The ACCC has released their interim report of July of this year of the gas enquiry which I set up some years ago, from 2017 to 2020, to provide a constant and consistent deep look into what is occurring in our gas market as part of the broader plan which is designed to do one very important thing. That is to ensure that, in particular, industry and businesses get access to reliable and affordable energy, and particularly and obviously in the case of gas. Lower prices and reliable supply of gas, particularly into the east coast where there have been real challenges as has been demonstrated in the previous reports we have seen from the ACCC, is something that is absolutely necessary as part of our plan for a stronger economy. Our plan for a stronger economy that is working, that is seeing growth rates up above 3 per cent on the most recent figures, that has seen 95,000 young people get a job in the last fiscal year, the strongest growth in young youth employment that we have seen in 30 years in a fiscal year, and of course the record jobs figures we saw last year. Non-mining investment, up five times the long run average. These outcomes that are the product of an economy that is responding to our plan for a stronger economy. We need to keep going with that plan. There are many elements of it. Our commitment to trade, our commitment to open markets, our defence industry plan, our medical industry plan, our $75 billion infrastructure plan, of course our plan for lower taxes, both competitive taxes for businesses, lower personal taxes right across the board. All of this is part of the Turnbull Government’s plan for a stronger economy that is getting results.
Now specifically on the ACCC report that has been released today, I want to commend Rod Sims and his team for many things in this most recent report. In particular, the fact that directly through the ACCC’s actions as a part of this review, that users of gas in the C&I sector are acknowledging that the ACCC’s enquiry, and I’m quoting from page 66, ‘The ACCC’s inquiry has been a primary driver of recent market improvements’ and they consider that it is making a ‘difference in terms of the reasonableness in offers and supplier behaviours’.
This is an important part of what we’re doing on energy and it is getting results even of itself by ensuring that the transparency and the inquiry into what’s occurring in the gas market is producing real change. Now we know that from 2017 there was some real issues in the gas market and that led to the Prime Minister and I and the Energy Minister and the Resources Minister sitting down with the sector to ensure that we got some secure outcomes in terms of guaranteed supply of gas in the east coast market. That heads of agreement that was signed between the Commonwealth and those suppliers has been producing the results that we sought to achieve. We have had the options of the statutory mechanisms to assist those negotiations, but ultimately exercising those was not required because we were able to achieve the outcome that was what we were seeking is to ensure the supply of gas to that market. Now the pleasing part of this report is that things have improved since then and that for 2019 the report does find that we are unlikely to see a gas supply shortfall in that year and that is a function of both an increase of supply as a result of a number of projects as well as variations in expected demand as estimated by AEMO.
The second key point that comes out of the report is that the prices that we’re now seeing for 2019 are now converging with the netback prices for LNG. As we know in previous years there was a gulf between those. So the actions of the Government, working together with the sector and the additional investment and supply that is anticipated to come in is seeing those prices converge. Now that’s good news, but the report I think also highlights some further warning signs. Those prices are still higher than they were historically, and that is putting a lot of pressure on commercial and industrial users. That, as the report highlights, is indicating that that puts stress on investment decisions for those firms looking out over the next few years. The report itself highlights what is needed to ensure that we address those weaknesses in the system going forward. That is in particular to ensure that the east coast gas market continues to get at a greater level and diversity of supply. That there continues to be measures to create a more efficient transport network, although the report acknowledges some real improvements in the markets that are operating there to get access to those pipelines but more needs to be done.
In particular the transparency around pricing needs to go further and the ACCC sets a course for where they will move to next in identifying those transparency arrangements but equally acknowledges the importance of the measures that they have already put in place. This is a very complicated sector, it is a highly regulated sector, but it is an absolutely vital sector for particularly commercial and industrial users of gas. It obviously has a play into the broader retail electricity market; there is no doubt about that. As Treasurer I am particularly focused on what the feedstock of gas is going into commercial industrial users to ensure that they can have a guarantee of supply, at reasonable prices which enables them to invest and grow their business and be more confident about the future.
