Economics
Dutton’s nuclear plan makes good sense if you’re happy with an $11 000 annual power bill
Nuclear power could be a good idea for Australia.
That is, it would be if we already had a network of nuclear power stations, and if we had an entirely different geography – perhaps if we were located 15 degrees closer to the south pole where the winter nights are long. As Simon Holmes à Court said on Four Corners last week “nuclear energy has a place, but that place is not Australia.”
The Four Corners program – The future of nuclear power in Australia – explores virtually every argument for and against nuclear power in Australia.
The basic argument for nuclear power is that it provides clean, reliable, continuous, base-load power. Once capital costs are covered – which are usually huge – nuclear power generates electricity at very low cost.
That’s why it makes sense for countries that already have nuclear power to keep them running.
It’s also why it makes no sense to build new ones, because the capital cost is massive, particularly in a country starting from scratch like Australia, which is already investing in low-cost renewable energy, and has effectively unlimited wind and solar resources. As Malcolm Turnbull said on that same program, the idea of nuclear power for Australia is “recklessly stupid and dangerously stupid”.
Another former leader of the federal Liberal Party, John Hewson, has a Saturday Paper contribution The opposition leader’s nuclear bullshit. It’s a systematic rebuttal of claims made by the opposition and the nuclear power industry, that nuclear power is an economically affordable option for Australia. Looking at the way the nuclear industry has lobbied in North America (on full display in the Four Corners program), he raises the issue of corporate power:
But the basic question that never seems to be asked is whether the electricity sector is being run in the interests of electricity consumers or the nuclear industry. This needs to be asked in the Australian context, in relation to Dutton’s persistence with his nuclear option against the massive and still-mounting global evidence of its cost and time delay disadvantages, and the hollowness of his commitments to cheaper electricity.
This is a highly relevant issue, because nuclear power, like the coal-fired generators it would replace, is the realm of big corporations. Dutton says that the plants in the opposition scheme would be government-owned, but that doesn’t shield us from the power of the big nuclear companies. In terms of political power it doesn’t matter much what name appears in the “equity” field in the balance sheet.
Apart from a few large storage projects, Snowy 2.0 being the most prominent, everything in generating renewable energy is comparatively small-scale, right down to rooftop solar. A few public companies may be involved, but most power – physical and political – will be in the hands of private companies, cooperatives, and individuals.
It seems that every nuclear power plant recently commissioned or under construction has suffered cost blowouts (not just 10 to 30 percent but massively over-budget) or delays of several years – usually both. To be kept viable nuclear plants have had to be supported with big government subsidies, and when completed they have resulted in extraordinarily high power prices: those capital costs and subsidies have to be repaid somehow. Eric Campbell has a post on the ABC website about cost overruns, delays and high electricity prices associated with nuclear power projects in America: What nuclear power in the United States tells us about the Coalition's controversial energy policy.
The industry’s response to these cost overruns and construction delays, echoed by the opposition’s Ted O’Brien, is that these are teething problems in a new industry. Any plant now established will be cheaper because the industry has learned from these blowouts and delays. That argument might be credible if nuclear power were a new technology, but it’s had 70 years to develop low-cost technologies.
There is one new technology in the Coalition’s mix however – small scale modular reactors. They could be used to heat a liquid with high thermal capacity, usually a molten salt, to act as a battery. So long as the liquid holds its temperature it can be used to drive turbines to generate electricity. The technology of using heated salt as storage is already developed, using the simple technology of convex mirrors to concentrate the power of sunlight on the salt. There is a small-scale plant operating at Perenjori in Western Australia and a full-scale project is underway at Port Augusta. Why use a nuclear reactor to heat salt when there is a cheaper technology – mirrors – to achieve the same end? Small scale modular reactors are hardly off the drawing board and the two pilot projects in North America are experiencing many problems.
The Coalition and the nuclear industry have locked themselves into a model of “base load” power, with turbines constantly spinning, and boilers kept hot. Coal fitted well into that model, as does nuclear. It used to be an essential feature of almost any power supply system. But batteries – large scale and domestic (including electric vehicles) – and pumped hydro systems, change that, because they provide responsive dispatchable power. As an analogy think of the difference between a tap without a handle left running and a tap with a handle.
Also there are many technologies and supporting market mechanisms, industrial and domestic, that can shift electricity use to times when the sun shines and the wind blows. It’s strange that the Coalition, of all parties, is going for a high-cost, state-owned system, reminiscent of Soviet Union central planning, when there are flexible market-based mechanisms in place or under development.
