Childcare is about reform, not welfare

It’s all about getting well-qualified women back into the workforce, not a means-tested handout.

 With the release of the government’s childcare policy in response to Labor’s policy announced in last year’s budget reply, the analysis will quickly turn to which is better for working families. But it’s the reform dimension that matters most for the nation’s future.

While well-off blokes complain about their top marginal tax rate of 47 per cent, KPMG analysis https://assets.kpmg/content/dam/kpmg/au/pdf/2019/case-for-further-investment-in-child-care-subsidy-october-2019.pdf reveals that under the current system mothers face workforce disincentive rates of anywhere between 75 per cent and 120 per cent.

It’s these punishing workforce disincentives that are holding back women’s participation in the workforce and the productivity gains they would deliver to the nation.

Both the Coalition’s and Labor’s policies reduce these disincentives, the Coalition’s policy for 268,000 mothers and Labor’s for more than one million mothers.

The Coalition’s policy abolishes the childcare subsidy annual cap for high-income households, which is a good move that improves work incentives for 18,000 mothers. Labor’s policy removes the cap for all mothers.

The Coalition’s policy applies only for families who have two or more children under the age of five in childcare whereas Labor’s applies to families with one or more children in childcare.

On the other hand, the Coalition’s policy increases the maximum subsidy to 95 per cent whereas Labor’s increases it to 90 per cent.

The time mothers spend out of the workforce explains much of the gap between women and men in pay, income and superannuation payouts.

These gaps are not closing fast under existing policy settings. Based on the recent rates of reduction in the gender pay gap, still at 20 per cent, it will take until 2046 for it to be eliminated.

As a society, we need to recognise that we undervalue the unpaid work of women – having babies, caring for children in their infancy, doing housework and looking after elderly parents.

Women should not be treated as inferiors in the paid workforce simply because they have wombs.

We encourage women to obtain a good education, so much so that 58 per cent of students in higher education nowadays are women, but then we punish mothers for working more than three days per week.

And when women take Commonwealth paid parental leave, we deny them superannuation contributions, ensuring the gender superannuation gap remains wide open.

It need not be this way. While Labor’s and the Coalition’s childcare policies are moves in the right direction, the ultimate reform is a shift to universality.

A universal system would boost GDP by twice the budgetary cost.

That’s because the women who are being held back by the current system are, on average, younger and better skilled than the general population.

By choosing to work more hours, unimpeded by high workforce disincentive rates, these young, skilled women would boost both workforce participation and national productivity.

No one questions the universal availability of state-run schooling of Australian children. If wealthy parents want to send their children to a state-run school free of charge they’d be perfectly entitled to do so.

Yet if the child is four years old, not five, we apply means tests to working mothers based not just on their incomes but on those of their partners as well.

Neither Medicare nor the NDIS is means tested. Neither are state school or university education a handout. So why is childcare support still considered a welfare payment bestowed on women through the benevolence of a paternal government?

Labor’s budget reply announcement envisaged a move to universality over time. The Coalition’s policy is still based on the philosophy that the childcare subsidy is welfare, the government having criticised Labor’s policy for delivering substantial benefits to high-income households https://www.afr.com/politics/federal/morrison-attacks-labor-s-childcare-policy-as-too-generous-for-the-rich-20201009-p563k9

Only by moving over time to a universal childcare subsidy can we expect to see the full potential of working mothers being unlocked for the economy, unhindered by high workforce disincentives.

Craig Emerson is managing director of Emerson Economics, a distinguished fellow at the ANU, director the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.

A carbon target would be a boost for the bush

If the PM refuses to commit to net zero by 2050, it’s not inner city types who will miss out but Australian farmers denied the carbon storage business opportunities of the lower-emissions global economy.

As Prime Minister Morrison dials into President Biden’s climate summit this week, he can seize a one-in-a-century opportunity for Australia, or he can place our country in long-term economic jeopardy.

Most of our major trading partners have committed to achieving zero net emissions by 2050 or earlier, with China at net zero by 2060. Australia has not done so.

In the last few days, the United States and China have agreed to work together and with other countries to raise ambition and strengthen implementation of the Paris Agreement.