It is clear that without this work being done by the ACCC, initiated as part of our plan for more reliable energy and lower cost energy, whether it’s for household consumers or commercial industrial users. What we’ve been doing with the gas inquiry has been playing a critical role. So the next steps that the ACCC have indicated will be issues around transparency on the conditions for and the pricing of access to the pipeline and its capacity. The retailer pricing costs and margins, reserves and resources reporting, all of this is necessary for a market to function more competitively and for consumers to get the best possible price.
Our energy markets will always, by their nature, have a high degree of regulation. It’s important that regulation is not working against the interests of the consumers in this market, and that those consumers, whether they be households, or indeed whether they be commercial industrial users, are as active and as powerful in that market as they can be to get the best possible price.
So I might leave it there with my comments on the report. I know there are a number of other issues that are around today that you might want to address and I’d be happy to deal with those, not least being what’s been going on in our housing markets. I see David Uren’s here and I’m sure he’s got lots of thoughts on that. Thank you.
Just further on the ACCC report, obviously as the ACCC has mentioned there needs to be more done. Is anything talking about government stepping in, more meetings between gas companies and perhaps the government? Is that an option?
Well we want to see the heads of agreement continue to be implemented, that we were able to secure with the major gas suppliers. We want to see that agreement implemented in both word and in spirit. There is, I know, some reservations by the sector that the EOI process that has been used for them to follow through on those commitments, there have been some concerns expressed about that, about the flexibility that has been offered in those contracts and we know that users are looking at alternatives to what’s been offered through that process. They’re looking at shorter-term contracts with others going straight into the spot market. That is to be expected and we want people to have options and exercise the best choice. But equally, what the ACCC is advising, and what we’re supporting them to do, is by creating greater transparency about what the supply is, what the reserves are, what the access to pipelines are, and particularly the condensing capacity of those, and the markets that have now been set up for secondary trading and access to these markets, to these pipelines. This is all positive and it’s all recognised as being a positive.
So I’d say the report says there’s been some significant progress being made in the gas market, but it’s still got a distance to travel. It forms part of a broader package of measures, obviously the National Energy Guarantee, which is going before the states and territories as part of COAG, forms part of that. I should also note that the increase in supply that we’re expecting to see out of the Northern Territory has been well received in this report, as well as the pipeline coming online which will be facilitating supply into 2019. So the combination of both the Northern Territory Government’s decision to remove the moratorium there and link that into the transport of more of that gas coming into the east coast market, that is a very positive development.
I acknowledge that what’s happened here in Victoria in terms of the offshore gas supply coming out of their resource base and the freeing up of that, that’s welcome. That is adding to the positive movement we’ve seen in this report, but obviously there are other areas of moratorium restrictions on gas which the report highlights again as being a weakness in the supply of gas into the east coast market. I mean, people are still paying more in the south east, in NSW and in Victoria, than they’re paying in Queensland. There’s a good reason for that; it’s got to travel. As a result, the price is higher. Even still, that price which is being paid in Queensland is still higher than what is has been in the past and that’s what’s causing some strain and stress with commercial and industrial users.
The report says that conditions will remain challenging for commercial and industrial users and one of the things that it points to is the uncertainty around the demand for gas from the electricity sector and the AEMO forecast has that demand halving this year. As the report says, that hugely depends on weather conditions. So I guess what I wonder is there any getting off a gas price rollercoaster for industrial users whilst large parts of the domestic gas supply depend on whether it’s blowing a gale or the sun shines?
