How the National Energy Guarantee could work better than a clean energy target


David Blowers, Grattan Institute

The Turnbull government has announced its new energy policy, called the National Energy Guarantee (NEG). The NEG contains two new obligations on electricity retailers. The first is to ensure we have enough electricity generation available to meet our needs (the Reliability Guarantee). The second is to drive down the sector’s greenhouse emissions (the Emissions Guarantee).

No, it’s not Chief Scientist Alan Finkel’s Clean Energy Target. But it is a policy that will drive down emissions in the electricity sector after 2020 and can be adapted by the Labor Party to hit the emissions-reduction target of any future Labor government.


Read more: Subsidies for renewables will go under Malcolm Turnbull’s power plan


In other words, the NEG can offer the previously elusive prospect of a bipartisan and credible emissions reduction policy, of the kind that industry has been crying out for.

What is the Emissions Guarantee?

Under the Emissions Guarantee, retailers will be required to buy or generate electricity with a set level of emissions intensity – the tonnes of carbon dioxide emitted per megawatt hour – each year. The allowable level of emissions intensity will be reduced each year, to stay in line with Australia’s Paris climate target.

To meet this obligation, retailers will probably build or purchase their own generation assets, or sign contracts with other generators. Over time, retailers’ portfolios will become cleaner and cleaner, as new low-emission generators are built and more high-emission generators are shut off.

There are several benefits to this scheme. Australia’s emissions targets for the electricity sector should be met. And the scheme can theoretically be ramped up to meet more challenging targets over time, simply by lowering the emissions intensity limit for retailers.

It should also be reasonably cost-effective. Rather than the government imposing quotas or limits for various types of technology, retailers will be given a free hand to pick the cheapest mix of generation that will meet their emissions obligations. It is genuinely technology-neutral.

This makes the Emissions Guarantee superior to Finkel’s Clean Energy Target. The CET would have acted as a mechanism to push clean energy technologies into the system, but it would not have cared which generators left the market as a consequence.

Under a CET, a black coal generator could leave the market instead of a higher-emitting brown coal generator, if the black coal generator produced more expensive electricity. Then even more low-emission generation would have to be built to meet the target.

The Emissions Guarantee overcomes this problem. The important outcome is that the mix of generation meets a level of emissions intensity. This can be achieved by pushing in low-emissions generation and/or by pushing out high-emissions generation. The outcome will be similar to that of an emissions intensity scheme: lower levels of renewables than under other schemes, but a cheaper way to reduce emissions.

There are downsides to this approach. First, like an emissions intensity scheme and the CET, the Emissions Guarantee is not linked directly to the absolute emissions that need to be abated if Australia is to meet its Paris targets. But this problem can be overcome if the mechanism allows some flexibility around the setting of the emissions intensity target – which it appears to do.

Nor is the scheme integrated fully with the wholesale energy market – the National Electricity Market (NEM). As a result, it could produce some perverse outcomes in the NEM, where some regions have too much of particular types of generation.

What is the Reliability Guarantee?

This is where the other part of the policy comes in. Under the Reliability Guarantee, retailers will be required to contract (or own) a certain amount of “dispatchable” generation – electricity that can be switched on at will – to meet demand in each state.

The Reliability Guarantee appears to be a type of “capacity mechanism”, aimed at ensuring that generation can always meet demand. It appears to be consistent with the “retailer capacity obligation” proposed in a Grattan Institute report last month.


Read more: Baffled by baseload? Dumbfounded by dispatchables? Here’s a glossary of the energy debate


Many of the precise policy details are yet to be worked out – not least the precise definition of “dispatchable generation” under this scheme. But the hope is that it will ensure all NEM states have sufficient electricity supply. Avoiding any repeat of last summer’s blackouts and shortages has become a political imperative.

While reliability might be guaranteed under the new policy, it should be remembered that capacity mechanisms tend to be both complex and costly. The devil will of course be in the detail. But the fact the government has chosen to impose the obligation on retailers suggests the market will be given the opportunity to find the least-cost solutions to our reliability needs.

A way forward?

So the retailers will now be responsible both for delivering our emissions reductions and for making sure that the lights stay on. These obligations will strengthen the incentives for retailers to own their own generation assets, rather than being hostage to wholesale prices. The issues raised by ACCC boss Rod Sims relating to the power of the big gentailers now have increased importance.