It’s hard to take the Coalition’s nuclear idea seriously, other than as a political tactic to cause uncertainty among investors, thereby disrupting our transition to renewable energy. Nuclear power for Australia is so economically ridiculous it should never have come up in the first place. The government has initiated a parliamentary inquiry into nuclear power, to report by April. That’s a short time-frame, but when the economics are so heavily against nuclear, even with the most favourable assumptions, a detailed inquiry is not necessary.
This initiative is political, partly to try to flush out cost estimates from the Coalition.
The political risk is that opposition to nuclear power will come to be some “left” or even “woke” objection to nuclear energy, particularly if that opposition is mainly about the risks of nuclear power, a risk that is easily dismissed. Opposition to nuclear energy has to focus on the economics of the idea, particularly on concrete examples. The Four Corners account of a customer in Georgia, now paying $US618 a month because of a price hike to pay for a nuclear plant, could inspire a banner “$11 000 power bills – the cost of Dutton’s nuclear plan”.
The cashless ripoff
Surcharges on card transactions are in the news, with a report that the Commonwealth promises to crack down on surcharges by 2026.
Anyone who has ever worked in retail, or who has simply run the occasional charity stall, knows what a bother cash is. Cash is bait for ram-raiders: think of those “no cash kept on premises” signs you see on small businesses (optimistically assuming these idiots can read). Insurance companies impose high premiums on businesses that have cash holdings. Cash is the convenient vehicle for tax evasion and money laundering.
So why do many businesses impose a surcharge for cashless payments when it would make more sense if they imposed a surcharge for cash payments, and why are there groups and individuals lobbying to sustain cash as a means of payment?
If you keep an eye on your payments as you check out, you may notice that in some businesses, such as big supermarkets, there is no fee. The fees charged by small businesses seem to be all over the place: it’s hard to make any sense of them.
The Guardian’s Jonathan Barrett guides us through this landscape in an informative article “Opaque and complicated” card surcharges are costing Australians billions. Is an overhaul needed?. We know that by now only a little more than ten percent of payments are by cash. There has been another, less obvious, change: the use of debit cards has been growing strongly while the use of credit cards has been relatively flat.
Credit cards are a relatively expensive form of cashless payment, because they inevitably incorporate high fees to cover “rewards”, such as points towards travel. In a Reserve Bank Bulletin paper – The Effect of Least-cost Routing on Merchant Payment Costs – Boston Dobie and Benjamin Watson explain how different payments systems – credit cards, debit cards and eftpos – incur different fees. The cost to a merchant can vary between 0.2 percent and 2.0 percent of the transaction, depending largely on what sort of payment is used. Many merchants, particularly small businesses, have arrangements with their banks that average out these fees in a fixed amount. In the Guardian article linked above, Barrett neatly explains the effect of fixed fees, quoting Warwick Ponder of the Independent Payments Forum:
That Amex user standing next to you in the line should lean over and tap you on the shoulder and thank you for subsidising their next trip to Thailand.
The Reserve Bank and others urge small businesses using fixed fees to arrange with their banks to use “least cost routing” – that is to align fees with the payment systems’ costs, for the sake of fairness and competition. Big businesses, by contrast, have been able to negotiate very low charges, which is why they easily absorb them in general business costs. Consumer groups and banks want the surcharges to be prohibited. That is, they should be absorbed into the cost of doing business. Because businesses apply the surcharges only at the point of payment, they are not evident in posted prices.
Some merchants have been simply passing on the established fees, while others have been imposing surcharges way in excess of their costs. On their part, the bankers do not want to bear the blame for surcharges, as Belinda Grant-Geary explains in her Yahoo Finance article Major banks push to abolish “outrageous” charge for Aussies: “$4b nightmare”. That $4 billion seems to be a bit over the top – the banks suggest it is probably around $1 billion. In the same paper she quotes research revealing that the average cost of handling cash is around 3.9 percent of transactions. That easily eclipses the cost of cashless transactions.
+ surcharges?
So why do businesses persist with surcharges? One possibility, in line with the findings of behavioural economics, is that the cost of surcharges is plainly revealed in businesses’ accounts, appearing as a deduction from their sales revenue. The cost of reconciling cash registers, and carting cash to and from the bank is buried somewhere in “wages”. Another is that in places like market stalls, customers probably compare prices by reference to the price labels. The merchant who includes the surcharge on the label is therefore at a competitive disadvantage. This is a textbook case of the prisoners’ dilemma, the solution to which is to require the cost of transactions to be included in the advertised price, and to prohibit surcharges at the point of payment. And there is a number of businesses imposing high surcharges as an enticement to making payments by cash in order to evade tax. Any business charging 5 percent or more for non-cash transactions is probably avoiding tax, impoverishing its honest competitors and impoverishing the community.
