‘Dividends gauged by the states from the power sector are in effect a tax.’
As a nation debates what can be axed, taxed or sold off to alleviate this rather pseudo budget crisis, it is worth reflecting on the monumental drag on the economy which is the power sector.
This is the elephant in the room, the elephant that both the major parties consistently ignore.
For Liberal state governments, rising power prices mean large dividend cheques. For Labor, the spectre of rationalisation means job cuts.
Neither is prepared to confront the networks, whose rising costs have accounted for half the price rise of recent years – and there is no sign of relief on the horizon. Neither is prepared to do anything about it.
Instead, there is constant bickering about the carbon tax and renewable energy schemes, constant tinkering at the edges.
Contemplate this astounding finding by the Productivity Commission:
”Over the period June 1995 to the present, productivity across all workers increased by 33.6 per cent, while in the electricity sector it declined by 24.9 per cent.”
In other words, while everybody else has been lifting their productivity by one-third, productivity in the cosseted electricity sector has declined by one quarter.
This industry is not just a bit porky, it is obese.
The way it is structured, by regulated returns, delivers an irresistible incentive for the network providers to spend more, to achieve size for the sake of size rather than efficiency for the sake of the economy – and beleaguered consumers.
The chief reason that power prices have doubled is the network providers have gone on a spending spree, gearing up for large increases in demand that never materialised.
Demand has been falling nationally since 2009-10.
”Also, there are concerns about the amount of new supply capacity that has been built in the electricity supply sector in the last decade, particularly in the electricity distribution sector,” the Productivity Commission said in 2012.
”In particular, regulatory settings (for example, reliability requirements) may have encouraged greater investment in distribution capacity than was socially optimal.”
Then last year the commission said: ”To the extent that over-investment has occurred, some part of the decline in MFP (multi-factor productivity) is indicative of wasted resources, and represents a permanent loss of welfare to the Australian community.”
Wasted resources and a permanent loss of welfare to the Australian community are as strong as the language of the bureaucrat gets.
”One explanation for this dramatic fall in output per worker is the rapid increase in staff numbers in occupations that do not have a direct role in actually generating electricity,” the Productivity Commission said.
”For example, the number of managers in the sector has grown from 6000 to 19,000 from 1997 to 2012, a rise of 217 per cent. This has seen the ratio of managers to workers change from one manager to every 13 workers in 1997 to one manager for every nine workers in 2012.”
This is management nirvana, meetings heaven. In NSW, as prices have soared, network executives have been awarding themselves bonuses; bonuses for public servants who lead an industry that clearly and abjectly has failed the public.
Of course, they have not failed their state overlords, consistently delivering higher dividends as their spending has risen.
Things are slightly more efficient in Victoria where the sector has been privatised, but not nearly so efficient as to commend privatisation as an answer.
Prices still have blown out by a similar magnitude to NSW and Queensland, where the industry is in government hands and where the gold-plating of the network has been most extravagant.
At some point someone is going to have to swing the axe where it needs to be swung. Not renewable energy schemes, which arguably have been effective. They have contributed to the fall in demand for electricity.
Will the states keep hitting up consumers even harder to counter the likely further fall in demand? Energy poverty is now a serious issue.
So, for all the talk about levies and deficits as we head into budget week, it is worth remembering that dividends gouged by the states from the power sector in effect are a tax.
This tax is contributing to the de-industrialisation of Australia in no small measure.
Despite the abundance of coal and gas, power prices are constraining the entire economy.
No doubt it will be ignored this week, just like the elephant of negative gearing and the elephant of super tax breaks.
Politically, they are just too damn hard.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.