The Business Council of Australia (BCA) welcomes the opportunity to provide a submission to the consultation paper for the proposed Hydrogen Production Tax Incentive (HPTI). A well-designed HPTI, alongside other measures, can provide the foundation for Australia to be a competitive destination for hydrogen production.

A successful transition is being able to achieve a net zero economy while maintaining energy security, reliability affordability, and our international competitiveness – each vital to maintaining living standards and economic prosperity. Consistent with these objectives, the hydrogen industry has the potential to deliver new direct jobs, set Australia up with low cost, low emissions energy, drive economic growth and help diversify our export base.

The eligibility criteria and design of the HPTI must not be so restrictive as to limit support for projects that otherwise meet the policy objectives, or that may otherwise result in investment going overseas. Many of these projects will deliver benefits across local communities and supply chains, but at the same time, the Community Benefit Principles must not be so narrowly or rigidly defined as to undermine the success of the HPTI. It is important to be aware that these principles, while positive in the broad sense, risk increasing costs and offsetting competitive gains achieved through the HPTI. There is evidence emerging in other countries that providing subsidies has increased project costs, particularly when labour and product markets are tight.

The Future Made in Australia agenda reflects the balanced intent of the Government to craft an Australian response to the US Inflation Reduction Act (IRA), as called for by the BCA. Australia should respond if other nations are taking significant action to attract investment. Ideally, this is achieved by learning from the errors made in other programs and getting the investment fundamentals right. As with any policy though, there is a need for firm guardrails to ensure the policy is a success, there is judicious use of taxpayer dollars, and to deliver a sustainable and enduring policy agenda that allows businesses to plan confidently. The BCA has previously proposed a set of guardrails to help select priority industries and develop any policy response:

• All investments must be expert-led, with expert advice provided to government as the origination point.
• The process must be open, transparent, evidence-based and unimpeachably independent.
• It should be carefully targeted and avoid parameters which can be broadly interpreted.
• There must be the scope to withdraw, or limit, funds based on outcomes being missed or achieved.
• We must not invest in projects that can stand alone from the outset with private investment, or those which will never stand alone without government support.
• All our investments must be in areas in which we have a comparative advantage and where the investment helps those projects get to market faster, or there is clear national interest in making that investment.

Just as Australia cannot sit still while other countries are increase their incentives, nor can we sit still while they are growing their competitiveness at a foundational level. To reinvent our economy we must, as a point of national urgency, become a more competitive place to do business. This requires a focus on getting the fundamentals right to make Australia an attractive investment destination through reform of our tax system, easing the burden of regulation, a streamlined project approvals process, a high-quality skills and education system, a well-managed migration program, a streamlined foreign investment screening regime, and improvements to the workplace relations system. Getting these fundamentals right will spur innovation and lift productivity. Consideration should also be given to the incentives and barriers around the development of the infrastructure to support hydrogen production. With incentives aimed exclusively at hydrogen production at the expense of all other inputs, those investors tasked with developing the necessary infrastructure, are faced with significant capital outlay with no (tax incentive) upside.

Read our full submission here.