Labor wants to provide tax rebates to mining corporations in Australia, which it taxed twelve years ago.
Despite claiming that the subsidies were "billions for billionaires," the Coalition repealed the Minerals Resource Rent Tax (MRRT) two years after it was passed into law in 2012, allowing the billionaires to keep their billions.
However, Australian politics has never been built on consistency, so let us move on.
The Rudd government felt compelled or capable of implementing only three of the 138 reform suggestions in the Henry Tax Review, including the replacement of the resource super profits tax (RSPT) by the MRRT. The 2024 subsidies are a component of A Future Made in Australia (AFMA), a new Labor program.
Give and take
The amount of money that was supposed to be taken from miners back then is nearly identical to the amount that is being suggested to be handed to them now, which is a lovely historical quirk.
AFMA has a $22.7 billion budget, while the MRRT was supposed to generate $22.5 billion, but it only generated $6 billion. It is highly likely that the AFMA costings are also completely incorrect.
One example is the proposed $2 per kilogram "tax incentive" for hydrogen generation, which is the focal point of AFMA.
It is expected to cost $6.7 billion over ten years, or $670 million annually on average.
It looks to be uncapped, at least for the time being, in contrast to most Labor programs because that is an estimate of the cost rather than a cap.
Green steel
The primary goal of subsidizing hydrogen production is to develop a domestic green steel industry, which would use Australia's plentiful renewable energy resources to produce steel domestically rather than exporting iron ore. Although hydrogen will also be utilized for transportation and the production of urea, steel is the primary focus for an Australian-made future.
Direct reduced iron (DRI) technique uses hydrogen instead of coal in the blast furnace.
In essence, steel is iron that has had its oxygen removed. It is typically melted with carbon (metallurgical coal) in a blast furnace so that the oxygen reacts with the carbon to create carbon dioxide, which is then expelled out the chimney and is clearly no longer a good idea.
Instead, water is created when hydrogen and oxygen mix. Much better.
It appears that a tonne of steel produced with DRI requires between 50 and 70 kilos of hydrogen.
Unattainable objectives
About 560 million tonnes of steel were produced from the 950 million tonnes of iron ore that Australia shipped last year. Therefore, approximately 33 billion kilograms of hydrogen would be needed annually, at a cost to the budget of $2 per kilogram, or $66 billion, to replace all of the exports of iron ore with domestically produced green steel.
Naturally, that is absurd, and Treasury need not be concerned that the uncapped hydrogen subsidy will cost $20 billion more than the defense budget of $46 billion. We will continue to provide them iron ore rather than green steel produced in Australia, and a large portion of the green steel will be produced elsewhere rather than here, particularly in China.
The opposite may be a more accurate perspective: At an estimated cost of $670 million annually, 335 million kilograms of hydrogen would be subsidized at a price of $2 per kilogram, requiring eight million tons of iron ore to produce five million tons of steel. Additionally absurd and scarcely worth accomplishing, that represents 0.84 percent of Australia's iron ore exports.
And that would only be if all of the hydrogen was utilized to make steel, which is not the case because part would be used to make urea, power vehicles and buses, and export as ammonia.
However, it gives you an indication of how little the government wants to achieve with AFMA.
Financial concerns
It highlights Australia's issue in the international competition to support and entice the production of renewable energy: We just do not have enough money.
Additionally, it is consistent with the widespread underestimation of the energy transition's cost.
The fact that AFMA is the worst method of cutting carbon emissions and launching a regional green manufacturing sector does not imply that it is not worthwhile.
Because it compensates for a market failure, Rod Sims and Ross Garnaut, who have thrown their weight behind promoting Australia as a manufacturer of renewable energy through their Superpower Institute, support AFMA.
The lack of a carbon price, which would level the playing field with renewable manufacturing inputs like hydrogen and make fossil fuel providers and consumers pay for the harm they cause to the environment through carbon emissions, is that failing.
According to Garnaut and Sims, taxing fossil fuels is the best method to get rid of them; if that does not work, AFMA will have to step in.
costly concept
Fair enough, but it means that we are heavily subsidizing the good things rather than taxing the bad things, which we did when the MRRT was also in effect.
The idea is costly and unsustainable since the government lacks the funds to see it through to completion.
To sum up, it is important to remember the events that preceded the MRRT twelve years ago.
A consistent 40% resources rent tax, according to then-Treasury Secretary Ken Henry's extensive examination of the tax code, "would ensure the correct levels of exploration and extraction and offer adequate encouragement for private sector engagement."
At the time, Treasury pointed out that this was in line with other developed nations, with Norway being the most pertinent.
As previously said, Labor raised $6 billion and ultimately implemented a 22.5% rent tax that was overturned two years later.
Norway currently possesses a $2.4 trillion sovereign wealth fund, which is equivalent to the GDP of Australia. With states included, Australia's national net debt is approximately $1.5 trillion, and ongoing structural deficits will continue to increase the debt year.
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