The National Energy Guarantee is not the best policy solution. A carbon price imposed on electricity generators may have avoided the need for either of the two “guarantees” contained in the NEG. But the political reality is that a carbon price of any sort is not going to be adopted in Australia any time soon.

The ConversationSo this is not a perfect solution, but it is better than what we have now. And importantly, it is supported by all members of the newly formed Energy Security Board. Opportunity knocks for this nation’s politicians.

David Blowers, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.

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Infographic: the National Energy Guarantee at a glance


Madeleine De Gabriele, The Conversation; Michael Hopkin, The Conversation, and Wes Mountain, The Conversation

The federal government today announced its long-awaited energy policy. As expected it has scrapped the Clean Energy Target proposed by Chief Scientist Alan Finkel, and has instead adopted a National Energy Guarantee, which focuses on ensuring electricity supply and putting downward pressure on energy prices.

Here’s what you need to know:


The ConversationRead more: How the National Energy Guarantee could work better than a clean energy target




The Conversation, CC BY-ND

Madeleine De Gabriele, Deputy Editor: Energy + Environment, The Conversation; Michael Hopkin, Environment + Energy Editor, The Conversation, and Wes Mountain, Deputy Multimedia Editor, The Conversation

This article was originally published on The Conversation. Read the original article.

Australia’s Human Rights Council election comes with a challenge to improve its domestic record



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Australia’s campaign for a seat on the Human Rights Council opened it to further scrutiny of its record on such issues.
Reuters/Denis Balibouse

Amy Maguire, University of Newcastle and Georgia Monaghan, University of Newcastle

Australia has been elected to a seat on the United Nations Human Rights Council. It will serve on the council from 2018 to 2020.

The announcement overnight formalised an assumed result: Australia and Spain were the only two countries seeking election to the two available seats for the Western Europe and Others group. Most of the other newly- elected council members similarly ran uncontested.

However, all campaigning countries required the support of a majority of voting countries to ensure their election. Australia received 176 votes and Spain 180 – both survived grilling by an expert committee.

How did Australia present itself as a candidate?

Foreign Minister Julie Bishop led Australia’s campaign, which had a particular focus on freedoms, free speech, and equality. The “five pillars” of Australia’s bid were:

  • gender equality

  • good governance

  • freedom of expression

  • the rights of Indigenous peoples

  • strong national human rights institutions and capacity building.

Australia presented itself as a “pragmatic and principled” candidate for the council position. Bishop cited Australia’s “strong track record for human rights” as well as its active and practical involvement in international affairs.

Such active and practical involvement can be seen in Australia’s advocacy for the abolition of the death penalty, as in the case of Myuran Sukumaran and Andrew Chan. Furthering global advocacy for death penalty abolition is one of Australia’s primary pledges as a new council member.

Australia’s involvement in multiple UN treaties and its anticipated adoption of the Optional Protocol to the Convention against Torture were also cited as evidence of its worthiness for election.

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Australia’s bid and opportunities for human rights advocacy

However, Australia’s campaign opened it to further scrutiny of its human rights record. Human rights organisations in Australia and overseas have been lobbying to ensure that Australia’s practices are well publicised and subject to oversight and critique.

In December 2016, Bishop sought to pre-empt such criticism, claiming “no country is perfect”. Bishop pledged to be “honest and open” about Australia’s human rights record during the campaign.

Yet the campaign’s pledges failed to acknowledge Australia’s human rights abuses. As such, Australia remains open to accusations of hypocrisy on human rights.

Australia’s human rights track record is more chequered than it would claim. The UN has condemned Australia for its asylum-seeker policies and treatment of Indigenous peoples.

Bishop frequently praised Australia for its success in building a multicultural society and valuing the diverse background of migrant settlers. Yet asylum seekers arriving by boat continue to be dehumanised.


Further reading: ‘Fake refugees’: Dutton adopts an alternative fact to justify our latest human rights violation


Another key area of human rights controversy is the current postal plebiscite to survey public opinion on marriage equality. Australia’s council bid promised the protection of LGBTQI rights. But as was forewarned, the plebiscite campaign has exposed LGBTQI people to harmful fear campaigning and social exclusion.

It is incongruous for a claimed champion of human rights to put the rights of a minority group to a popular vote, potentially in an effort to prevent that group from gaining marriage equality.

