Price cap the worst policy blunder since WWII rationing lifted

The federal parliament is poised to pass the single most damaging economic policy in the 75 years since World War II according to Australian Institute for Progress Executive Director Graham Young.

“While the current situation of high prices is said to be the fruit of war, and therefore demands an emergency solution, in fact it isn’t, and the emergency solution will make the problem worse.

“It also provides a template for economic vandalism in any part of the economy where mismatches of supply and demand may generate temporary price hikes.

“But in a finely divided senate it is in the power of individual senators to stop this policy debacle”

Mr Young said Australia’s problem isn’t a shortage of gas, it is a shortage of extractable gas. This has been a well-known problem since at least 2019 with AEMO and the ACCC, amongst other organisations, warning of a tight situation in the early 2020s.

“The industry has been mobilising to meet that demand, but state and federal governments have thrown obstacles in their way. Don’t blame Putin; blame Andrews, Perrottet and Morrison.

“Santos should have had gas coming out of their Narrabri project by now; there are bans on onshore gas production in Victoria; and the federal government refused permits to drill offshore of Newcastle in the PEP-11 area.

“If emergency powers are to be used, clearing the political and regulatory hurdles between those and other gas projects and the market should be the target.”

Mr Young said that the gas problem was going to get much worse.

“An inescapable by-product of the push towards more wind and solar in the power system is that we will become a gas-powered economy.

“Eliminating coal-fired power stations will not eliminate the need for on-demand electricity, it will shift generation from coal to gas.

“You can see this in South Australia where 38% of its power is generated by gas, despite wind and solar providing over 90% in short bursts.

“In the absence of grid-scale storage, of which there is none currently in existence, and where Snowy 2.0 is the only project likely to come online in the near future, what we are building is a gas-fired power system augmented, sometimes massively, by wind and solar.”

Mr Young said that capping the price of domestic gas would reduce the profits of domestic producers, and therefore the amount of capital they can deploy to develop new wells and fields.

“Over time this will lead to even greater shortages of gas, combined with shortages of development capital, which will either lead to queues or higher prices.

“The price cap signals to overseas investors that Australia is a risky place to invest. They have choices, and as events in Europe show, sovereign risk with respect to fuel, can be an existential crisis.”

Mr Young questioned what prices would be capped next.

“There is a rental crisis in most of Australia at the moment and we have proposals from the Greens to control rents.

“You would have thought two weeks ago that Labor would not support those policies, but in the light of this legislation real estate investors ought to take that possibility into account.

“And even allowing for the possibility will have an effect on housing supply just at a time when we need more, not less, of it.”

For further information contact Graham Young 0411 104 801 or graham.young@aip.asn.au.