2016 Federal Budget – What does it mean for the energy sector?

by Michael Fahey | Jun 02, 2016
While some have commented that the recent Federal Budget neglected the need for investment and innovation in the renewable energy sector, driven by the critical issue of climate change, upon closer inspection this may not be the case.

At the macro level, the good news is that the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA) will be maintained, albeit with a new focus “towards the government’s innovation agenda”.

The CEFC will now be responsible for utilising $1 billion of existing funding over the next 10 years to establish a Clean Energy Innovation Fund to assist with the commercialisation of emerging clean energy technology. This fund will be jointly managed by ARENA and used to finance its existing portfolio and activities.

Another driver for innovation is the enhanced tax incentive scheme for those investing in start-up enterprises, initially flagged as part of Prime Minister Malcolm Turnbull’s $1.1 billion National Innovation and Science Agenda. The key change here is that the holding period required for investors to access the 10-year capital gains tax exemption has been reduced from three years to 12 months.

This incentive should not be underestimated, as one of the primary reasons that many start-up enterprises fail is through lack of investment funding. There are many great ideas and innovations, particularly in the energy efficiency and renewable sectors, which may now come to fruition through this investment stream.

The tax cuts for the circa 90,000 small businesses across Australia with an annual turnover of up to $10 million, bringing marginal tax rates down to 27.5%, is also a potential growth driver for the energy sector. It seems logical that any small business owner might invest some of this money in lowering overheads through energy efficiency and cost savings – a solar installation is just one example.

This tax cut will continue to be rolled out over the next 10 years, eventually bringing the marginal tax rate for all businesses (regardless of size/turnover) down to 25%. Naturally this has caused some controversy, with some arguing that the ‘big end of town’ should not be getting the same tax break as a small business. However, putting this debate aside, it is arguable that some of this money will be dedicated to research and development – after all, no business survives without staying ahead.

Opposition Leader Bill Shorten’s Budget Reply did not vary greatly from the Federal Budget itself – the cynical would say that this is because of the looming election on July the 2nd. However, a key point of difference was the promise to secure 50% renewable energy by 2030, and through this measure boost employment in the sector. This is certainly an area that needs attention if we wish to keep up with the world in this regard.

Of course, some have argued that none of these measures go far enough, and perhaps more critically do not do enough to directly address the threat of climate change – this is a complex debate that is best left to the experts. On a positive note, Australia has always been at the forefront of innovation, and we have much to contribute to emerging technologies around energy efficiency and sustainability.

Leave a comment