In a Conversation contribution – Surcharges are added to most purchases, but what are the rules behind these extra fees? – Steve Worthington of the Swinburne University of Technology explains the rules and their origins. He points out, for example, that the ACCC rules that if there is no way for a consumer to pay without paying a surcharge, the business must include the surcharge in the displayed price. (This rule is easily circumvented by travel agents and sellers of events-tickets. The ACCC neglected to use the term “practical” way.) Worthington points out that the EU and many US states ban surcharges.
So are we approaching a time where businesses should impose a surcharge for using cash, or where cash disappears like the fax, or goes the way of the “cheque” as no longer being a means of payment?
In a Reserve Bank Bulletin paper last year – Cash use and attitudes in Australia -- Jack Mulqueeney and Tanya Livermore surveyed the decline in cash and the reasons many people hold on to cash. The decline in cash has been across all age groups, location (urban/non-urban) and income groups. People in high-income households are least likely to use cash, and people aged more than 65 are the most likely to hang on to cash. They found that over a quarter of respondents, regardless of how intensively they used cash, reported that they would experience a “major inconvenience” or “genuine hardship” if cash was hard to access or use. People in that 25 percent of respondents mentioned a number of practical reasons why they wanted to keep open the cash option: the main one was “privacy/security concerns”.
That concern shows an unjustified mistrust in our privacy provisions, and there are good public policy reasons law-enforcement authorities might want to trace purchases at firearms shops for example. But there are two other uses of cash that may have more legitimacy. One is the use of cash for children’s pocket money, as a tangible way they can learn about money before they cope with the more abstract world of money on screens. The other is the need of people collecting for small local charities, buskers, and others making small collections. They have apps to collect money, but it would be a gesture of goodwill, and help secure their social licence, if banks were to make these transactions free of charges. Otherwise buskers and the democracy sausage will be in peril.
In a speech at a conference in June, the Reserve Bank Head of Payments policy, Ellis Connolly, foreshadowed that the Reserve Bank will be reviewing retail payments regulation, including not only surcharges on cashless transactions but also buy-now-pay-later schemes. That review will shape the Commonwealth’s legislation for 2026 changes.
Connolly’s speech includes a table of fees on domestic and international transactions. We learn about them as soon as we leave Australia. There was a time, many years ago, when foreign travel was enjoyed only by the rich, and no one really worried if AMEX was screwing well-heeled travellers. The world has changed, and it would be unfortunate if the review doesn’t turn attention to fees charged to people holidaying in Bali or visiting relatives in Vietnam.
That’s all about our short and medium-term concerns to do with consumer transactions. In a session on the ABC’s The Money, Richard Aedy discusses with Richard Holden the future of money in its broadest sense: Today's money is mobile and digital. So how might it evolve?. Holden has no doubt that cash will disappear: the only matter is timing.
That’s before he moves on to wider issues about money in a global context. Just as fiat money (i.e. paper money) in the past displaced coin and precious metals, so too could new forms of money displace established fiat money, particularly for international trade and among poor societies bypassed by the financial system. He is wary about Bitcoin: for many public policy reasons it’s a poor model, but there are other models, necessarily involving government regulation, and unsurprisingly the established banks are less than enthusiastic about them.
Holden is author of Money in the 21st century: cheap, mobile and digital.
Inequality and poverty – stuff we don’t want to talk about
It’s so easy for journalists, lobbyists and politicians to talk about a “cost of living crisis”. According to that view of our economy we’re all doing it tough. For many the “cost of living crisis” means we are sharing the burden of the obvious economic incompetence of a Labor government.
The uncomfortable råeality is that there is no “cost of living crisis”. There is a downturn in the economy, resulting from many years of poor and politically opportunistic economic management. Some Australians, benefiting from unjustified tax and superannuation breaks, have never had it so good. Others have had to tighten their belts a little – defer buying a new car, take a holiday closer to home. That’s life. And then there are people, disproportionately young, who are saddled with the full burden of this downturn.
This is the picture painted in the Australia Institute’s inappropriately-titled report Doing it Tough: how Australians are experiencing the cost of living crisis. When asked how people’s financial situation compares with what it was two years ago, it’s:
- much better for 16 percent;
- about the same for another 30 percent;
- somewhat worse for the next 30 percent;
- and much worse for 22 percent.