Australia strikes a similarly dissonant note in relation to its treatment of Indigenous people. A key pledge of the council bid was the recognition of Indigenous Australians in the Constitution. However, a constitutional convention rejected the form of “recognition” the government-sponsored Recognise campaign had promoted.

The Recognise campaign has since been abandoned, and the future of the proposed referendum is unclear. The Australian government is yet to embrace the Referendum Council’s proposals for treaty, truth-telling and a First Nations Voice.


Further reading: Listening to the heart: what now for Indigenous recognition after the Uluru summit?


France’s withdrawal was a loss to the election campaign

Given Australia’s record, France’s withdrawal as a third candidate for the two available seats was unfortunate. The lack of competition reduced pressure on Australia to extend its human rights commitments.

The weight of international disapproval of Australia’s practice in relation to refugees, in particular, could well have weakened the bid had France stayed in the race.

No doubt this was also true for Spain. The recent Catalan independence referendum exposed Spain’s problematic record in relation to self-determination and political rights for minority groups.


Further reading: As Spain represses Catalonia’s show of independence, the rest of Europe watches on nervously


In interesting company

The UN’s orientation is to promote inclusion rather than marginalisation of member countries on international bodies. The UN is committed to universal values and obligations, and seeks to enforce these through universal involvement in its processes.

It is undoubtedly difficult to countenance egregious human rights violators participating in human rights processes. But it is at least arguable that their involvement promotes the progressive realisation of human rights more effectively than their marginalisation would.

However, in some cases, it may be that a country’s membership should be postponed until it can show improvement in a deplorable record. Leading up to the election, Human Rights Watch campaigned against promoting the Democratic Republic of the Congo to the council due to its grave human rights violations.

Meanwhile, the US warned it may withdraw if the council continued to elect countries responsible for gross abuses.

Australia is not in this category. It aspires to be an exemplary member of the council. And its election should act as impetus for progressive gains in its human rights performance.

The value of Australia’s election for human rights

Human rights advocates will take the opportunity to draw attention to any gaps between Australia’s international legal obligations and its domestic practices.

Bishop was right to highlight the value of Australia becoming the first Pacific country to join the council. Strong diplomatic and trade relationships will hopefully enable Australia to influence human rights development in its region. It is the only place without a regional human rights treaty or institution.

An important focus in this context will be Australia’s advocacy for the abolition of capital punishment. Allied to that concern for the right to life, perhaps Australia might also consider lobbying other countries – notably the US – for gun laws that prioritise human life and wellbeing.

Australia could substantially increase the legitimacy of such efforts, though, by working to build adequate domestic human rights architecture. Without federal human rights legislation, Australia cannot demonstrate the social and legal value of building human rights protections into law.

Australia’s election also calls for a renewal of political commitment to the value of international human rights review processes. Recent years have seen expressions of frustration, dismissal and poor faith that undermine Australia’s strong record of commitment to international human rights treaties.

Nowhere was this troubling attitude toward human rights protection more clear than in efforts to tarnish the reputation and work of former Human Rights Commission president Gillian Triggs.

Such mixed messages sit poorly with Australia’s continued efforts to review the practices of other countries – particularly now that it has an official role on the Human Rights Council.


Further reading: Why does international condemnation on human rights mean so little to Australia?


Australia has claimed leadership in the areas of gender equality, good governance, freedom of expression, the rights of Indigenous people, and strong national human rights institutions.

Imperfect performance in these areas indicates key targets for immediate focus – for example through human-rights-informed approaches to gendered violence, and concern for limitations on the freedom to express views about politically sensitive matters.

Considerable progress will be required on the rights of Indigenous people for Australia to claim success on that key pillar of its council campaign. The federal government could look to progress on a treaty in Victoria as evidence that such a conversation can be inclusive and productive.

The ConversationImportantly, Australia must also be held accountable in the key area its bid sought to avoid: the treatment of asylum seekers and refugees. Its election provides an ideal opportunity for Australia to show leadership and commitment to durable regional and global responses to refugee flows.

Amy Maguire, Senior Lecturer in International Law and Human Rights, University of Newcastle and Georgia Monaghan, Research Assistant, University of Newcastle

This article was originally published on The Conversation. Read the original article.

