Australia: Tax billionaire companies to fund rapid transition to renewable energy

By Dick Nichols

May 24, 2010 -- Even as the Australian federal Labor government sticks its Carbon Pollution Reduction Scheme [carbon trading scheme] into the freezer the climate change crisis intensifies, demanding a response adequate to its enormity. The goal dictated by climate science is annual emissions reductions of 5% from now to 2020 -- the critical "transition decade".

Policies such as a carbon tax and feed-in tariffs have a role to play in reaching that target, but there is no way it will be remotely achieved without a vast increase in public investment in programs that strip back carbon emissions in the key problem sectors -- energy generation, transport, land use, buildings and carbon-intensive industry.

Public investment, planning and oversight is the irreplaceable centrepiece of adequate climate action.

Detailed plans for the transition in all these sectors in Australia do not yet exist, but the Zero Carbon Australia project (ZCA) is working at them, and has already produced a detailed proposal for the most carbon-polluting -- stationery energy. It is costed at A$367 billion, or $36.7 billion annually to 2020, around 3% of Australia's present gross domestic product, or 10.3% of federal budget outlays.

It sounds like a huge expense and, compared to the main federal budget items, it is -- as a major budget category it would be third behind social security ($110 billion on 2009-10) and health ($53 billion), ahead of education ($35 billion) and "defence" ($20 billion), and three and and half times total actual and projected federal spending on climate change initiatives to date ($10 billion according to the Australian government -- $8 billion when funding for carbon capture and storage is removed).

Add the $20 billion potential estimated private investment in renewables that is "in the pipeline" (and awaiting the introduction of a price on carbon to underpin profitability) along with state and territory financing and total potential and committed spending on renewable energy still comes to less than the needed annual investment identified by ZCA.

Put another way, projected total investment in renewables is far from assuring that Australia will reach the government's 20% renewable energy target, one-fifth of what climate science dictates Australia's renewable energy investment effort must target.

Not a technical problem

So, is a massive increase in public investment renewable energies unthinkable? The ZCA study shows that the shift to 100% renewable energy is already technically possible -- the challenge is to speed up the development and application of existing renewable and non-polluting energy technologies.

That would combine immediate expanded installation of industrial-scale technologies (wind, concentrating solar thermal, biomass combustion) capable of delivering base-load power; industrial-scale test projects for technologies that have demonstrated viability in pilot form (wave); and accelerated testing and development of the least developed technologies (geothermal).

A properly funded publicly operated renewable energy authority would be needed to help develop and oversee the host of specific projects that would drive the transition. It would concentrate the efforts of Australia's existing renewable energy scientists and technicians and rapidly train a new generation. It would also be structured not as another federal government bureaucracy, but as an agency accountable to its own workers and welcoming feedback from renewable energy professionals, as well as from workers and communities affected by the transition.

Wouldn't that entail a "bloated" public sector? It would certainly require an expansion of the public economic activity, but facts have to be faced: there is no other way to meet the climate challenge fast enough.

This reality runs smack bang up against the prevailing orthodoxy of the "parties of government" on the size of the public sector and debt. In their anxiety to end vulnerability before the conservative Liberal/National Party Coalition opposition humbug about bankrupting the nation, the federal Labor government has imposed on itself a limit of only 2% annual growth in outlays. It projects to return the federal budget to surplus by 2012-2013 -- despite the country's massive social and environmental needs and when Australia's stock of government debt is one of the lowest in the advanced capitalist world. The Liberal/National Party Coalition's response has been to parade as even truer believers about "fiscal consolidation".

This bipartisan race to the bottom in economic conservative orthodoxy, accepted and amplified by the corporate media, practically chokes off serious discussion about the key role of the public sector in driving climate sustainability. The grassroots climate action movement will need to tackle this mantra head on.

In Australia, total government spending presently runs at 35% of GDP, but even if public outlays immediately included the 3% of GDP spending on renewable energy indicated by ZCA, they would still be smaller than in nine advanced capitalist economies -- from Sweden (57% of GDP) to the Netherlands (45.8%). And that's assuming no reduction in pointless or pernicious expenditure, such as the $9.5 billion in non-renewable energy subsides or the bloated "defence" budget (including $1.5 billion for the war in Afghanistan).

Who should pay?

Where would the money to fund the shift to renewable energy come from? The present tiff between the federal Labor government and the mining industry over the proposed Resource Super Profits Tax (RSPT, see article below) provides the clue. In 2006-07 (the last year for which full statistics are available) pre-tax resource industry profits stood at $41 billion and the industry profit margin (pre-tax profits as a proportion of total income) at 35%.

If mining super-profits in that year had been creamed off to bring the mining industry profit margin to the average, (economy-wide) rate of 12.8%, the public purse would have benefited to the tune of $26 billion. That's 70% of the annual funding needed for energy sustainability. (We should also add in the $2 billion a year that the industry receives in fuel and energy tax exemptions.)

Despite the orchestrated squealing of the billionaire mining oligarchs the federal Labor government's RSPT won't be reducing mining industry profitability anything like that much. When the RSPT is in full operation it is predicted to trim only $9 billion a year off the industry's profits, between 10% and 15% of the likely total.

