Energy Crisis Could ‘Hollow Out’ Australia’s Manufacturing Sector, Treasurer Warns

Treasurer Jim Chalmers delivers his Budget Address at Parliament House in Canberra, Australia on Oct. 25, 2022. Martin Ollman/Getty Images

Soaring energy prices could “hollow out” Australia’s manufacturing sector in particular, but the government is trying to work out a solution, Treasurer Jim Chalmers said.

At an Australian Industry Group lunch in Canberra on Monday, Chalmers said he was preparing to announce temporary and sensible regulations to address the energy crisis.

“We don’t want to see the hollowing out of our industrial base as a consequence of high energy prices brought about by Russian aggression. That’s our starting point,” he said, reported the Australian Financial Review.

Chalmers echoed what the prime minister previously said and indicated that the government would not choose to impose a tax on gas and coal super profits.

“The ‘why’ is simple—we don’t want to see our industries hollowed out,” he said.

“The ‘how’ is ideally a regulatory change rather than a tax change. And ideally, something which focuses on the domestic market without causing problems for our international obligations.”

The industry is expecting the regulatory change to be a gas price cap, and Chalmers is hoping to put forward a proposal by the end of November at the earliest.

“It would be fair to say that none of us are enthusiastic intervenors in markets like this one,” he said.

“But we think these are extraordinary times, and they require some different thinking about the best kind of intervention that we might be able to make.

“We don’t want to get 12 or 24 months down the road and have industry hollowed out by a war in Ukraine.”

Mining Tax Off the Table

Prime Minister Anthony Albanese previously told 2GB that Australia’s solution to achieving low energy prices and carbon emissions was renewables.

He also dismissed media reports that the federal government would introduce a tax for spending on household and business energy subsidies.

“All sensible measures remain on the table. We’re working these things through, including talking with the industry themselves,” he said.

“But we need to provide relief … you have extraordinary profits being made at the same time as households and businesses, particularly manufacturing, are under pressure.”

The mining industry has shown their opposition to a mining tax, with Tania Constable, CEO of the Minerals Council of Australia, saying it would hurt households and small business owners the most—the people the government was trying to help.

“We acknowledge that families and low income earners are doing it tough at the moment due to the rising cost of electricity,” she said. “But you don’t tax your way out of a problem. Such a lazy approach to policy and politics will always have perverse outcomes.”

She highlighted that the assumption that coal prices set electricity prices was wrong.

“More than 85 percent of Australian coal is exported into the international market, where prices remain elevated. Those prices have nothing to do with setting the price of electricity in Australia,” she said.

“What is exacerbating the rising wholesale price of electricity is not the price of coal, nor the lack of supply, but the reduction in availability of baseload generation.”