Subsidies for renewables will go under Malcolm Turnbull’s power plan


Michelle Grattan, University of Canberra

The government is set to unveil its long-awaited energy plan that would scrap subsidies for renewables and impose obligations on power companies to source a certain proportion of “reliable” supply.

While the plan emphasises reliability and reducing power prices, the government is also confident it would allow Australia to meet its commitments under the Paris climate change agreement.

Cabinet considered the scheme on Monday night. It goes to the Coalition partyroom on Tuesday morning, before being announced later in the day.

It follows months of uncertainty and internal pressures within the Coalition over the future of energy policy, as the government battles to head off the risk of blackouts as well as to quell mounting voter anger at soaring bills.

In a report released on Monday the Australian Competition and Consumer Commission said residential electricity prices have increased by 63% on top of inflation in the last decade, with network costs being the major contributor.

As the government has flagged for a week, its plan rejects the clean energy target recommended in June by Chief Scientist Alan Finkel, to which Malcolm Turnbull initially appeared favourably disposed.

Ironically, the alternative scheme has been worked up by the Energy Security Board, a new body that was established on a recommendation from the Finkel inquiry.

Under the scheme, power companies would have twin obligations imposed on them by the government.

  • They would be required to get a certain amount of power from “reliable” sources – whether coal, gas, hydro, or batteries.

  • They would also have to source another amount that was consistent with lowering emissions in line with Australia’s international commitments. Australia has signed up to reducing greenhouse gas emissions to 26–28% below 2005 levels by 2030.

It would be up to the companies as to how they met the obligations put on them.

The plan assumes that prices would be driven down because the scheme would give the certainty that investors have been looking for, so supply would increase.

The Coalition party meeting will be given an estimate of the expected savings on power bills, which would be more than the A$90 annual household saving estimated under the Finkel target.

The scheme is expected to appeal to the right in the Coalition because there are no subsidies for renewables, making for a level playing field – coal is treated the same as wind and solar.

The present renewable energy target would continue until its expiry in 2020, after which there would be no new certificates issued under it.

The Energy Security Board has on it an independent chair, Kerry Schott, and deputy chair, Clare Savage, as well as the heads of the Australian Energy Market Operator (AEMO), the Australian Energy Regulator, and the Australian Energy Market Commission.

The ABC reported that Drew Clarke, a former chief-of-staff to Turnbull and former head of the communications department, will become AEMO’s chair. This would be an appointment by the Council of Australian Governments.

In Question Time, Opposition Leader Bill Shorten accused Turnbull of “caving in” to Tony Abbott by rejecting a clean energy target.

Turnbull said the government “will deliver a careful energy plan based on engineering and economics, designed to deliver the triple bottom line of affordability, reliability and meeting our international commitments. And that is in stark contrast to the ideology and the idiocy that have been inflicted on us for years by the Australian Labor Party.”

Abbott, speaking on 2GB, said that “we’ve got a big policy problem” that needed to be addressed. This included “continued heavy subsidies for unreliable power”, lack of new coal-fired baseload power, bans on gas and a lack of incentives for farmers to go along with gas development, and bans on nuclear power.

Abbott said the problem over the last few years was that “we haven’t been running a system for affordability and reliability, we’ve been running a system to reduce emissions. It’s given us some of the most expensive power in the world and this is literally insane, given that we are the country with the largest readily available reserves of coal, gas and uranium.”

The ConversationMonday’s Newspoll found that 63% thought taxpayer-funded subsidies for investment in renewables should be continued; only 23% thought they should be removed. But 58% said they would not be prepared to pay any more for electricity in order to implement a clean energy target to foster more renewable energy sources.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Power bills can fall – but the main attention must be on affordability: ACCC


Michelle Grattan, University of Canberra

The chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims, holds out the prospect of an absolute fall in electricity bills over coming years – but says this will require focusing centrally on affordability, not just reliability and sustainability.

In its Retail Electricity Pricing Inquiry preliminary report into the electricity market, released on Monday, the ACCC says residential electricity prices have increased by 63% on top of inflation in the last decade, with network costs being the major contributor.

Household bills rose by nearly 44%, from an average of A$,1177 in 2007-08 to $1,691 in 2016-17.

Household bills have risen less than electricity prices because usage has fallen, mainly due to self-supply by solar panels.

