Economist says Australian MPs ‘abusing the term’ in applying it to any decision to pull approval for Carmichael mine

This article is more than 2 years old

This article is more than 2 years old

A decision by a future Australian government to stop Adani from developing its Carmichael coalmine would not increase Australia’s sovereign risk, a new report argues.

Economist Saul Eslake, who wrote the report for the Australian Conservation Foundation, found neither Australia’s sovereign rating, nor the ratings of states and territories, had ever been affected by environmental policy decisions made by governments, although such decisions could affect foreign investors.

ACF commissioned the report to address the use of the words “sovereign risk” by federal MPs in relation to the Adani project.

In March the opposition leader, Bill Shorten, said he did not like the Adani mine but scrapping it would be a sovereign risk.

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He made the remarks after former ACF president Geoff Cousins gave an interview on the ABC’s 730 in which he said the Labor leader had told him he could commit to revoking Adani’s mining licence but then changed his mind.

The resources minister, Matt Canavan, has described Shorten as “walking sovereign risk” for hardening his stance on the project.

Eslake said the term “had a much more precise meaning in financial markets than the way it’s bandied about by politicians.”

“Sovereign risk is about the risk that a government defaults on its debts and clearly Adani has nothing to do with that,” he said.

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“To say a government decision to withdraw the Adani Carmichael mine permits would be a sovereign risk would be completely abusing the term.”

The report argues that over the past decade the term sovereign risk has been used more broadly to apply to almost any government policy that might adversely impact investors.



But it goes on to say that Australia’s sovereign debt rating has not been affected by past policy decisions made by governments on environmental grounds, such as bans or restrictions on unconventional gas exploration in the states and territories.

“There have been numerous examples in Australia over the last 40 or so years where governments have made these decisions that have had some impact on foreign investment without impacting our credit rating, or the credit ratings of states, or without having perceptible effects on flows of foreign investment,” Eslake said.

“There’s no reason to think that a decision by future governments to revoke whatever approvals might have been given by another government for the Carmichael mine might affect our credit rating or material ability to attract foreign investment.”

Rob Henderson, a former chief economist of markets for NAB, said there was no evidence that making decisions on environmental grounds impacted Australia’s credit rating.

He said the Gillard government’s minerals resource rent tax was “a glaring example” of a substantial policy change that had an impact on the mining sector.

“What happened afterwards? The mining sector had the largest investment boom in its history,” he said.

“The other thing that is the elephant in the room is that all the major Australian banks have effectively ruled out investing in the Galilee Basin mines on environmental and climate change reasons.”

Comment was sought from the opposition leader.

