Mixed Messages: Australian Budget Risks Investment In Clean Energy And Industry

The Australian budget tabled by the Treasurer tonight is full of mixed messages.

There are some minor measures to boost investment in early-stage climate tech and the home battery program has survived, but overall the budget puts the brakes on new clean energy supply and will therefore harm Australian households and businesses.

The Budget misses the moment to send clear policy signals to supercharge clean energy and industry, risking the flight of investment elsewhere.

It also cuts hundreds of millions out of Australia’s preparedness for extreme weather, when we should be building our resilience to fires, floods, and other climate-related damage and disruption.

Frankie Muskovic, IGCC Executive Director of Policy, said, “At a critical moment in Australia’s energy transition, this budget presents some very mixed messages to investors. With the Iran war disrupting energy supplies, it beggars belief that the government’s proposed changes to capital gains tax is putting up a ‘keep out’ sign for global investment into the renewables thatbring down power prices for Australian households and businesses.

“The $1 billion cut to disaster readiness leave communities dangerously exposed to fires, floods and extreme weather and will cost Australians much more than the government saves.

"The welcome fuel security package should be a shot in the arm for Future Made in Australia. Now we need to see the detail on how this will drive early-stage demand for renewable diesel and sustainable aviation fuel that could help free us up from relying on imported fossil fuels.”

IGCC, representing local and global superannuation and retail investment funds with more than $4.5 trillion under local management on behalf of almost 15 million Australians, has identified severalretrograde decisions in tonight’s budget.

• Cuts of $1 billion from Australia’s disaster readiness and no funding for the National Adaptation Plan 
  This budget cuts the entirety of the $200 million p.a. Disaster Ready Fund over the five year forward projections, which would have built the economy’s resilience to extreme weather. The budget also omits any new funding for the government’s National Adaptation Plan which would also have helped minimise the impact of increasing climate-related damage and disruption.
• Approximately $2 billion has been cut from the programs that accelerate the rollout of new clean energy systems. 
  $1.3 billion has been cut from the Battery Breakthrough initiative, Solar Sunshot and Hydrogen Headstart programs. More than $600 million additional cuts fall on various other clean energy and climate solutions programs.
• No firm commitment that the $7.5 billion Fuel and Fertiliser Security Facility will support low carbon fuels 
  Only approximately $45m of the $11.9b National Fuel Security Plan addresses the key strategic risk: Australia’s massive reliance on imported, insecure fossil fuels. 
  This budget could have advanced the Future Made in Australia agenda, making the country a leader Sustainable Aviation Fuel and renewable diesel. Investors are looking for strong signals that the facility will support the production and storage of those kinds of Low Carbon Liquid Fuels (LCLFs), which take advantage of Australia’s abundant clean energy potential.
• Australia’s fair share from increased gas export royalties continues to flow offshore 
  This budget fumbles the chance to bring Australia’s tax regime on fossil fuel exports into line with other fossil fuel exporting countries, while maintaining the high deductions eroding revenue from the Petroleum Resource Rent Tax. Failing to capture new revenue while gas export prices are high means Government has missed the opportunity to further capitalise its special investment vehicles like the CEFC, NRF and ARENA to support new clean energy supply and de-risk industry by stimulating earlier-stage climate solutions.
• CGT reforms close another door in the face of patient global capital 
  This budget anticipates higher capital gains tax on global investment in Australia's renewables, thanks to poorly drafted reforms to the CGT regime. This endangers new solar and wind farms, as well as other infrastructure projects necessary for new energy supply to drive down prices through the transition.

While the opportunities for meaningful reform have gone begging, investors will welcome some measures.

• Cheaper Home Batteries program
  The program is being maintained, with funding of $7.2 billion over the forward estimates.
• R&D Investment Concessions 
  The government has raised the cap on the asset size eligible for favourable tax treatment by a total of $260m which will boost climate R&D and tech investment. 
  Overall, this budget is a big step backwards for clean energy, climate solutions, energy security and Australia’s readiness for a changing climate.

Investors are looking for a budget that underpins the confidence and commitment to supercharge new clean energy supply and bring down costs for Australian households and businesses.

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