If our major trading partners continue to consider Australia lacks ambition on emission reductions, and their ambition is backed by actual policy, they will not tolerate the undercutting of their clean-energy industries by our emissions-intensive exports.

Already the European Union is developing a carbon border adjustment mechanism, scheduled to start in two years’ time, that will apply carbon levies to imports of goods whose production is emissions intensive.

While Australia doesn’t export large quantities of emissions-intensive goods to the European Union, China, as our largest trading partner, does – and China uses lots of Australian fossil fuels. As European industries switch to clean-energy technologies, they will apply carbon levies to emission-intensive imports from China, which will reverberate back to Australia.

Economic modelling for a recent Melbourne Economic Forum https://www.afr.com/policy/economy/china-s-net-zero-target-to-hit-gas-coal-exports-but-boost-iron-ore-20210407-p57h6v suggests that implementing China’s own target of zero net emissions by 2060 would slash the country’s import demand for coal and gas by more than 65 per cent.

Japan and Korea have committed to net-zero emissions by 2050 and they are already looking to Australia to partner with them to accelerate the development and application of new clean-energy technologies.

If Australia was to join with other countries in lifting its ambition, it could become a powerhouse for exporting goods produced by clean-energy technologies as well as selling lucrative carbon credits.

Australia’s potential as a clean-energy superpower has been canvassed widely by Professor Ross Garnaut and others. Integral to that future will be the production of hydrogen from hydrocarbons with carbon being captured and stored, and from renewable energy. Both pathways are designed to deliver zero-emissions hydrogen.

Australia’s abundance of solar and wind power offers us a strong competitive advantage in the production of hydrogen and from it, clean steel and aluminium, which would be a boon for regional Australia.

Our farmers, too, can be big winners from decarbonisation. Of special relevance to them in any policy of zero net emissions is the word “net.” Countries do not necessarily expect to be emitting no carbon in 2050 but to be emitting none in net terms.

Their remaining emissions, therefore, will need to be offset by carbon storage through nature-based and geological methods.

Australia’s vast endowments of land could be utilised to absorb carbon from the atmosphere through agricultural, forestry and other land-use projects. By cultivating mulga, brigalow and other vegetation, as well as other ways of storing carbon in soil, our farmers could generate valuable carbon credit units that could be traded internationally.

Already Australian farmers are generating carbon credit units that are being purchased by Australian businesses and governments that want or need to offset their emissions.

Australia also has the geology for large-scale carbon capture and storage. Last September the Prime Minister promised a methodology for this technology to generate Australian carbon credit units within a year.

At present Australian carbon credit units are fetching at home around A$19 per tonne of carbon sequestered.

But in the European Union the going price of a carbon credit unit is 45 Euros, which is around $A70.

Yet Australian farmers cannot sell carbon credit units in the European Union or anywhere else for that matter.

The integrity of Australia’s carbon accounting system and of our Clean Energy Regulator would offer a competitive advantage for Australian carbon credits units in an international carbon trading system, whether global or bilateral.

Australia is seeking to negotiate a free-trade agreement with the European Union. But the Europeans are not interested in including trade in Australian carbon credit units at this stage, concerned that we might simply increase our emissions elsewhere in the country.

Japan and Korea are more prospective purchasers of Australian carbon credit units. Neither has opportunities for large-scale carbon sequestration and both are vulnerable to trade restrictions on their exports to high-ambition countries of manufactured goods such as vehicles and machinery.

While the Biden summit will not be make-or-break for Australia, it will be followed by a G7 meeting hosted by Britain’s Prime Minister Boris Johnson in June, to which Australia has been invited, and the next United Nations Climate Change Conference in Glasgow in November.

If Australia refuses to commit to net zero emissions by 2050, our export industries will not only be hit by new trade restrictions, but our regional and farming communities will also miss out on enormous new business opportunities.

Continuing to be seen as a climate-change laggard is not just bad policy for Australia it will become increasingly bad politics for the Coalition government.

Craig Emerson managing director of Emerson Economics, is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.

Solar and storage are the answers

Community batteries will harness surplus solar power and make coal an even bigger liability than it already is.

Digging up vegetation compressed more than 100 million years ago and burning it to make steam to drive turbines surely can’t be among the top one thousand smartest ideas of the 21st century.

