Interview with Ross Greenwood on Sky News, Business Weekend

Ross Greenwood
Impact of gas prices on industry

ROSS GREENWOOD: Well, the shock in the federal budget without doubt is the forecast of a more than 50 per cent rise in energy prices and notably gas in the next two years. This not only puts enormous pressure on households, on inflation and interest rates but also on business from large foundries and smelters to your local chicken shop. 

Well this week, I caught up with Industry Minister Ed Husic and asked him if he’s worried for the future of his constituents, the industries and businesses of Australia. 

ED HUSIC, MINISTER FOR INDUSTRY AND SCIENCE: I’ve been concerned about the direction of gas prices for quite some time. On becoming Minister for Industry, it became clear that if we were going to do what we want, we said we would do through the course of the election, which was to revitalise manufacturing, and the public gave us the tick and elected us to get that going, that energy prices would be one of those things that would be lead in our saddlebags. I’ve been saying for quite some time that the greed of the gas companies has got to be checked. 

We’ve got to find a way to moderate prices. And there’s an expectation, Ross – understandable, common sense expectation – in the minds of the Australian public that if we’re blessed with so much of this Australian resource in gas, then we should be able to access it in a way that doesn’t go above export prices, that is much more competitively priced and ensures that we can see manufacturers and households get a reasonable price for the gas that they use. 

ROSS GREENWOOD: But, Ed, look, let’s be really blunt about this: the gas trigger so far doesn’t seem to have worked. The gas companies have clearly prioritised exports, and they’ve had the right to do so. So, is more needed to be done to ensure that industry doesn’t either go broke or just leave Australia and go overseas? 

ED HUSIC: That is my big concern, you’ve got one part of the economy – the gas producers – pricing in a way that’s putting pressure on other parts of the economy – notably manufacturers. And obviously, that is also felt by households as well. And you just can’t have that happen on a consistent basis. 

I mean, there are reports and the ACCC in its report that it delivered a few weeks ago indicated that manufacturers were feeling that pressure. And that would require us to look at a range of options to ease that pressure. And that’s what we are actively looking at now as a government about how to get a fairer approach in the way that contracts, in particular for gas, are framed and that much more reasonable pricing flows through.

We understand that the gas companies themselves have to cover their costs of production and generate a reasonable rate of return. But I don’t think you can, based on what you’re seeing in the behaviour of prices, believe that that is a reasonable rate of return. And we’ve got to fight for better, frankly. 

ROSS GREENWOOD: So, do you think that there’s a sovereign risk – if you suddenly renege on a deal with those gas companies – 


ROSS GREENWOOD: – they invested tens of billions of dollars into Australia after all. 

ED HUSIC: No. Let me make – sorry, I feel really strongly on this point, Ross, and sorry, I didn’t mean to interrupt you, mate. But the fact is this: contracts with other countries, overseas customers will be honoured 100 per cent -- one. Two. What we’re talking about is the uncontracted amounts. Those are the very amounts that were tapped into, Ross, when the Heads of Agreement was signed a few weeks ago that delivered 157 petajoules predicted for the coming year and deal with the concern that the ACCC had that we’d have a shortfall of 56 petajoules, right? So, two, that supply out of uncontracted gas, that will be delivered. 

So, there is no sovereign risk at all. But there is an absolute national interest here in ensuring that the supply that we have secured and the commitment that prices, there’s no way in the world that we’d have prices go above export prices, and that was secured under the Heads of Agreement as well, that that happened. 

Now, bear in mind, you had, Ross, the ACCC say that there were instances where gas producers were offering to local companies, gas prices that were higher than what they would even get away with in the international market. And they were doing that deliberately to force people to not accept gas because they just simply couldn’t afford to pay gas at those ridiculous artificial prices. And it’s that type of poor behaviour by gas producers that we need to clamp down on. And that’s why we put that limit in the heads of agreement to say that they could not offer prices higher than export. 

