'Return power GST to the poor'

Australian
Friday 15/10/2010 Page: 1

AUSTRALIA'S biggest energy retailer is demanding governments siphon part of an estimated $550 million yearly GST windfall from skyrocketing electricity prices into rebates for low-income households. In landmark modelling obtained exclusively by The Australian, AGL Energy finds that soaring power prices could lead to a GST windfall of between $400m and $550m a year from NSW and Queensland 'Return power GST to the poor' alone within five years.

The price increases threaten to tip 343,902 households in those states into "fuel poverty", where they are spending about 10% of their disposable income on electricity, according to the new research. AGL Energy chief economist Paul Simshauser urged Australia's governments to earmark a "significant" share of the extra GST raised from higher electricity prices into assistance measures such as rebates paid directly on to customer bills.

"If you accept that we have a large group of vulnerable households who will be exposed to fuel poverty, then you need to act on it and that is an important function and role of government in any society", Professor Simshauser said. "We have identified a significant windfall in GST revenue as energy prices rise in the next few years and it seems that's a logical starting point when considering how best to provide a safety net for the most vulnerable".

The company also wants federally commissioned modelling on the likely impact of electricity prices on low-income households, the creation of a national energy hardship committee to advise governments, and an "essential service credit" to help households upgrade to energy-efficient appliances. The push was backed by welfare groups, who warned that cost-of-living pressures would continue to mount.

Queensland Council of Social Service president Karyn Walsh backed tapping the GST pool to help vulnerable consumers. "It's important to look at all options", Ms Walsh said. "But we think it's essential that governments at every level really understand the higher cost of living". She pointed to rising costs for housing, food and transport. "We are talking about what will be the tipping point for people. It's not something that's going to be solved by telling people to budget better".

St Vincent de Paul policy and research manager Gavin Dufty described the GST on essential services as the "gorilla in the room that nobody is talking about". "The states have to make a statement about what they are going to do with that additional revenue", Mr Dufty said. The GST pool is carved up between the states and the federal government's insistence on seizing some of it back in return for health reform earlier this year was initially resisted by key states, particularly Western Australia.

The AGL Energy research found that power bills for a typical household in Sydney and Brisbane would rise from averages of $1076 a year in 2008 to about $2289 in 2015. Over that time, the GST paid by NSW and Queensland customers on their power bills would increase from about $410m in 2008 to between $880m and $1.04 billion, according to the research, which Professor Simshauser stressed did assume the price rises triggered no fundamental changes in other household expenditure.

Significantly, the work concludes that climate change and renewable energy policies would have a relatively minor impact on bills compared to other cost pressures. The big drivers of the price increases were multi-billion dollar upgrades to the energy network, which was built decades ago and needs work to meet the growing peak demand caused by energy-guzzling air conditioners.

As well, the coal and gas that fuel electricity generators are also getting more expensive as commodities producers pursue lucrative exports to Asia, while there has been a switch from cheap coal to gas electricity generation technology. Constructing new power plants also is becoming more expensive. These findings are likely to add to business pressure on Julia Gillard to put a price on carbon.

Treasury's "red book" brief to the government warned that further delays to a carbon price would be "more costly and disruptive" and would increase uncertainty over investment in new power stations. BHP Billiton chief executive Marius Kloppers last month insisted the government should impose a carbon tax before an international agreement, while last week Wesfarmers and Boral chairman Bob Every said a carbon price was inevitable.

Earlier this week, the Energy Users Association of Australia, whose members include Rio Tinto and BHP Billiton, warned that almost all supermarket goods would become more expensive. AGL Energy's findings also undermine Tony Abbott's insistence that a carbon price would be a "big bad tax".

Professor Simshauser, who is also a finance professor at Griffith University's business school and led the modelling, said that energy companies wanted to see a price put on carbon to give them certainty to invest. "When you're sick, the faster you take the medicine, the better", Professor Simshauser said. Without a carbon price, "nobody is going to let the lights go out", he said. Instead, to maintain a reliable electricity supply, companies would construct so-called "peaking plants", which are cheap to build but very expensive to run.

"When you stack end-to-end all of the cost pressures in the industry, the one thing that the numbers bear out very clearly is that prices are going to double without carbon", Professor Simshauser said. "When you put carbon onto that, the impact of it is not that significant at all". AGL Energy also wants other sector specific reforms, including a shift to much greater time-of-use pricing where utilities charge more during peak periods than during off-peak or shoulder times. Scrapping price controls which exist in all states except Victoria would encourage energy efficiency, he said.