A source of thermal energy that will outlast any coal reserves and is very cheap to tap is the earth’s nearest star – the sun. The only problem is that, unlike electricity from burning coal, solar power isn’t available at night time.

Unless it is stored.

Batteries are the answer.

Australia has the highest uptake of rooftop solar in the world, with more than 21 per cent of homes having solar panels on its roof. But only one in 13 Australian solar households also have battery storage.

At last week’s ALP national conference, Labor leader Anthony Albanese announced a policy of rolling out community batteries in suburbs and towns around Australia to store rooftop solar electricity generated during the day for use in the evenings.

Consider the basic economics: it’s much more efficient to build a single community battery for, say, 100 households, than every household having to buy and pay for the installation and maintenance of its own battery.

The McKell Institute has produced a report, Power to the People  https://mckellinstitute.org.au/research/reports/power-to-the-people-proposals-to-increase-the-rollout-of-community-batteries/ analysing the economics of community batteries.

A community battery can aggregate the rooftop solar power generated in a local community and make it available to that community in the evenings when it is most needed, reducing electricity bills.

A further economic benefit is that community batteries can enable solar households to sell any excess electricity into the grid in the evenings when prices are high.

Community batteries can also avoid the cost of local upgrades of electricity distribution systems to strengthen the grid, further reducing electricity prices.

Under proposals being considered by the Australian Energy Market Commission, solar households could face charges to export surplus power to the grid during the day https://www.afr.com/companies/energy/solar-households-face-tougher-rules-20210224-p575c7

By storing that excess solar power, community batteries can help solve the problem of too much solar electricity being sent into the grid during the day.

Already community batteries are being rolled out right around Australia – but on a limited basis. Labor’s policy would accelerate the rollout.

Grid-scale batteries are being installed at the sites of existing coal-fired power stations and beyond https://www.afr.com/companies/energy/hunter-set-for-world-s-biggest-battery-20210204-p56zji Those big batteries adjacent to coal-fired power stations will utilise the huge transmission systems that send electricity to major population and industrial centres.

The Rewiring Australia policy announced by Anthony Albanese in his budget reply speech last year will help connect large-scale solar and wind power generators to these established transmission systems.

Then there’s wet batteries: pumped hydro that will complement grid-scale and community batteries in solving the storage problem. At pumped hydro sites, renewable energy is used during the day to pump water back up for release in the evenings when electricity is expensive.

As the storage problem for solar power is solved, the older coal-fired power stations will come under increasing competitive pressure. Many are already losing money to renewables during the day and will become more unreliable as they age.

Chair of the Energy Security Board, Dr Kerry Schott, has advised that coal-fired power stations are on track to close four or five years before the end of their rated lives as plentiful renewable energy coming online makes them unprofitable https://www.afr.com/companies/energy/coal-power-stations-going-broke-schott-20210216-p572xn

Under its gas-led recovery plan, the federal government has threatened to use its own corporation – Snowy Hydro Limited – to build a 1000 megawatt gas-fired generator at Kurri Kurri in the Hunter Valley if the private sector does not reach a final investment decision by the end of this month https://www.afr.com/policy/economy/angus-taylor-s-home-made-power-crisis-20210321-p57cq0.

Gas is poorly suited to generating baseload power. During the day, like coal, it will be beaten by renewables with their zero fuel costs.

But gas can play an integral part in the electricity-supply task by firing up during evening peak and intermediate periods.

Instead of clinging nostalgically to coal-fired generators and commissioning feasibility studies into new coal-fired power stations https://www.afr.com/companies/energy/collinsville-an-unlikely-front-line-in-climate-wars-20200209-p53z4y conservative politicians need to recognise that the private sector simply will not build any more of them.

Conservatives might claim community batteries will never catch on. But that’s what was said about television sets and computers.

Conservatives who cling to ageing coal-fired power stations will make us a prime target for carbon tariffs https://www.afr.com/policy/energy-and-climate/run-down-by-the-green-tariff-train-20210214-p572f6 and other international trade restrictions.

By exploiting its abundance of solar and wind energy and supporting it with battery storage, Australia can become a global clean-energy superpower while delivering low-cost, reliable power to the people.

Craig Emerson is chair of the McKell Institute, a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.