Well, some of those users are going to direct producer-supplier arrangements and there’s been a lot of work done, particularly with import facilities and the work which is being done in Port Kembla in New South Wales. That’s a pretty significant initiative which has been highlighted and that facility is being driven by direct contracting with those users and I understand that’s about 75 per cent there – based on what’s reported in the ACCC’s report today – so going to direct supplier arrangements and, if I go back to what the ACCC said in the last report that they just released, about ensuring there is a capacity for the Commonwealth to be in a position of having take-out prices which ensures the finance can be in place where direct users won’t look beyond, say, a five year contract. I mean, the ACCC’s advice and recommendations is coming together around those issues. So I think part of the response the market is already taking by looking at those direct supplier arrangements in some of those new facilities. We’re also seeing some new participants in the market, like Shell, which is providing more options and more offers. One of the pleasing things about this report since the last report, and particularly the one before that, is that when people are looking for gas, they’re not just getting one offer and take it or leave it. They’re actually getting on average three and, in some cases, seven or eight. Now, that’s a good thing but the nature of those offers are still such that not many of those are being taken up and people are going into shorter term arrangements. On the issue of the impact of the national electricity market itself is having on the gas price – well, that’s why the National Energy Guarantee is so important. The National Energy Guarantee is the only plan on the table – credible plan – that will see electricity prices fall in Australia. If you’re not for the National Energy Guarantee, then you’re for continued uncertainty which leads to higher prices. If you’re not for the National Energy Guarantee, like the Labor Party – who just want to wreck and undermine anything the Government is trying to do to strengthen our economy – then you’re for higher electricity prices and, in their case, they’re for even higher electricity prices because they’re looking at targets which can only raise prices. They can only make them more expensive. The National Energy Guarantee will bring the sanity and the calm and the stability to the national electricity market that has needed to facilitate this investment to ensure that reliable, dispatchable power has an even playing field to get into the system and ensure that we can have a more stable electricity market which would flow into what we can expect to see, I think, on gas prices.
Then if you’re – obviously, you’re saying that the message to Labor is that they’re not supporting the NEG, but what is your message to other backbenchers in your own Government, such as Tony Abbott, who said that the NEG is bad policy?
I’d just say exactly what I think and that is the National Energy Guarantee – which has the broadest support I have seen for any initiative in my decade and more of the Parliament, and I’m sure for those who have been around longer – this is the single biggest revamp since the national energy market was first established. I think it brings some common practical sense to the way that this market can work more effectively because it brings it back to the fundamental of what customers want and that is reliable power, they want affordable power and they want sustainable power. They want all three and that’s what the NEG delivers. Now, it has received strong support both within our party room, across the states – and there are still negotiations to be had – and certainly out of industry and our investment in the business community who know that this is absolutely essential. I mean, the Chair of the National Energy Security Board has made it crystal clear, this is a big opportunity, this is a sliding doors moment to lower electricity prices. If we lose this opportunity because of obstructionism, because of negativity, because of whatever else the Labor Party has in mind, to lose this opportunity for lower electricity prices that would be very disappointing and it will flow through to impact on the economy and people’s household bills. That’s why the work that Minister Frydenberg is doing, the Prime Minister is doing, working closely with the states and territories who have been engaging in real good faith, I think, is the best result for the economy, it’s the best result for all Australians.
Sorry Mr Morrison, changing direction here…
Do you believe Emma Husar needs to resign from Parliament after today’s allegations about sexual harassment have come to light?
Well, the revelations about Ms Husar and the fact that we have Labor staffers being arrested here in Victoria. So we’ve got allegations of Labor staffers being abused in Canberra and we have Labor staffers in Victoria being arrested. I mean, what sort of show is Bill Shorten running in the Labor Party? The allegations against Ms Husar which, I understand, were first there in May of this year. Bill Shorten really expects us to believe that he knew nothing about these allegations since May? I mean, if he didn’t know about them, what sort of an indictment is that on him? He either is incompetent or he’s been covering it up – which is it, Bill? Because someone who pretends to want to be the Prime Minister has got to be able to answer those questions. I mean, he already has lost one Senator who had to resign in disgrace in Senator Dastyari and now he has the pin-up of his 2016 election campaign in Emma Husar. She is the face of the Labor Party. She was the face that the Labor Party presented to the last election, not just in Western Sydney, but to the entire nation and said, “This is the reason that Bill Shorten should be Prime Minister.” And what we know today is that there’s now egg on that face. But more importantly, there’s egg on the face of Bill Shorten in his inability to face up to this, his obfuscation on this, his running around on this, pretending he didn’t know, doing the whole Sergeant Schultz thing has been embarrassing. This is a guy who is not showing leadership on this issue. This is a guy who is running a party that either has staff members being allegedly abused or Labor staffers here in Victoria who are being arrested as a result of investigations by the fraud squad. I mean, that’s the Labor Party in 2018 led by Bill Shorten.