ROSS GREENWOOD: Because to me it makes absolutely no sense in Australia with so much energy, can’t afford to make bricks, can’t afford to make – I don’t know, aluminium, can’t afford to have foundries. These are the basics of the economy, Ed. And there’s a sovereign risk if we can’t be self-sufficient in those vital areas. 

ED HUSIC: And that is an absolute sovereign risk that we’ve been concerned about. And we’ve said, Ross, that we wanted – coming out of the pandemic we learnt and when we saw that the things that we needed weren’t there at the time we needed them most that we need today have a rethink. And that’s why, for example, we’re putting this $15 billion National Reconstruction Fund to build capability across a range of sectors to deal with just that. 

But I’ve said privately to the gas companies and now I’m saying it publicly that their pricing is working against our national interest when we’re trying to do what I said a few moments ago – which is build capability in key areas with manufacturing capability, in particular, being put under huge pressure by outrageous behaviour that we have seen and by pricing that is clearly out of step and does go way beyond covering the cost of production or reasonable rate of return. 

ROSS GREENWOOD: But it’s not just gas and energy prices that industry confronts right now – it’s changing industrial relations laws, it’s the fact that there are skills shortages and potentially higher wages. There’s also higher interest rates. So, all of this makes industry less competitive. 

ED HUSIC: Well, I think at the moment you’re seeing, Ross, wages increase because there aren’t enough people around. We haven’t got enough skilled people around, and the ones that are around are able to command a much better outcome on wage offers. And you’ve seen and you’ve picked up and you’ve heard from businesses, no doubt, them going out to market multiple times trying to find people and having to go out to market with a higher wage offering than what they have before.

So we recognise that as an issue and that’s why, for example, through the Jobs and Skills Summit we looked at what can we do not only in skilling up more people to be available for businesses in the way that they need but what do we need to do to bring in labour as well to meet those shortfalls so that we don’t see that type of pressure, wage pressure, being put on businesses. 

But at the same time too, mate, there are some people that have been low-paid workers who were at the frontline during the lockdowns that we experienced during Covid that I think they rightly and I think most Australians and particularly low-paid Australians reckon that they’re due a pay increase that they’ve been denied for too long because the previous government had as a design feature low wages. And that’s just not sustainable. 

ROSS GREENWOOD: So, does the potential of higher inflation, higher interest rates worry you? I mean, the budget indicates an increase in unemployment from three-and-a-half to four-and-a-half per cent, so that’s some 150,000 people who won’t have a job and will struggle to pay a mortgage. And that goes back to industry and the incentive they have to hire people. 

ED HUSIC: I guess a number of things in answering that question, Ross. The Treasurer outlined the expectation around the peaking of inflation, which would be expected later in the year and then it would moderate over the course of next year. That is really important, seeing inflation – we cannot afford for that inflation zombie to be roaming around the landscape. It’s sort of punched it’s way out of the crypt. We hadn’t had to experience high inflation for years now, for decades almost. And so it is important for industry to have low inflation because of its distortionary impact on the broader economy. 

That’s why, for example, at a point where you’ve got the RBA acting in the way that they are, lifting rates in the way that you reflected your question, we can’t see that go on for too long, but we can’t have the Reserve Bank act in one way and then governments then act in a way that’s counter to it. So that’s why we’ve been called on as ministers to look at where we can trim back spending, and we have done a big job in cutting spending and cutting the size of the deficit and returning the revenue uplift to the budget in a way that would be responsible fiscally so that it’s running in tandem with what you’re seeing the Reserve Bank doing. 

So – and this is all focused, and I certainly cut in my space, Ross, quite a bit of money out of my department because, again, industry wants us to beat inflation, not have that roaming around the countryside as its threatening to do. And if we get that right, then we’ll be much better economically in a stronger position. 

ROSS GREENWOOD: Ed Husic, Industry Minister, it’s always good to chat to you. Many thanks for your time today. 

ED HUSIC: I appreciate yours, thanks Ross.