That’s a specific and serious problem in distribution. But unfortunately the Australia Institute has joined the chorus talking about a “cost of living crisis”, contributing to the impression that the Albanese government has made life burdensome for us all, when their own research finds that 46 percent of respondents – almost a half – have suffered no financial reversal. The report finds that 72 percent of respondents felt their wages had grown slower than prices, but everyone goes through phases in their lives when their incomes rise more slowly than their expenses.
Some of those doing it hardest were lured into high housing debt by the Reserve Bank’s reckless policy of holding interest rates unrealistically low up until 2022. Most others, however, have been doing it hard for a long time in a society with steadily widening disparities in income and wealth. The post-Covid downturn is yet another burden.
This longer-term trend is the subject of a Late Night Live session – Does the perception of Australia as egalitarian hide a society that is spiralling into inequality? – with government minister Andrew Leigh as the program’s guest.
Leigh reminds us that Australia had a history, up to the mid 1970s, of a steady improvement towards egalitarianism. Since the 1980s, however, income inequality has been rising, and as income inequality rises, so does wealth inequality start to rise. We are now back to levels of income and wealth inequality last experienced in the late nineteenth century.
Trade unionism and a progressive tax system, backed by an egalitarian social compact, drove the drive to equality. Globalization and neoliberalism – the public ideas that inequality stimulates economic progress, that trickle-down economics distributes income, and that small government is a precondition for economic success – drove the reversal.
Leigh is confident that the process towards widening inequality can be reversed. The basic policy driver of a reversal has to be education. That’s because if the productive capacity of human capital can be kept ahead of the productive capacity of technology, gaps in income will close. He also mentions specific policies the Albanese government is implementing to help close income and wealth disparities, including the modified tax cuts, competition policy and protection of low-paid workers.
He does not go into partisan politics or into areas where the present government is avoiding reforms, such as in housing taxes. (Although Labor governments have been less enthusiastic about neoliberalism than Coalition governments, Labor has taken on many of its policies.) But he does warn that social democrats must recognize the genuine grievances of people who have turned to right-wing populists.
Leigh has had two passions throughout his life – competition and inequality. He has recently updated his book Battlers & billionaires: the story of inequality in Australia.
Leigh addresses the big policy picture. Writing in Eureka Street Joe Zabar, Chair of Mercy Works and a Visiting Fellow at the ANU’s Tax and Transfer Policy Institute, calls on all policymakers to be attentive to poverty in Australia: Out of sight, out of mind: Why poverty is missing from the election agenda. That’s particularly relevant in this prolonged pre-election period, when the talk is about a supposed “cost of living crisis”, rather than the hardship faced by those who really are doing it tough.
Zabar is critical of the economic system which accepts monetary policy as a necessary stabilization instrument, but does not compensate those who suffer its adverse consequences when monetary policy tightens. He calls for more generous unemployment benefits (“Jobseeker”) and a less tortuous path for those seeking income support in times of economic downturns.
Competition can be costly
Completion is always good for consumers, isn’t it?
That’s what we learn in first-year economics, and it has guided successive Australian governments in their obsession with competition policy.
But the elementary textbooks fail to remind students that competition has its own costs. Recognition of these costs drove the central planning systems of the Soviet Union, which was to be efficient because it avoided competition. If there were only one car company, it could enjoy economies of scale without bearing the costs of advertising, duplicated dealerships and other costs of the capitalist system.
That model overlooked the role of competition in driving innovation, improving production technologies and making quality advances, which is why the Lada never quite made it onto world markets, but that’s another story.
Central planning had it right, though, in recognizing that competition has costs, and by any defensible economic theory, the benefits of competition must be adequate to offset those costs.
Fortunately for capitalism there aren’t many situations where the costs of competition exceed the benefits of competition. They often result from ideological drives to privatization, where consumers enjoy no benefit because products are undifferentiated and there is no scope for innovation. Electricity distribution and retailing and private health insurance are two examples where consumers would be far better off with a government-owned or government-regulated monopoly provider.
Another case of excess competition has popped up without any help from the privatization zealots – online movie services. Writing in Yahoo Finance, Graham Cooke of Finder writes Major Netflix change drains Aussies' accounts as $12 cost hits $154. This price hike results from competition having come to Netflix’s hitherto de-facto monopoly market.
What’s happened?
Cooke explains that for a time Netflix dominated the market. Even though streaming services don’t pay content producers very well, if your movie wasn’t on Netflix you weren’t going to get anything. Netflix was well-populated with movies new and old, highbrow and lowbrow, and from different studios.
So your monthly Netflix subscription gave you virtually unlimited choice. If you wanted to watch Casablanca on Tuesday night, Megalopolis on Wednesday night, Love is in the air starring Ronald Reagan on Thursday night, you could probably find them all on your one account.