The report comes as cabinet is set to consider on Monday the government’s energy policy, which it hopes to take to the Coalition partyroom on Tuesday. Energy Minister Josh Frydenberg last week signalled the government had moved away from the Finkel inquiry’s recommendation for a clean energy target.

Facing the prospect of a shortage of power in the period ahead, the government is particularly focused on the need to increase dispatchable power.

The clean energy target, even in modified form, is also unpopular in Coalition ranks.

The ACCC report indicates that supporting renewable energy has been a relatively minor driver of the spiking of prices.

Sims – who flagged the ACCC findings when he addressed the National Press Club recently – says affordability should be the “dominant” objective in policy but in recent years it has come after several other objectives – including reliability, dividends and sustainability.

He said different approaches were needed to pursue each of the objectives of affordability, reliability and sustainability. As reliability and sustainability were pursued, it was important to do it in “the least-cost way and to let people know the costs”.

“What’s clear from our report is that price increases over the past ten years are putting Australian businesses and consumers under unacceptable pressure,” he said.

The ACCC found that on average across the national electricity market (which does not include Western Australia or the Northern Territory), a 2015-16 residential bill was $1,524, excluding GST. This was made up of network costs (48%), wholesale costs (22%), environmental costs (7%), retail and other costs (16%) and retail margins (8%).

Sims said the primacy of network costs in rising bills was not widely recognised.

Since July 2016, retail price rises were likely to be driven by higher wholesale prices.

“We estimate that higher wholesale costs during 2016-17 contributed to a $167 increase in bills. The wholesale (generation) market is highly concentrated and this is likely to be contributing to higher wholesale electricity prices.”

The ACCC estimates that in 2016-17 South Australia had the highest residential electricity prices, followed by Queensland, then Victoria and New South Wales. SA prices were roughly double those in Europe.

Sims said measures the government had already taken – notably telling companies to make customers aware of better deals, and its plan to scrap the process allowing companies to appeal against decisions of the Australian Energy Regulator – would help lower prices.

The ACCC is now looking in detail at further measures, ahead of making a final report. In the meantime, its preliminary report puts forward some suggestions. These include the states reviewing concessions policy to ensure consumers know their entitlements and concessions are well targeted to the needy, and a tougher stand against market breaches.

It says increased generation capacity (particularly from non-vertically integrated generators), preventing further consolidation of existing generation assets, and lowering gas prices could help reduce the pressure on bills.

The ACCC will also look at how to mitigate the effect of past investment decisions – but it notes that many are “locked in” and will continue to burden users for many years.

It will as well consider what more can be done to make it easier for consumers to switch suppliers.

The report says that “an increasing number of consumers are reporting difficulties meeting their electricity costs, and some consumers have been forced to minimise their spending on other essential services, including food and health services, to afford electricity bills.

“Businesses across all sectors have faced even higher increases over the past 12 months, following renegotiation of long term contracts. Many of these businesses cannot pass the increased costs on and are considering reducing staff or relocating overseas. Some businesses have even been forced to close.”

The ConversationThe ACCC’s final report will be released in June next year.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Turnbull’s ratings fall in another bad Newspoll


Michelle Grattan, University of Canberra

The Coalition is trailing in its 21st consecutive Newspoll, with Labor maintaining its two-party lead of 54-46% and Malcolm Turnbull suffering a setback in his personal ratings.

As parliament resumes, with the energy issue preoccupying cabinet and the government nervously waiting on the High Court’s citizenship decisions, Turnbull’s lead over Bill Shorten as better prime minister narrowed to 41-33%, a margin of eight points, compared with 11 three weeks ago (42-31%).

Turnbull’s net satisfaction in the poll, published in Monday’s Australian, worsened from minus 17 points to minus 24 points. Shorten’s rating also worsened, from minus 20 to minus 22.

The run-up to the poll was marked by Tony Abbott’s controversial speech on climate change, delivered in London. It also saw further public uncertainty over the government’s yet-to-be-announced policy on energy, which cabinet is expected to consider on Monday.

Last week, the government effectively dumped any prospect of bringing in a clean energy target, which kills the chance of any bipartisanship. Opposition spokesman Mark Butler on Sunday told the ABC that if Turnbull walked away from a clean energy target “he won’t get the support of the Labor Party”.