Taking the profit share of the Australian economy as a whole, ZCA's $36.7 billion needed for the renewable transition amounts to only 12.7% of the 2008-09 gross operating surplus of private corporations operating in Australia. It could be collected by lifting the company tax rate, pursuing corporate tax evasion and imposing a super profits tax not only on the mining sector, but on the finance sector, in particular the big four banks. These accumulated $22 billion in pre-tax profit in 2008-09, and their return on equity stands around 20%.

At a time when a legal "class action" is being launched against the big four Australian banks for bleeding $5 billion from customers in four years through fees on late payments and other ruses, it's time to start building our own "class action" for urgently needed climate sustainability funding.

That's even truer because the ZCA plan for 100% renewable energy represents only part of the total investment needed to reach a 5% annual cut in total carbon emissions. As further detailed plans for other sectors emerge, further funding will be called for.

When it comes to saving our planet, those who can most afford to pay -- the billionaires, especially those whose obscene wealth derives from polluting industries, must pay the bill.

[Dick Nichols is a member of the national executive of the Socialist Alliance of Australia. Another version of this article appeared in Green Left Weekly.]

Put mining in public hands

Green Left Weekly editorial

May 24, 2010 -- Australian Labor Prime Minister Kevin Rudd's proposed tax on mining industry super-profits has, to the surprise of no one, attracted a great deal of whining from the mining sector.

Andrew Forrest of Fortescue Metals accused those who supported the tax of engaging in “class warfare” and threatened to sell his mining interests overseas if the tax goes ahead, reported the May 19 Melbourne Herald Sun. On May 20, he said that he had shelved $17.5 billion in new mining projects as a result of the tax.

Threats of “capital flight” are standard when a capitalist enterprise sees its profit margin threatened with even a slight decrease and governments routinely bend over backwards in response. The perceived risk of capital flight is used to justify handouts to big business, such as the $10 billion a year subsidy to Australian fossil fuel industries revealed by a University of Technology, Sydney (UTS) report released on April 30.

The whining from the mining sector would seem more justified if the proposed tax wasn’t (in addition to increasing superannuation payments) funding a cut in the overall corporate tax rate to 28%.

It’s a pity that we get another serve of “fiscal responsibility”, with no serious investment in improving social welfare or helping develop an ecologically sustainable economy.

The Rudd government is not seeking to tax the mining industry's profits in the interests of ordinary people or the environment, but in order that the benefits of the mining boom can be shared more equally among the capitalist class as a whole.

The big mining companies, not surprisingly, are less than thrilled by this approach — hence the crude attempt at economic blackmail.

However, while the Rudd government will use the threat of capital flight to justify a likely “compromise” deal with the mining industry that weakens the tax, the threats are largely hollow. With or without the tax, the mining industry in Australia is extremely profitable. Given the ongoing global economic crisis, it is hard to imagine big mining companies turning their backs on the Australian industry.

What is more, the threat of capital flight only works if a government refuses to consider nationalisation.

The use of capital flight to blackmail governments into not adopting policies unfavourable to big business depends on the belief that only big business can, or should, run such industries. This is the position of the Rudd government, which is slavishly loyal to Australian corporate interests.

However, a reasonable response from a government to the threats from companies like BHP and Rio Tinto to go offshore would be to tell these companies that, if this occurs, the government will take over their mines and related infrastructure.

State ownership would give government all the profits — not just 40% above a certain level.

More importantly, state ownership would allow a government committed to tackling the climate crisis to use mining revenue to fund development of renewable energy, while seeking to phase-out destructive mining (especially of coal) and re-train mining workers for new, green industries.

Seen from this perspective, a tax of mining industry super-profits is a step in the right direction — but not the ultimate solution. It should be seen as the start of a process that seeks to shift major industry towards the needs of people and the planet.

If private owners of big companies resist or sabotage this change, governments should be willing to step in and take over.

Nnimmo Bassey, chairperson of Friends of the Earth International, told the World People’s Conference on Climate Change and the Rights of Mother Earth in Cochabamba, Bolivia, in April that to avoid devastating climate change, “oil should be left in the soil, coal should be left in the hole, and tar sands should be kept underground”.

Bassey is from Nigeria. Both Bolivia, whose radical government hosted the conference, and Nigeria are poor countries that have suffered from the curse of having carbon resources extracted by Western multinationals at the cost of terrible environmental destruction and social dislocation.

At Cochabamba, Bolivia’s President Evo Morales, said the profit-driven extraction of resources had to end if the world was to avoid catastrophic climate change. For that to happen, the private ownership of resources had to end — and capitalism with it.

This is a hard path for carbon-resource dependent Third World countries like Bolivia and Nigeria, but is far easier for a rich, developed country like Australia. And the best way to manage the transition away from environmentally destructive mining is for the industry to be in public hands.

But the Rudd Labor government has other priorities. The $10 billion state subsidy given to the fossil fuel industries is 25 times higher than that which goes to renewable energy, the UTS report revealed.

The vested interests of the fossil fuel companies rig the game, making it impossible for a transition to renewable energy. The government allows this to continue.

This must change. We need a new set of rules, free from the variations of the market. A set of rules where choices are made not on what is profitable, but what is needed for our survival.

As it is corporate Australia as a whole pays a lower effective tax rates than most workers. BHP Billiton and Rio Tinto pay just 13%, while most workers pay 30% or more in effective tax rate, as Julia Gillard has revealed (pity the Rudd govt wants to cut the corporate tax rate further!)…