Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

I join with my colleagues in speaking on the Clean Energy Finance Corporation package of bills. These, of course, are part of the government's carbon tax package. They are about extending the reach of the carbon tax by creating a $10 billion fund to undertake investment in renewable energy technologies and energy-efficiency projects. The coalition has pledged, in opposition, to oppose the carbon tax and we will repeal it if we are elected into government. This also applies to this package of four bills. The carbon tax itself takes Australia out on a limb and will create additional financial stress for families and do nothing to reduce carbon emissions. It is bad policy. The CEFC is yet another example of poor policy, which demonstrates the inability of the government to be trusted to spend taxpayers' money wisely.

To oppose this legislation is not to oppose the science of climate change. That is the classic spin that the government applies to everything. Based on the evidence available I believe our climate is changing, and I believe on the evidence available that human behaviour does contribute to climate change. I believe on the evidence available that reducing carbon dioxide emissions will slow down the pace at which the climate is changing. I have held these views consistently for more than 10 years.

The coalition is committed to the same carbon reduction goals as the government. We are committed to reducing Australia's greenhouse gas emissions by five per cent below 2000 levels by the end of 2020. To be clear: that is a bipartisan commitment. Where we differ from the government is the mechanism used to achieve these goals. We do not believe this is solved by increasing taxes and increasing government debt. We certainly do not believe that a $10 billion slush fund is the solution to economic and environmental sustainability. It is economically irresponsible, fiscally irresponsible and environmentally suspect.

This set of bills empowers the government's CEFC with a very broad mandate to invest in risky renewable energy projects. Other than the requirement that at least half the funds be invested in renewable energy technologies by July 2018 and solely or mainly Australia based, the CEFC is given a very wide remit to spend taxpayers' money. The Minister for Climate Change and Energy Efficiency has assured Australians that the CEFC is a commercial venture and that the administration 'will apply a commercial filter when making its investment decisions'. However, this is entirely contradicted by the explanatory memorandum for the bill, which admits that this filter 'will not be as stringent as the private sector equivalent ' and 'may accept a lower financial return'.

The CEFC will be permitted to offer loans at concessional rates. Even worse, concessions can take the form of 'availability, tenor' or, it goes on to say, 'by absorbing additional risk'. Yesterday in the inquiry of the House of Representatives Standing Committee on Economics into this bill it was revealed that the government has already factored in a 7½ per cent loss on capital in unsuccessful projects each year, with Treasury officials describing that 7½ per cent estimate as 'conservative'. Yet somehow these investments are still expected to generate a return close to the government bond rate of four per cent—after all, this is being funded by borrowed money. The reality is that these investments will be highly risky, highly speculative and may not live up to the standards that would normally apply for commercial financing. If these investments were commercially viable, an organisation's first port of call would be a bank or private sector investor, not the CEFC. Even the government admits that 'some investments will not be recovered'. In fact, given the speculative nature of the renewable energy market, it is conceivable that no investments will be recovered. It is uncertain if these new technologies will ever produce a commercial return or a product that will help to create a renewable energy source. Given the risks posed by these investments and the fact that commercial markets would not provide finance to many of the speculative investments, it is hard to believe that such projects could conceivably be termed 'commercial investments'. If these projects were commercial investments, they would not require subsidised support from the government. As such, the government should call the CEFC exactly what it is: a giant, $10 billion slush fund. The Australian people deserve to know exactly how their taxes are spent.

And when it comes to examining the accounting treatment of this giant government slush fund, you would expect that this expense would show up in the government's underlying cash position. But not under Labor. Despite the highly risky nature of the investments undertaken by the entity, the CEFC is blessed with having been given the green light to be accounted for in the same way as that other great commercial entity, the National Broadband Network: they are being treated off-budget. The coalition has long been concerned about the accounting treatment of the CEFC and, indeed, the NBN; and, if there is a change of government, I can promise everyone that I will get to the bottom of exactly why they have been treated in such a way and who advised it.

Back in October 2011, along with the shadow minister for finance, I wrote on behalf of the coalition to the Australian Statistician and the Auditor-General, questioning how the $10 billion CEFC would be accounted for and whether they had made any recommendations as to the accounting treatment of the $10 billion fund. The coalition always suspected that the government was trying to push the majority of the CEFC off-budget. Nine months later, these concerns are realised. In reality we should have just looked at the government's record of treating politically sensitive material like the $50 billion NBN off-budget to justify our concerns.