When he challenged Abbott in 2015, Turnbull pointed to the Coalition being behind in 30 Newspolls in a row. His government is now more than two-thirds of the way to that benchmark.

Labor’s primary vote fell one point to 37%, while the Coalition was steady on 36%. One Nation rose one point to 9%; the Greens rose one point to 10%; and support for “others” fell from 9% to 8%.

The poll of 1,583 voters was done from Thursday to Sunday.

In parliament, the government this week will press its efforts to lower the company tax rate for larger enterprises. A deal with Nick Xenophon earlier this year saw the passage of the tax plan reductions for companies with a turnover of up to A$50 million annually. But the government has not been able to win support for the cuts proposed for big business. It is the cuts for the large companies which have the more significant economic impact.

Xenophon on Sunday night reiterated his Nick Xenophon Team (NXT) would not support the cuts. “We’ve ruled it out. Our position won’t change,” he said.

The ten-year tax plan was a centrepiece of the Coalition’s 2016 election policy.

The Business Council of Australia (BCA) has stepped up its lobbying for the cuts, with a booklet titled “Why Australia needs a competitive company tax rate”.

The BCA says Australia’s top company tax rate of 30% is the fifth-highest in the OECD and could soon be the third-highest. The average company rate across the OECD is 24%, while in Asia the average is 21%.

The UK has plans to cut its federal rate from 35% to 20% and the UK has legislated to go from 19% to 17%, the BCA points out.

BCA chief executive Jennifer Westacott said the “global action should be a wake up call for the Senate that Australia cannot afford to stand still, since every company tax reduction overseas is a de-facto tax increase on Australia”.

Westacott said parliament’s decision in March to restrict the tax cut to businesses with a turnover up to $50 million per year “leaves the job half done and our economy at risk as other countries become more competitive in the global race for investment.

“Those who attack the case for company tax cuts have no alternative credible plan to get investment growing strongly again,” she said.

The government is also battling to get the numbers to pass its higher education package. On this Xenophon said the NXT had serious reservations “but we’re still talking to the government”.

Xenophon is one of those MPs whose citizenship status is before the High Court, but he plans to leave federal politics even if the court decision goes in his favour (although he hasn’t said exactly when). He intends to lead his SA-BEST party at next year’s South Australian election.

The government has two ministers – Barnaby Joyce, the deputy prime minister, and Fiona Nash, the Nationals’ deputy – before the High Court, as well as former minister Matt Canavan, who quit the frontbench when the question of his constitutional eligibility for parliament arose.

The ConversationThe High Court is expected to make its decisions on the seven citizenship cases quickly.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Middle income earners probably won’t be paying as much tax as the government expects



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The PBO has likely overestimated future personal income tax revenue.
Shutterstock

Phil Lewis, University of Canberra

The federal government’s return to a budgetary surplus by 2020/21 will mainly be due to a projected increase in personal income tax revenue, according to a report from the Parliamentary Budget Office (PBO).

The PBO modelling shows that people in the middle of the income spectrum will bear the brunt of this, due to bracket creep. This occurs when tax thresholds (including the tax free threshold) stay constant while income grows due to inflation.

But the PBO modelling includes assumptions about inflation and wages growth that do not bear a resemblance to what is happening in the economy. Both inflation and wages growth have been depressed for some time, and there’s little reason to believe there will be a sudden increase.


Read more: How market forces and weakened institutions are keeping our wages low


The fundamental assumption driving the PBO projections is nominal (not adjusted for inflation) income growth of between 4% and 5%. This consistutes 2% to 2.5% annual inflation and 2.5% to 3% percent annual increase in real income.

The difference between nominal and real incomes is important as it is increases in real income (adjusted for inflation) that result in higher standards of living. But taxes are levied on our nominal incomes, regardless of inflation. Because of this difference, bracket creep means that real incomes after tax (otherwise known as disposable income) will actually fall.

What the PBO report projects

To calculate how much tax we will be paying in the future, the PBO first makes assumptions about inflation and real earnings growth and uses these to project individual incomes. Current income tax rates are then applied to these projected incomes, and the increased amount paid by each individual is added together.

According to the PBO’s modelling, the average individual tax rate will increase by 2.3% from 2017–18 to 2021–22. And every income group will see their tax rates increase over this period.