On housing prices, seeing the fall starting to accelerate somewhat, in the Budget and the Reserve Bank outlined consumer spending as the greatest source of uncertainty in the economy over the year ahead. Are you concerned that the softness in housing markets is going to have an impact on consumer spending, consumer confidence going forward?
Where things are at at the moment is within the expectations of where both Treasury and, indeed, the Reserve Bank had been factoring things in. So at this stage, I think things are consistent with the outlook that we presented in the Budget. As you know, the initiatives taken by APRA – with the full support of the Government – were designed, highly calibrated, designed to take us from runaway house price growth, particularly in Sydney and in Melbourne, here I am today, which was putting homes out of the reach of young people to be able to move forward. I mean, we had under 17 per cent house price growth, [inaudible] price growth in Sydney and, as we know now, Melbourne has now gone to negative in the last month of July. But let’s not forget house price growth in Melbourne is up about 45 per cent on the last five years.
So, this is a softening of the housing market that, in many respects, is welcomed – particularly if you’re a first homebuyer. I mean, we have seen as the housing market has softened in Sydney and Melbourne in response to those measures that we’ve undertaken, that the percentage of new home loans going to first homebuyers has risen. It’s got back up above 17 per cent which is above the long-run average. We’ve got owner-occupiers now, in terms of their growth in new home loans, is running at four times what it is for investors. So, the very careful calibrated steps we have taken to get a soft landing in the housing market, which has also reinforced Australia’s AAA credit rating – as you know, David, these are issues that have been raised by the ratings agencies, particularly around household debt levels. This has led to a much more stable base for the housing markets to move from here. Now, there will always be the supply and demand issues that are going to drive house prices forward – whether it’s here in Melbourne or whether in Sydney. I acknowledge the work done by the Victorian Government here and the New South Wales Government to alleviate some of those supply blockages that have also been assisting in getting us to a softer landing in the housing market.
But here’s the risk: the risk here – as acknowledged by CoreLogic this week who do the house price data – they have said that already house prices are being negatively impacted by the prospect of the removal of negative gearing as we know it and increasing the capital gains tax by 50 per cent which is the Labor Party’s policy. They said that even after the by-election on the weekend, the sheer prospect of a Labor Government and the removal of negative gearing as we know it and a 50 per cent increase in capital gains tax is actually taking value off Australians’ homes. Now, if that’s what can happen at the prospect of a Labor Government, imagine what happens to the undermining of the value of people’s homes if Labor is elected. It’s not just your job that’s at risk, it’s not just any wage rise that’s at risk if Labor is elected, the very home you own will be subject to greater stress because of the removal of negative gearing as we know it and an increase in capital gains tax. So, a very careful calibrated change to lending criteria by the regulator that we have supported has produced house prices going from 17.1 per cent to a five per cent negative in the space of nine to 12 months. Now, that’s calibrated. That’s a scalpel. Imagine if you have the chainsaw of what Bill Shorten wants to do to house markets – whether it’s here in Melbourne or up in Sydney – and the carnage of it [inaudible] recovering markets like in Perth or in Adelaide or other places or the Northern Territory or Brisbane. It’s a very bad and dangerous plan because you’re right to say, David, if people lose confidence in the value of their house then that can flow through to consumption. Now, we’ve got this under control and under management and that’s also the view of the Reserve Bank of Australia who have been part of the Council of Financial Regulators that has supported the measures that have been taken by APRA. But to go to the full magnum, Clint Eastwood approach of negative gearing being thrown out the door like the Labor Party wants to do – well, that spells danger-danger-danger. Thanks very much.