First thoughts on proposed carbon tax

Julia Gillard has broken an election promise, and for once I approve. Her government has decided to accept the Greens’ proposal of an interim carbon dioxide emissions (CO2e) tax, to come into effect next year, before a likely transition to an emissions trading scheme (ETS). Precious few details have been released, so I’m yet to get over-excited, but it’s better than I expected. When Rudd was running the show, a crippled ETS was all that was on offer. Many criticised the Greens for rejecting it, and if the Coalition had won the election, they might have been kicking themselves. But it has turned out that sticking to principle has paid off, and now Labor has been forced to accept a CO2e tax.

I am worried about the vague promises of ‘compensation’ from Gillard, because if they are badly targeted, they will defeat the purpose of the tax. Going by her public statements, she seems to understand what it is meant to do, but the cost-of-living argument pushes many of a politician’s buttons, and it’s possible that the tax’s intended effects will be dulled (or even negated) by poorly designed compensatory measures. The Rudd government’s original ETS proposal was shot down by the Greens for that very reason. I think there’s going to be an awful lot of argy-bargy between Labor, the Greens and the Independents over the details of this one, and those disagreements could scuttle the idea.

It’s a pity the Liberals nailed their colours to the mast so early (“no new big tax!1!!”), because this would be a great opportunity to get overall tax burden reductions. All they have to do is demand a reduction in income tax (ideally by increasing the tax-free threshold) and/or the reduction or elimination of any number of nuisance taxes, in return for supporting a CO2e tax. But under Abbott, that door is closed, partly because of his contrariness, and partly because of their hodge-podge of statist interventions euphemistically called ‘direct action’. More fool them.

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21 Responses to First thoughts on proposed carbon tax

  1. JC says:

    They have already said that any intentions of compensation will only be to lower income earners and that they will receive more than they lose out, which seems to have morphed into a welfare scheme.

    The cost will obviously be close to the Treasury modeling of 26 bucks a ton

    I not surprised you think breaking a promise is no big deal, keyze.

  2. john walker says:

    What did you think of the piece by ian verenda?(not sure about spelling) In the SMH 5 march Saturday?

    Tony Abbott has certainly boxed himself into a corner, Turnbull has a lot more room to move on this one, no?

  3. JC says:

    yea

    Abbott’s really squirming now. I can see the fear in his eyes.

  4. john walker says:

    The article by
    Ian Verrender ( who has a science degree as well as an economics degree )

    http://www.smh.com.au/business/grim-science-lights-may-go-out-cutting-emissions-will-cost-20110304-1bhtj.html

  5. john walker says:

    a quote from the article:
    “Australia could radically reduce its carbon output if our two major power stations were shut down.

    Both are in the Latrobe Valley in Victoria. Both are old. Both are owned by foreign companies. And both use the dirtiest fuel available, cheap brown coal.

    What is not widely known is that both are on a financial knife-edge. Hazelwood, owned by British firm International Power, is one of the world’s dirtiest power stations. Yallourn, owned by Chinese firm TRUenergy, is only marginally behind Hazelwood.

    Both firms bought in between 1996 and 2000, using a sliver of equity and massive debt, when the issue of climate change was well known. Those loans are non-recourse. They don’t ricochet back to head office in the event of default. They are secured over the local assets. And should they fail, a vast syndicate of banks – including our four majors – will be heavily in the red.

    Just imagine the political leverage that kind of situation buys with intense lobbying from the power companies and the financiers.

    A carbon tax – or a higher price on emissions – would be enough to send them under. And that creates the possibility of power shortages, the kind of situation that voters don’t look kindly upon”

  6. Iain Hall says:

    Just explain to me how much difference this tax will make to the climate please because as I see it we are going to have all of the pain for no gain whatsoever and surely that means that it is ultimately a bad idea.

  7. Jarrah says:

    Iain, I’ll copy what I wrote at Catallaxy:

    Australia’s carbon dioxide tax, on its own, can’t have much effect on global emissions and therefore global temperature. On its own, it is not an engineering solution, but a political manoeuvre designed to overcome political obstacles to global action. Look up signalling and game theory.

  8. Adrien says:

    It’s a pity the Liberals nailed their colours to the mast so early (“no new big tax!1!!”), because this would be a great opportunity to get overall tax burden reductions.

    No they picked different strategy. Much better for democracy. :)

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