The largest tax increase is expected for individuals in the middle incomes, who have an average taxable of A$46,000 in 2017/18. This group are projected to face an increase in their average tax rate of 3.2% by 2021–22. Their average tax rate is expected to increase from 14.9% to 18.2%.

Meanwhile, those in the second lowest and two highest income quintiles are expected to see their average tax rate rise between 1.9% and 2.5%. The average tax rate for individuals in the lowest income group is projected to rise by only 0.2%, as most of their income remains below the tax free threshold.

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The increases in average tax rates are even greater if a comparison is made with 2016/17, the latest year for which individuals have been paying tax. As you can see in the previous chart, when compared to 2016/17, individuals in the middle income quintile will see their average tax rate rise by 3.8%.

As you can see, the largest burden of the tax brack creep will fall on “average Australians”. This is because they will see their nominal (before adjusting for inflation) incomes rise. Typically, the lowest income earners do not earn enough to get above the tax free threshold and the highest income earners already pay a large portion of their tax at the top marginal rates.

Because of increasing inflation and wage growth, the Parliamentary Budget Office projects that even the lowest income earners will be liable to pay income tax by 2019/20.

Heroic assumptions?

The 2% to 2.5% inflation assumed in PBO’s forecast is in the mid-point of the Reserve Bank’s target range of 2% to 3%, so this is not entirely unreasonable assumption.

But both PBO’s inflation and wage growth (2.5% to 3%) assumptions are currently way above the levels seen in the economy. According to the ABS annual inflation currently stands at just 1.8%, and the earnings of all Australian employees is growing at 1.6% per annum.

The reasons for persistent low inflation, not just in Australia but in most other industrialised countries, are not well understood or agreed upon.

And a number of theories have been put forward to explain low real wage growth including, the degree of underemployment, reduced job security, declining bargaining power of unions and increased potential competition, either from advances in technology or from international competition.

But regardless of the reasons for the persistently laggard growth in wages and inflation, there are also no signs that these rates will rise significantly any time soon, let alone to the levels assumed by the PBO.


Read more: Budget explainer: why is Australia’s wage growth so sluggish?


Given the information contained in the PBO report we can’t calculate exactly what the impact of these tax increases will be for individuals.

However, it is clear that if the current wage and price conditions persist the actual tax revenue will fall way short of the projected figures for all years up to and including 2021/22 and make a Budget balance even further off.

We can also make some extrapolations based on averages. As a simple example, consider someone on an annual income of A$84,000 in 2017/18 (which is around the current average earnings in Australia). Under the assumption that nominal incomes increase by only 2% per year, the tax paid (including Medicare levy) in 2020/21 would be A$23,158.

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However, if you compare this to nominal income growth of 5% (which is what the PBO assumes) the tax paid would be A$26,357 in 2020/21.

That is, tax collected from this individual would be 12% less under a low growth scenario than under the PBO’s more optimistic scenario. In the years 2018/19 and 2019/20 the tax collected would be respectively 4% and 8% less. This illustrates how precarious the projection of a balanced Budget in 2020/21 is.

The ConversationWhatever the outcome, it is for certain that income earners will see any nominal increases eroded not just by inflation, but also through bracket creep.

Phil Lewis, Professor of Economics, University of Canberra

This article was originally published on The Conversation. Read the original article.

NSW ReachTEL: Coalition leads 52-48 as One Nation slumps. Xenophon tied or ahead in SA’s Hartley


Adrian Beaumont, University of Melbourne

A NSW ReachTEL poll for Fairfax media, conducted 5 October from a sample of 1650, gave the Coalition a 52-48 lead by preference flows at the 2015 election, a 3 point gain for Labor since a Channel 7 ReachTEL poll, conducted just after Mike Baird’s resignation as Premier in January. With 8.1% undecided excluded, primary votes in this ReachTEL were 40.9% Coalition (down 1.8), 33.7% Labor (up 5.7), 9.9% Greens (up 1.5), 8.9% One Nation (down 7.4) and 2.4% Shooters, Fishers and Farmers. NSW uses optional preferential voting.

Premier Gladys Berejiklian held a 52.1-47.9 lead over opposition leader Luke Foley in ReachTEL’s forced choice better Premier question, which tends to favour opposition leaders over polls that have an undecided option.

The January poll was taken when One Nation was at its peak, both nationally and in state polls, and that poll had One Nation at a record for any NSW poll. As One Nation’s right-wing economic views have become better known, it appears that much of their working-class support has returned to Labor.

