Electricity prices are skyrocketing because of decades of government mismanagement. It will take time to undo the damage, but there is something the government can and should do straight away to alleviate the pain of rising electricity prices; it should make electricity GST-free.
Making electricity GST-free would immediately save a typical household around $200 each year.
Electricity is an essential service, like water. But while water is GST-free, electricity is not. Because of GST, electricity prices are 10 per cent higher than they need to be. By removing GST the government can cut electricity prices by 10 per cent immediately and prove that it truly cares about the electricity bills of everyday Australians.
As we are all discovering, these electricity bills are horrendous and getting worse. Households face a 20 per cent hike in electricity bills this quarter, with a typical annual bill increasing from around $2,000 to $2,400. That's $400 many households simply cannot afford. In fact, a lot of low-income households report they are going without heating this winter because of electricity prices. This is sure to cause deaths, a scandalous situation in any first-world country but unforgivable in a country so rich in resources.
And this spike in prices follows a horror decade in which the cost of electricity across the nation rose by an average 8 per cent each year.
Even though the revenue is passed on to the states, the GST is a federal tax. Thus the federal government could immediately make electricity GST-free without seeking support from the states. Such support would never come in any case; the states are addicted to GST revenue and rake in the dough with every electricity price rise.
Taking GST off electricity would cut state revenues by $2 billion a year. State budgets could bear this; for instance, while the NSW and Victorian Governments would each suffer reduced revenues of around $500 million, this would still leave them with a healthy budget surplus. The Western Australian Government, which receives far less GST revenue, would only suffer a hit of around $80 million. More importantly, the people of each state would face dramatically lower electricity bills.
I am pushing the federal government to immediately make electricity GST-free, and if it doesn't budge now, it will be a key issue on which the Liberal Democrats will campaign at election time.
But making electricity GST-free is just the beginning when it comes to cutting electricity prices. The mess we are in is the result of decades of governments discouraging the construction of new, coal-fired power stations.
The discouragement of cheap power has come in the form of the Renewable Energy Target, which effectively forces coal-fired power stations and electricity consumers to provide annual subsidies of more than $2 billion to unreliable renewable generators. Ongoing threats of carbon pricing are also having a discouraging effect.
So, to achieve long term cuts in electricity prices, including for Australian businesses, we need to abolish or suspend the Renewable Energy Target and provide a guarantee to prospective investors in new coal-fired power stations that there will be no carbon price.
At the very least this should apply while countries emitting more than us continue to increase their greenhouse gas emissions. These countries currently include China, Russia, India, Indonesia, Saudi Arabia and South Korea. It is pointless for Australia to cut its emissions while bigger emitters raise theirs. We should also withdraw from the weak and unenforceable Paris Agreement that allows this, and abandon the commitment to reduce Australian emissions by 26 to 28 per cent until the rest of the world does the same.
Finally, there should be no further rounds of taxpayer-funded handouts under Abbott's Direct Action Plan, and we should remove the government's evidence-free ban on modern nuclear power, which offers reliable, zero-emissions electricity.
A return to cheap, reliable electricity would not only be welcomed by households. Every Australian business and employer, including what remains of our manufacturing sector, would feel the relief. To coin a phrase from Trump, let's make electricity cheap again.