Like Trump, Dutton likes to portray himself as a strong man. But appearances are not everything, and Dutton is pretty much an economic policy vacuum.

Ever since he became Leader of the Opposition Peter Dutton has seized on the cost-of-living as his key issue, indeed until recently his only economic issue. But on Friday Dutton announced the Opposition’s plans for powering Australia by relying heavily on nuclear energy, rather than renewables, and claimed it would be cheaper.

Beyond these two issues – how to bring down the cost of living and the future of nuclear energy – Dutton still has no other economic policies. It is therefore worth examining Dutton’s claims in each case in order to judge his economic competency.

Inflation and the cost of living

While the Opposition has never stopped criticising Labor’s record on the cost of living, it has always been much less clear what exactly the Coalition would do differently.

Like Labor, the Coalition’s starting point is that it is essential to bring down inflation if we want to reduce the pressures on the cost of living. But where the Coalition differs is that it asserts that it is excessive government spending that is holding up the inflation rate.

On the other hand, the Albanese Government can argue that its fiscal policy has been restrained. It has produced Budget surpluses in two out of the three years it has been in office.

Furthermore, in last May’s Budget government payments for last year (2023-24) were expected to amount to 24.5% of GDP, about the same as recorded by the Turnbull Government in 2015-16, which was 25.5% of GDP. It is true that in the budget for the current fiscal year, 2024-25, government payments were projected to increase by one percentage point to 26.4% of GDP, but that reflects some very careful targeting of assistance to those families who are most in need, such as cheaper medicines, improved aged and childcare, and increased subsidies for rent and electricity.

The Government can plausibly argue that it is successfully treading the narrow path required to bring inflation down while avoiding a recession. Certainly, unemployment remains low and without the government tax cuts and the other support already mentioned it is likely that household consumption would have fallen this year.

It is also fair to say that the previous Coalition Governments deliberately tried to get their budget back into the black by underfunding government programs and thus holding down total government payments. Arguably that flawed strategy led to a loss of people’s well-being.

Looking ahead, the Coalition keeps insisting that it would reduce government payments, but it has never been able to say how it would do that. The only cut that they have specifically mentioned is that some of them talk about cutting 36,000 public servants which they say represents the increase in the public service since Labor came into office.

But again, there are a number of problems with reducing the public service and it will not make much difference, if any, to total budget payments.

Even a reduction of 36,000 in the number of public servants would only represent a fall of 17% in staff numbers, while total administrative expenses of the national government only represent 14.8% of total budget payments. That in turn means that a cut of even as many as 36,000 public servants would only reduce total budget outlays by a maximum of 2½%.

But this fall of 2½% is certainly a substantial exaggeration of the possible size of budget savings from staff reductions. First, the displaced public servants tend to cost significantly less than the average. Second, and more importantly, it is debateable if contracting out the services that government is responsible for is any cheaper if the same level of service is supplied. Thus, much of the 20% real increase in department administration expenditure under Labor has represented a reversal of the lower service standards under the Coalition, which for example resulted in huge backlogs of Veterans waiting to get their pensions.

In sum, if service levels are maintained it is difficult to think that savings in administration costs of more than 1% of budget outlays are possible, and that is less than the efficiency dividend that is regularly applied each year.

The truth is that if the Coalition really want to reduce Budget outlays then they must make cuts to programs that provide assistance and/or supply services. But ever since the first Abbott Government Budget in 2014, the Coalition has never done that, precisely because they know that the recipients of that assistance and services will object. Instead, the Coalition prefers the con, that they can restore the budget without telling us how.

Energy

Recently, last Friday, Dutton finally released the supposed costings for his plan to use nuclear energy to meet what he says will be 38% of Australia’s future energy needs.

According to Dutton the forecast cost for his proposed energy system would be $331 bn which would be $263 bn cheaper than what he says is the cost of Labor’s renewables-only alternative. But how that saving translates into the cost per household, Dutton refuses to say, perhaps because he doesn’t want to say whether the capital cost will be paid only by taxpayers, or if it will eventually be recouped from the electricity consumers, as it should.

The expert opinion has been almost unanimous in rejecting the costings for the Coalition’s energy plan. The major defects identified are:

• It is assumed that Australia’s demand for electricity will be as much as 40% less than forecast for 2050 by the expert Australian Energy Market Operator, which means that the capacity required, and thus its cost, has also been underestimated
• The likely delays and cost blow-outs during the building phase for major nuclear power stations. According to the Institute for Energy Economics and Financial Analysis (IEEFA) “The modelling uses a $10 billion per gigawatt (GW) cost for large-scale nuclear reactor construction. However recent international experience shows actual construction costs of $15 billion to $28 billion per GW excluding financing costs. This is 1.5 to almost three times the Coalition Opposition figure.”
• Failure to adequately allow for the cost of necessary refurbishment of the nuclear power stations after around 30 years.
• The cost of fuel, operations and maintenance appear to have been underestimated by around 67% compared to the CSIRO costings.
• An assumption that nuclear power stations will operate on average at 93% capacity, whereas based on the experience of Australia’s coal-fired power stations, the CSIRO says that a capacity assumption of 59% would be more realistic.

To sum up, the CSIRO found that firmed renewables, including transmission and storage costs, will cost between $80 per megawatt-hour and $122/MWH in 2030, assuming they account for 80% of generation as planned. This compares with between $145 and $238/MWH for large scale nuclear.

Thus, according to the IEEFA, the household electricity bill could rise by $665 a year, on average, if nuclear energy were introduced in Australia, and for a four-person household, the bill rise would be $972 a year.

But for those who don’t trust the experts, try a bit of common sense. Coal-fired power stations around Australia are presently closing and ahead of their physical life. The Climate Change Authority expects that 90% of existing coal-fired generation capacity will depart the system by 2035, and it will not be replaced.

The reason can only be because renewable energy is cheaper. On the other hand, Dutton knows that no private investor will ever risk their money in a nuclear power station, and that is why he is proposing that taxpayers provide the necessary finance, which will blow a huge hole in the Budget.

Conclusion

In short, Dutton’s energy plan and its costings cannot be trusted. Just like his inability to develop any economic strategy to bring inflation down and improve the cost of living, Dutton’s energy plan is yet another con.

https://johnmenadue.com/duttons-economic-cons-household-electricity-bills-to-rise-by-665-a-year-under-coalition/

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