In Queensland, One Nation’s support in a recent ReachTEL was 18.1% including undecided voters. Queensland Premier Annastacia Palaszczuk’s support for the Adani coal mine does not distinguish Labor from the LNP. If the two major parties are seen as similar, anti-establishment parties can thrive.

At the recent NZ and UK elections, the total major party vote increased substantially. I believe this increase occurred at least partly because the major NZ and UK parties had very different policies, and anti-establishment parties were denied the “this mob is the same as the other mob” line. In contrast, the major parties were in coalition before the German election, and both slumped badly, with the far-right AfD winning 12.6%.

NSW state by-elections: Nats hold seats despite big swings against

Yesterday, by-elections occurred in the NSW National-held seats of Murray and Cootamundra, and in Labor-held Blacktown; all three seats were easily won by the incumbent party at the 2015 election. The Liberals did not contest Blacktown.

In Murray, Shooters candidate Helen Dalton stood as an Independent at the 2015 state election. The Nationals won by 53.5-46.5, a 19.2 point swing to Dalton since 2015. Primary votes were 40.5% Nationals (down 15.0), 31.4% Dalton (up 13.2) and 21.0% Labor (up 4.8).

In Cootamundra, the Nationals won by 60.1-39.9 vs Labor, a 10.3 point swing to Labor. Primary votes were 46.0% Nationals (down 19.9), 24.2% Labor (down 1.8) and 23.5% Shooters, who did not stand in 2015.

With no Liberal in Blacktown, Labor romped to 68.9% of the primary vote (up 15.0). The Christian Democrats were a distant second with 17.7% and the Greens won 8.8%.

These results do not yet include postal votes, which are likely to favour the Nationals. Further pre-poll votes in Murray and Cootamundra also remain to be counted.

Galaxy poll in SA seat of Hartley: Xenophon leads Liberals 53-47, but ReachTEL has a 50-50 tie

Nick Xenophon has announced he will leave the Senate after the High Court’s ruling on whether current members are eligible has been delivered. Xenophon will contest the SA state Liberal-held seat of Hartley at the March 2018 election. A Galaxy robopoll in Hartley, from a sample of 516, had Xenophon leading the Liberals by 53-47, from primary votes of 38% Liberal, 35% Xenophon, 17% Labor, 6% Greens and 3% Conservatives.

However, a ReachTEL poll for Channel 7 had a 50-50 tie, from primary votes of 36.7% Liberal, 21.7% Xenophon and 19.7% Labor. The primary votes probably include an undecided component of a little under 10%; these people can be pushed to say who they lean to. It is likely leaners strongly favoured Xenophon, as the Liberals would lead on the primary votes provided.

The Galaxy poll is encouraging for Xenophon, but the ReachTEL poll is more sobering. Labor will target Xenophon during the campaign over votes he has taken in the Senate that have helped the Coalition pass its legislation. Currently, only those who follow politics closely are aware of these votes, but Labor’s campaign is likely to increase this awareness. Such a campaign could undermine Xenophon’s support among centre-left voters.

Essential state polling: July to September

Essential has released July to September quarterly polling for all mainland states, by month for the eastern seaboard states. In September, the Coalition led by 51-49 in NSW, unchanged on August. In Victoria, Labor led by 54-46, a 2 point gain for Labor since August. In WA, Labor led by 54-46 for July to September, a 1 point gain for the Coalition.

In Queensland, Labor led by 53-47 in September, a 2 point gain for the LNP since August. Primary votes were 35% Labor, 35% LNP, 13% One Nation and 10% Greens. By splitting One Nation and Others preferences evenly, Essential is likely to be overestimating Labor’s two party vote.

In SA, Labor led by an unchanged 52-48 in July to September. Primary votes were 37% Labor, 30% Liberal, 18% Nick Xenophon Team and 6% Greens. If these hard-to-believe primary votes are correct, Labor is far further ahead than 52-48. The NXT won 21.3% in SA at the 2016 Federal election.

The ConversationEssential’s state polling was not good at any of the Victorian 2014, Queensland 2015 or NSW 2015 state elections.

Adrian Beaumont, Honorary Associate, School of Mathematics and Statistics, University of Melbourne

This article was originally published on The Conversation. Read the original article.