The government is trying to hide the full cost of the CEFC because responsible economic management is something quite foreign to this government. Treating this program as off-budget means that the vast majority of the spending will not hit the budget bottom line. Only two items will hit the underlying cash balance. The establishment and operating cost of $57 million over three years will be expensed, as will what can only be described as a small provision to recognise that some investments will not be recovered. That is a 7½ per cent loss on capital on unsuccessful projects. Operating costs are nearly $20 million a year. Bear in mind that the Inspector-General of Taxation has an estimated cost of $2.634 million for 10 employees to cover the entire taxation system as an inspector-general, yet this is going to cost around $20 million a year to run. The government acknowledges that some loans will be granted to renewable energy projects at concessional rates. Senate estimates this morning confirmed that this would be the difference between the expected market return of 14 per cent and the government borrowing rate of an average of 5.3 per cent. The impact of this concessional component, along with the operating expenses and the 7½ per cent provision for losses on capital for unsuccessful projects, means that the fiscal balance will be hit with an additional $1.3 billion over the forward estimates. Only this government would provide money for investments that the private sector would not touch with a barge pole and then turn around and call them 'commercial'. What an absolute, damned affront it is to call them 'commercial' investments! Only this government would budget for potential investment losses, charge concessional rates of interest and call the investments 'commercial', and then turn around and deem them 'equity investments' in order to avoid having the expenses hit the budget's bottom line. It smacks of Tricontinental and some of the other things I saw from Labor in the eighties, such as Beneficial Finance and all of their partners.

What is worse, this expenditure is being made at a time when a budget surplus is looking less likely by the day and when the debt burden continues to grow. All in, taxpayers will be borrowing more than $10 billion in headline investment to fund the CEFC, which will only serve to add to the legacy of this government's debt. We do not have the capacity to repay this debt by asset sales—there is no Telstra, there is no Qantas and there is no Commonwealth Bank to sell in order to address the debt burden. These entities, the CEFC and the NBN, are not going to be worth crackers, because they are barely commercial. On the basis of any common understanding of the meaning of the word 'commercial', they would be considered uncommercial. This will be the legacy of Labor, and it will hang around their necks for as long as I am in this place.

Apart from pointing out the lack of credibility on the accounting treatment of the CEFC, it is important to point out that this legislation allows for the use of derivatives in order to, amongst other things, 'indirectly achieve exposure to financial assets'. After all the rhetoric of the Labor Party and its war on capitalism as initiated by the previous Prime Minister's arguments about the impact of derivatives trading during the course of the global financial crisis, they are now so opposed to derivatives trading that they are setting up a $10 billion fund that can engage in derivatives trading! Of course the coalition has major concerns about the application of this legislation and about the risks to which such financial products could expose the government and taxpayers.

Will the investments be effective? There are serious concerns. The CEFC may have distorting impacts on the market—and of course it will. When someone is in there with subsidised loans, of course it is going to have an impact. It is widely commented by renewable energy participants that the introduction of the government's CEFC will have an adverse impact on existing renewable energy projects. Of course it will, because this 800-pound gorilla, subsidised by taxpayers to make losses, is coming into the marketplace. Of course it will undermine any commercial ventures that are out there—and that, of course, will lower the tide for everyone. Also, it is widely accepted that the newcomers to the sector will be affected if they are not to get access to the fund. You are lucky if you are hand-picked by the CEFC, because you will have the benefit of a direct subsidy. But what happens if you cannot get it? What happens if you do not like the terms? There is that 800-pound gorilla in the marketplace which is going to undermine the market itself, and when the failure occurs taxpayers will pick up the tab because otherwise they will lose their money or equity investments.

The CEFC is not charged with investing in the lowest cost technologies to produce the cheapest emissions reductions; its remit is to fund the technologies which the market considers to be unproven or too speculative or too risky for commercial financing. Although the CEFC will be established as an entity separate from the government, it is clear that its functions will carry out government policy. Its functions seem analogous to and to overlap with other government programs such as the Clean Technology Innovation Program, the Renewable Energy Venture Capital Fund and the Emerging Renewables Program. All these programs appear to be similar in nature to and to fit within the broad investment mandate of the CEFC, yet they are fully accounted for in the budget and nowhere near the sheer scale of the $10 billion energy slush fund.

The government has a terrible record with energy projects. Its $700 million Solar Flagships program in Moree and the Solar Dawn projects in Queensland struggled to gain industry support. Along with the Bligh government, this government presided over more than $100 million in losses from the ZeroGen project despite clear warnings from the opposition and a number of industry experts. In fact, in response to the member for Groom's warning that ZeroGen would fail, the Queensland Premier said that he was 'on drugs'. Whatever drugs they may have been—and I can assure you that he was not on drugs; there was absolute clarity in his observation—he was proven right. Programs of this nature have similarly experienced massive failure and controversy in the United States. The failure of the $700 million Cylindra project as well the failures of as Beacon Power and Enel occurred under similar programs. There is also the recent collapse of Solar Trust of America, which had a $2.1 billion loan guarantee from the US government.

Finally, I put on record my concerns about the comments made by Jillian Broadbent from the CEFC. Ms Broadbent wrote to me on Wednesday, 11 April at 11.44 am asking to meet with me in Canberra at a time of her suggestion, 17 April. Andrew Robb responded on behalf the coalition on 16 April. At that time I was overseas meeting with the Chancellor of the Exchequer and officials in Europe, and, when we did not meet the timetable set by Ms Broadbent, she went on ABC radio on 17 April saying that the coalition, 'haven't been very interested in speaking to me, despite my preparedness to do so', She did this even though, as I understand it, she had already met with Malcolm Turnbull, she had already received a response from Mr Robb, she had met Mr Hunt and I was unavailable at that moment. If that is the way they are going to play the game, then there is all the more reason for us to get rid of this bad idea.

See this speech in context