Treasury has backed government intervention in the energy market, saying it would support a move to “quickly and directly” reduce prices to help households and businesses struggling with soaring inflation.
In a Senate estimates hearing on Tuesday, Luke Yeaman, a deputy secretary in Treasury, said that while the department would normally support staying out of the market to allow “helpful adjustment” in response to price signals, the war in Ukraine had shifted its thinking.
“In most circumstances, Treasury would support such an approach, however the circumstances of war-driven price shocks are different and outside the frame of such an approach,” Yeaman said, reading an opening statement from Treasury’s secretary, Steven Kennedy.
“In our view, such shocks bring into scope government intervention.”
Yeaman said “unusually high prices and profits for some companies” were outside normal investment and profit cycles and had led to a redistribution of income and wealth and a disruption of markets.
“The same price increases are leading to a reduction in the real incomes of many people, with the most severely affected being lower income working households.
“The energy price increases are also significantly reducing the profits of many businesses and raising questions about their viability.”
The statement said any measure introduced by the government needed to be temporary, regularly reviewed, and mindful of not contributing further to inflation.
“This would suggest to us, that interventions that directly address the higher domestic thermal coal and gas prices are more likely to be optimal.
“Australia is uniquely placed to pursue this type of intervention given it is a net exporter of energy.”
It also suggested that the individual policies of states and territories ought to be considered, amid speculation about a domestic gas reserve for the east coast gas market.
When pressed on what policy measures the department would support, Yeaman said a range of options were being canvassed, but suggested it wanted to see action quickly.
“Things that act quickly and directly on the price are going to be most effective in our view … in helping people to deal with the current energy price shock” Yeaman said.
The Nationals senator Matt Canavan asked whether the government would consider measures to unlock supply, saying Australia could help allies overseas with coal and gas exports.
Sam Reinhardt, also a deputy secretary in Treasury, said there were measures in the budget that would increase the capacity in the grid and put downward pressure on the prices, but these were “years” away from coming into effect.
The government has been flagging intervention in the energy market after the budget forecast a 56% hike in electricity prices over this financial year and next, with gas prices up 44%.
It has tasked the ACCC with reviewing the code of conduct covering the gas industry, seeking recommendations for toughening the current voluntary code of conduct for the sector, with a report expected by the end of the month.
The resources minister, Madeleine King, said on Tuesday there was some urgency to the issue, responding to calls from the Australian Workers’ Union to have a price cap in place by December or face the closure of manufacturing businesses.
“I totally agree we have to think it through very quickly, and that’s what all our respective departments and the ACCC are absolutely focused on,” King told the ABC.
“It affects manufacturers, it affects industry, it affects everyday consumers wanting to heat their house in the eastern states.”
However, she said the government’s response would also need to consider the impact on trading partners such as Japan, who expected Australia to honour long-term supply contracts and remain a “reliable and trustworthy supplier of energy”.
King indicated the government was also looking to the Japanese for future investment in the critical minerals industry. She will travel to Japan next week.