But as Cooke explains, the market is open to competition. More companies have come in, promoting their own list of movies, and the owners of those movies have been pulling them off Netflix. If you have a particularly catholic choice in movies, or if you share a smart TV with other people (including children), you are probably going to have to take subscriptions in other services and incur the bother of high search costs, or just not bother and buy some old DVDs.
Who wins? Not consumers. Not Netflix. And it’s going to be tough for those new entrants in a market they have wrecked.
No-one wins really. This is a classic example of deadweight loss.
If there is good to come out of this development it’s that many people will become so pissed off that they realize that competition has its costs, and push governments to re-nationalize electricity distribution and abolish private health insurance.
Disturbing trends in mortality data
Australia has nearly the world’s longest life expectancy, but when a team of researchers led by ANU demographers analysed the data in detail they found we may not go on enjoying such a high standard for very long.
Writing in The Conversation – Our new study shows life expectancy is stagnating for Australians under 50 – two of the researchers, Sergey Timonin and Tom Adair, give a basic report on their work, focusing mainly on their methodology.
Their findings, published in The International Journal of Epidemiology, are summarized by the title: Faltering mortality improvements at young-middle ages in high-income English-speaking countries. Within that group the countries that have seen the worst changes in life expectancy are the UK and the USA, particularly for people under 50. The authors summarize the results of the study:
In the pre-pandemic period, the increase in life expectancy slowed in all English-speaking countries, except Ireland, mainly due to stagnating or rising mortality at young-middle ages. Relative to other HICs [high-income countries], those born in Anglophone countries since the 1970s experienced relative survival disadvantage, largely attributable to injuries (mainly suicides) and substance-related mortality (mainly poisonings).
That same trend is now showing up in Australia. Timonin and Adair report on their findings relating to Australia:
In Australia, the results point to significant generational differences in life expectancy compared to other high-income countries. If the relatively high mortality rates of Australians born from the 1970s onwards continue into the future, then the gains in Australian life expectancy will likely slow. Our status as having one of the highest life expectancies of any country will diminish.
Their work was not directed towards specific policy recommendations, but their conclusions suggest a broad policy path:
… the results suggest real improvement could come through measures that reduce inequality and structural disadvantages that lead to poor health outcomes, such as improving access to education and security of employment and housing, supporting mental health and drug-related safety, and addressing diseases like obesity and diabetes.
Maybe the same forces are discouraging Australians from having children. On Wednesday the ABC released data on births, showing that the total fertility rate has fallen frm 1.9 in 2013 to 1.5 in 2023. Our net reproduction rate is now 0.72.
Real men and Coalition voters drive Ford Raptors
After a promising start, sales of fully electric vehicles have flattened in recent months, even though a flood of cheaper Chinese vehicles has come into the market.
Writing in The Conversation Milad Haghani of the University of New South Wales and Hadi Ghaderi of the Swinburne University of Technology give some explanation of this development: Electric car sales have slumped. Misinformation is one of the reasons.
Part of the explanation is that states have been scaling back their rebate programs and tax incentives.
Potential buyers are concerned about resale values, particularly the reduction in value associated with battery degradation. Also as the quality of EVs on the market improves so quickly, early models look less and less appealing.
But there is also misinformation and politicization.
Persistent misconceptions include exaggerated concerns about battery life, charging infrastructure and safety. Myths and misinformation often fuel these concerns. Traditional vehicle and oil companies actively spread misinformation in campaigns much like those used against other green energy initiatives.
and
The politicisation of green initiatives adds to the challenge. When electric vehicles become associated with a specific political ideology, it can alienate large parts of the population. Adoption then becomes slower and more divisive.
The Coalition’s nuclear energy policy, which is about the need for “base load” power, has added to this politicization. EVs, because they are really batteries on wheels, have a big role to play in providing responsive power to households and to the grid, obviating the need for “base load” power.
Maybe as yet EVs aren’t in competition with big gas-guzzling utes, but big utes are certainly getting tax breaks that don’t apply to vehicles that are kinder on the environment and other road users. The Australia Institute explains a provision designed to exempt commercial vehicles from Luxury Car Tax provides a loophole, for people buying these vehicles as passenger cars. The exemption is costing more than $250 million a year in revenue forgone. Luxury Car Tax and the ute loophole.
So when you see one of these monsters in spotless condition, with leather seats and a hi-fi entertainment system, and without the scratches in the tray that are characteristic of a real tradie’s vehicle, you are seeing yet another tax loophole exploited by the well-off.