The federal government’s chief economic advisor has endorsed market intervention to cap or reduce coal and gas prices, warning unusually high company profits are coming at the expense of poorer Australians.
- Stephen Kennedy says intervention is justified due to price shocks as a result of war in Ukraine
- He says Australia is in a unique position to do so because it is an energy exporter
- It comes as the federal government flags some form of market intervention to avoid staggering price increases
Treasury secretary Stephen Kennedy has told parliament that the war in Ukraine has prompted a “redistribution of income and wealth” that is not in the national interest.
“The current gas and thermal coal price increases are leading to unusually high prices and profits for some companies,” Dr Kennedy said in a statement read out by deputy secretary Luke Yeaman.
“Prices and profits well beyond the usual bounds of investment and profit cycles.
“The same price increases are leading to a reduction in the real incomes of many people, with the most severely affected being lower income working households.
“The energy price increases are also significantly reducing the profits of many businesses and raising questions about their viability.”
The federal government has flagged some form of market intervention to avoid staggering increases in electricity and gas next year.
Details remain unclear with the federal government continuing to consult with industry, states and territories.
But Treasurer Jim Chalmers has warned action must be taken to ensure industry does not close due to high prices.
The budget forecasts electricity prices will increase by 56 per cent over an 18 month period, with gas prices up 44 per cent.
The ABC has confirmed one NSW steel-making company is facing a $25 million increase to its annual gas bill.
The company, which the ABC has agreed not to name, has been quoted between $33 and $46 a gigajoule which is well beyond its current rate of below $10.
The company uses more than a million gigajoules of gas a year and only received gas supply offers from Macquarie Group, Origin and Shell.
The steelmaker was told by Beach Energy SO, Energy Australia, AGL, and Senex that they have no gas available to fulfil the 12-month contract.
Dr Kennedy told Senate estimates that under normal circumstances, Treasury would wait for the market to adjust to high prices and develop alternate supply chains.
But he said the price shocks caused by Russia’s invasion of Ukraine were so great that the government intervention was justified.
“Policy responses could take many forms but in the current circumstances of generalised price pressures, they need to be mindful of not contributing further to inflation,” Dr Kennedy’s opening address said.
“This would suggest to us, that interventions that directly address the higher domestic thermal coal and gas prices are more likely to be optimal.
“Australia is uniquely placed to pursue this type of intervention given it is a net exporter of energy.”
Dr Kennedy said any government measures to lower prices would need to be temporary and regularly reviewed.
“Even if the war in Ukraine persists, global supply and demand will adjust over time,” his statement said.
Industry Minister Ed Husic has accused gas companies of being greedy and tone deaf to the economic pressures many Australian households and businesses are facing.
However, Resources Minister Madeleine King said on Tuesday that “is not the kind of language I would use”.
“I can understand why people object to some of that profit, while they are feeling the pressure,” Ms King told the ABC.
“Having said that, the three exporters on the east coast only supply 3 per cent of the whole east coast gas market.
“So there is a wider problem here. We have to look at the other 97 per cent of the gas providers and what they are doing around pricing, selling and contractual arrangements.”