As the treasurer lauds supply-side economics, a once-controversial recovery theory is gaining traction.This is the essence of modern monetary theory – that government budgeting is nothing like household or business budgeting, for the simple reason that government can create money.
Malcolm Turnbull, Gautam Adani and the Carmichael mine
As a public transport tragic and technology nerd, Malcolm Turnbull looked as though he was in seventh heaven. There he was on the brand-new Delhi Metro alongside his Indian host, Prime Minister Narendra Modi, taking selfies. As he reviewed his handiwork on the screen, he said to Modi, “Which one do you like? This is a good one: we are both smiling.” He duly posted the shot on Twitter.
From a distance, Modi’s generosity with smiles wasn’t matched by other outcomes of the trip. The India–Australia Free Trade Agreement – stalled since 2008 – has been put on the never-never. Turnbull rightly observed that when it comes to protection, India is still addicted. This is particularly bad news for our farm exports. The Indians have agreed for their negotiators to at least compare their figures with ours. Not exactly progress, though, if there is no will to resolve those differences.
There was more success on other fronts. Our education exports look set to increase. Our ambition is for India to rival China in supplying an enormous source of demand for our educational services. The Delhi government is open to the idea. But it is in the area of energy that the dollar signs and the political challenges begin multiplying. As Turnbull says: “Hundreds of millions of Indians don’t have access to electricity at all so they have a big need to increase their energy production. They have an all-of-the-above approach – coal, nuclear, solar, wind, everything, hydro. We have an all-of-the-above approach.”
Australia’s all-of-the-above approach – which quickly ruled out nuclear – includes the aspiration to be the subcontinent’s biggest supplier of coal to fuel a planned power station expansion. Here, Turnbull is caught between the wily billionaire Gautam Adani and the hyperventilation of the Nationals prepared to give the businessman whatever he wants to get the giant Carmichael mine project in Queensland going. And, by the way, assist other billionaires such as Clive Palmer and Gina Rinehart develop their stakes in opening up the Galilee Basin as a gigantic new coal precinct.
Turnbull seems much more aware of the political risks in giving billionaires a huge taxpayer-funded hand up to make even more billions extracting Australian coal. In fact, last year, in the run-up to the election, he said: “There’s no public funding in Adani’s coalmine … just to be very clear about this.” He now draws a distinction between a loan and a handout, but a concessional loan is public funding no matter how you cut it.
Turnbull’s deputy prime minister, Barnaby Joyce, says the loan of close to a billion dollars is a tipping point for the project. Someone has told him that without it, the project won’t go ahead. It is not what the Adani company has put on the record. Its spokesman, Ron Watson, told Fairfax four months ago that the loan “is not critical”. He said “it doesn’t necessarily mean it’s make or break for the project”. Watson foreshadowed that the company would apply for a loan from the new Northern Australia Infrastructure Facility because it is available, but he stressed that Adani had very deep pockets. “There is a certain degree of naivety about the size of this company and the dollars that it has at its own disposal.”
Turnbull assured the media scrum in Delhi that although Adani was entitled to make the application, “it will be assessed scrupulously and independently”. This is where it becomes problematic. According to former treasurer Wayne Swan, the Northern Australia Infrastructure Facility (NAIF) lacks real transparency and accountability. He told parliament last month that it lacks the “gold standard” for governance and risk management of the Labor-established Clean Energy Finance Corporation. By comparison it “looks as dodgy as Lehman Brothers”.
Swan has referred the NAIF to the auditor-general. He finds it hard to believe the auditor will give a tick to a government fund that doesn’t have a requirement for a positive return. The board only needs to be satisfied a project actually needs the loan. But the board has not published the policies it will use to operate.
“The NAIF appears to have been intentionally set up without the ability to operate independently,” Swan says, “with a board that has been stacked to favour mining investments and with an investment mandate so broad and vague so that Minister Canavan can essentially treat the NAIF as his own personal slush fund.”
The Adani loan, with all the risk borne by taxpayers, would account for 20 per cent of the funds allocated to boost northern development. It is money that would not be made available for renewables or tourism, telecommunications and agriculture. These are all more labour-intensive than coalmining, which is to say they create more jobs. Adani, by comparison, says its business model is almost full automation from pit to port. “The mine of the future” was the submission of an ACIL Allen Consulting economist in Queensland court proceedings.
Claims by Joyce and Turnbull of 3000 jobs multiplying out to 10,000 are wildly overblown. Sure, one new job is a good thing; but in an application to the Land Court of Queensland in 2015 Adani itself claimed on average there would be only “1464 direct and indirect jobs in total”. That hasn’t stopped the government trying to wedge Labor’s Bill Shorten for alone opposing the project and the fantastic opportunities they claim it will bring.
Shorten and his Northern Australia spokesman, Jason Clare, support the project as long as it “stands up commercially and environmentally”. This position is identical to energy minister Josh Frydenberg’s. He told ABC Insiders, “This is a commercial operation, it needs to stand on its own two feet.” He even suggested that using the new infrastructure fund would not be “a priority project for us”. It clearly is a priority project for the Nationals, however, and once again the Coalition’s tail is wagging the Liberal dog. “We have no option but to give them something,” was the view of one Liberal MP.
But another Liberal backbencher worries that Shorten – far from being wedged – is on the stronger side of the argument. On Wednesday, Shorten doubled down on his position, despite a new and ferocious attack from Joyce and Turnbull. “I haven’t seen the case made for the taxpayer to underwrite a $1 billion loan,” Shorten said. He could have added, “to a billionaire whose companies are being investigated in India over allegations they siphoned money offshore and artificially inflated power prices at the expense of Indian consumers”.
And then there’s the little issue of climate change. It is estimated that along with the project will come 4.7 billion tonnes of carbon emissions. They are the emissions scientists say are contributing to the warming of the oceans and the bleaching of the Great Barrier Reef. The reef accounts, directly and indirectly, for 69,000 jobs, mainly associated with tourism. Fears about its fate was one of the factors that saw huge swings against the Newman LNP state government, according to Liberal and Labor sources.
A new report from the Climate Council finds that the degradation of the reef could reduce Queensland’s tourist numbers by one million a year, at an annual cost to the economy of $1 billion, and place 10,000 jobs at risk. There is an eerie symmetry here between the claimed benefits of the Adani project and the dangers it poses – dangers minimised or ridiculed by Joyce, including fears about the impact on the Great Artesian Basin. Remember, this project would be the largest open-cut mine in the southern hemisphere and be visible from the moon.
The irony here is that Labor, unlike the Greens, is far from opposed to Australia developing its coal reserves. Shorten says he hopes Adani stacks up. Jason Clare says coal will play a critical part in power production in India and China for at least another 50 years. And, sounding like Joyce himself, he says if Australia doesn’t sell its coal to these two giants, they will buy it somewhere else.
While Turnbull was in India schmoozing the billionaire miner, his treasurer was wrestling with his budget numbers and Sydney shock jock Ray Hadley. As with most things, the government’s internal divisions weren’t far beneath the surface. Hadley attacked Scott Morrison on air for “lying to him” and standing him up by going on ABC Radio in Melbourne rather than keeping his weekly appointment with 2GB.
In telling Morrison he was no longer welcome on the show, Hadley added that he was a hopeless waffler anyway. He then gave Tony Abbott the treasurer’s Monday morning slot on his high-rating show. The former prime minister was happy to take it. More evidence for some of his colleagues that the destabilisation of Turnbull is gathering pace.
This article was first published in the print edition of The Saturday Paper on Apr 15, 2017 as "A massage to India".
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