and households, are we exported natural gas while at the same time, some of the energy companies are being forced to import it at higher prices, just to keep the turbines running?<\/p>\n It has been a long-standing scandal that the conservative government (and the Labour Party when it was in power) refuse to introduce reserve rules on gas supplies for domestic use – before exporting can take place.<\/p>\n Australia ranks as one of the only nations that allow foreign-owned corporations to mine for domestic gas and then export it without any domestic use priorities being imposed.<\/p>\n Now should we worry about that?<\/p>\n Definitely, if we export gas but then experience domestic shortages.<\/p>\n Which, then allow energy companies to drive up the local consumer price, which hurts all but disproportionately hurts low-income users.<\/p>\n I wrote about the problems our electricity industry is having with continuity of supply and how it is becoming prey to financial market manipulation in this recent blog – Market manipulation and electricity blackouts<\/a>.<\/p>\n This morning, the UK Guardian article (February 28, 2017) – High energy bills here to stay but jobs heading overseas, industry group warns<\/a> – reported that “The “staggering” increase in energy costs faced by households and businesses will continue thanks to rising gas prices, putting jobs in jeopardy”.<\/p>\n The claim was made by an industry group who have a vested interest in maintaining coal and gas as the primary energy source.<\/p>\n But the data they present is real:<\/p>\n \nThe high and rising price of gas means that existing gas-powered [electricity] generators will be significantly more expensive … The electricity market’s design means that gas generators often set the price for the whole market. And as they generate more often with more expensive fuel this is translating into higher average prices.\n<\/p><\/blockquote>\n The article also notes that the large LNG developments – “export terminals across the country” – “have created supply shortages in the domestic market because the expected output of the fields has not matched up with the amount exporters committed to their clients, meaning they have scrambled to snap up all remaining capacity, pushing up prices for consumers.”<\/p>\n So we get the:<\/p>\n \n… “counterintuitive” outcome whereby international buyers of LNG have been paying “considerably lower prices than have Australian buyers of domestic gas”. The outlook for Australia’s gas market is “grim” …\n<\/p><\/blockquote>\n On November 25, 2016, the ABC News Report – LNG: Having spent $200b to export gas, is Australia about to import it?<\/a> – summed up the issue:<\/p>\n \nHaving just spent $200 billion over the best part of a decade to become the world’s biggest exporter of LNG, Australia is now looking down the barrel of having to import gas for domestic users.\n<\/p><\/blockquote>\n Some facts:<\/p>\n 1. Australia has abundant supplies of natural gas.<\/p>\n 2. The cheapest gas to extract is “is largely dedicated to the export market … and locked up in long-term contracts.”<\/p>\n 3. “Wholesale prices are looking like being more than double where they were 3 or 4 years ago” so “domestic gas users will pay more”.<\/p>\n That situation will continue unless nothing changes.<\/p>\n Discussing energy prices is difficult – but one thing is certain – the costs of production of carbon-based energy sources (coal and gas) are understated by a large margin because they exclude the environmental damage. Add that back in and renewables look decidely more advantageous.<\/p>\n But international comparisons show that despite being one of the world’s largest sources of energy, Australian consumers pay among the highest prices in the world (Source<\/a>).<\/p>\n In an environment of rising prices and energy shortages (now manifesting as blackouts), a major steel CEO said last week that Australia was on the brink of an “energy catastrophe” (Source<\/a>).<\/p>\n The CEO said:<\/p>\n \nIf there’s gas in Australia and we say it can go overseas and we don’t have any baseload generation then I think we’re going to have an energy catastrophe in Australia …<\/p>\n If we do not have coal then we must have gas. If there is no gas in Australia then we have no baseload energy …\n<\/p><\/blockquote>\n We can dispute the baseload claims but the future is clearly not going to be coal, despite what the climate change deniers are claiming.<\/p>\n Australia exports most of its natural gas to Japan, China and South Korea, all large users. Japan and South Korea have no domestic supplies of LNG.<\/p>\n This has allowed exporters to enjoy higher prices and have no ‘market’ incentive to supply into the domestic market.<\/p>\n There is also analysis to show that several large companies (for example, Incetic Pivot) have decided to locate elsewhere because of the deteriorating energy supply issue in Australia.<\/p>\n One should not overstate these locational decisions, however. Australia will be better off in the long-run if a number of these polluting companies disappear (they will have to disappear).<\/p>\n One suggestion for change came via today via a demand from the Australian Workers Union, which among other things is a right-wing group (one the larger unions in Australia) and conservative on social issues and, historically, firmly, anti-communist.<\/p>\n Anyway, it was reported today – Prime Minister Malcolm Turnbull urged to secure natural gas for Australia as exports threaten jobs<\/a> – that the AWU was calling on the Federal Government to introduce domestic use prioritisation of Australian gas.<\/p>\n See also – AWU calls on Malcolm Turnbull to renegotiate contracts with gas exporters<\/a>.<\/p>\n The report said that:<\/p>\n \nMultinationals should be forced to renegotiate lucrative contracts that allow unrestricted gas exports in a bid to avert an energy security crisis.\n<\/p><\/blockquote>\n Which brings us to the long-standing debate about so-called domestic reservation policies.<\/p>\n Only Western Australia and Queensland currently have any “form of domestic gas reservation” (Source<\/a>).<\/p>\n The Federal government last considered this issue when Labor were in power (2012) and rejected any further reservation initiatives.<\/p>\n The conservatives at the Federal level oppose reservation.<\/p>\n It is claimed that by imposing domestic reservation which “would guarantee a quantity of gas be supplied domestically, irrespective of domestic demand”, prices will fall.<\/p>\n The only losers are the price-gouging energy companies, who then claim that investment will be lower in future developments (bringing higher long-run prices).<\/p>\n The AWU has been calling for a reservation policy for some time. In 2014, they ran the Reserve Our Gas<\/a> campaign, which drew on a BIS Shrapnel report that said that:<\/p>\n \n– One in five heavy manufacturers will shut down within five years. Total manufacturing production will be reduced by 15.4 per cent by 2023. 91,3000 jobs will be lost in this period as a direct result of manufacturing shutdowns, with 235,000 jobs to go economy-wide.<\/p>\n – Taking into account the economic benefits of LNG exports, the net loss to the Australian economy will be $101 billion<\/p>\n – Households gas bills to rise by 26 per cent over three years from 2015<\/p>\n – Australian gas profits will be directed offshore – only 18 per cent of Australia’s gas will be extracted by Australian-owned firms (including BHP which is only 58 per cent Australian).\n<\/p><\/blockquote>\n Gas profit ratios are also astronomically high compared to other related activities (coal, iron ore).<\/p>\n That Report also “that Western Australia’s gas reservation policy, which mandates the reservation of 15 per cent of WA’s gas, has not hindered gas investment. $88 billion has been invested in WA gas production since reservation was introduced in 2006.”<\/p>\n Sounds persuasive.<\/p>\n But WA’s gas prices, while lower initially, have now skyrocketed along with the prices in other states without a reservation policy.<\/p>\n![\"\"](\"https:\/\/billmitchell.org\/blog\/wp-content\/uploads\/2017\/02\/Australia_PC_Change_Wages_Profits_December_2016.jpg\")
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