Carbon tax: friend or foe?

The carbon tax could be good or bad.
Who the hell knows?

As of this Sunday, some in Australia would have you believe the world is going to end.

Yes, that’s the day the carbon tax officially comes into effect in Australia.   The Government’s big initiative to fight climate change; it’s being championed as ‘world-leading’ and ‘culture-changing’ by its proponents.

I had intended on doing a major piece of research into this, but seeing as it’s just for my blog and I’ll probably only get 100 people reading this, I had to prioritise the job that, you know, pays me.

However, I do feel there are a few points that need to be made.  And it starts with a conversation I had a few days ago.

I was talking to an eminently successful businessman1 earlier this week and asked him straight: What do you think about the carbon tax?  He replied, “If you want to change behaviour you have to hit the hip pocket. A market-based mechanism is the way to do it because it impacts at a relative rate.”

This led to a back-and-forth between us on what a shift in consumer behaviour actually is.

Is it using less power?  Is it using our resources more effectively?  I reckon so.  Surely that’s what we want people doing?  If we want to reduce CO2 emissions, then we want people using less stuff that emits CO2.

Obviously, taxing stuff to make it more expensive seems like an effective way to do it?  If you increase taxes on cricket bats, less people will buy them.  The problem is, I think it’s not as simple as that.

Anyone who knows anything about economics2 will tell you that raising taxes isn’t an effective way to encourage consumer behaviour.  It saps confidence.  It stops people spending and stagnates economies.

Given we’ve just emerged from a global economic downturn, and another one could turn up any day now, implementing a new tax is not the best way to protect the economy.

The Government has persisted with an argument that the tax is only on the big polluters – not everyday citizens.  But I don’t reckon this passes what I like to call the ‘common sense test’.3

Taxing companies sees their revenue drop.  Therefore, in order to reclaim this lost revenue, companies will shift costs (usually by raising prices or reducing the size of their workforce).  Either way, everyday citizens are the ones who’ll face the effects – either paying more or losing their job.

One possible alternative the Government should consider is not throwing around so-called compensation or household assistance packages, but using a carbon tax to offset a cut in company or payroll tax.  By getting rid of these inefficient taxes they could free up businesses to not offset the impact on their revenue and simplify the tax system.

I actually asked a friend of mine who’s an economist whether the carbon tax was sensible economic policy.  He reckons it creates a misallocation of resources. 

He used an example of three grocery stores in Bondi and the Government choosing to tax one of them.  The flow-on effect of this is that the taxed business becomes uncompetitive.  If you replace groceries with aluminium-smelting in this example then this is what the carbon tax will do.

Furthermore, the Government is implementing some fairly Orwellian tactics to stop any vocal opposition to its tax. 

For example, the Department of Treasury released modelling claiming the carbon tax’s impact on prices will be negligible for a variety of products.  One such product is beer which Treasury reckons will only face price increases of around 1% despite the fact that beer is pumped with gases, uses tonnes of electricity in factories, is delivered around the country on trucks and then stored in giant refrigerators.

According to the Australian Hotels Association’s budget submission, they expect price increases to products like beer of around 5% or higher.  Other sectors like dairy manufacturing are expected to be hit with a 12% rise.

However, the ACCC has threatened to fine anyone it finds to be making ‘misleading’ statements about the impact of the carbon tax on price (as mentioned by David Bradbury in Question Time just this week). 

What this means is that industry bodies like the AHA can’t really talk about their concern for their industry and members because they don’t have exact figures to back up their claims, meaning they could be subject to the ACCC’s wrath.

It’s the parliamentarian equivalent of me saying “Anyone who calls me an idiot will be fined.”

So the long hand of the law is wrapped firmly around the debate.  And this doesn’t even touch on the fact that it will likely be completely ineffective to combat global warming given the decided lack of action being taken by the rest of the world.

Shanghai, for example, has as many people living in it as all of Australia.  It also exists in a 24/7 haze of smog due to the non-stop pollution being pumped into the atmosphere.  The lookout is absurd as you can barely see 100m on the horizon. 

The argument goes: if one city is generating more pollution than our entire country, then surely the ‘net impact’ of our carbon tax, while figuratively important domestically, is largely ineffective in reality.

So there you have it.  As you can see, I’m not much of a fan of the carbon tax.  However, it would be remiss of me not to touch on the Coalition’s so-called alternative.

Let me be blunt: their ‘direct action’ plan is pretty rubbish.  As my ‘businessman’ friend told me – direct action is far more expensive because it doesn’t incentivise any change in behaviour.  All it does is try and offset current emissions by spending money. Furthermore, it’s also irresponsible in a fractious economic environment.

So, the unfortunate reality is that both major parties’ plans aren’t great.  What do I think we should do?  I’m glad you asked!

I’m fairly certain that, whatever you think of the science of climate change, pumping pollution into the atmosphere can’t be a good thing.  The problem is, there are no effective alternative technologies to switch over to.

So, why don’t we try and create them!  Surely the Government should be taking the revenue generated by the carbon tax and throw as much as possible into research & development of clean energy technologies. 

The sooner we create viable and effective clean energy solutions, the easier it will be to change to a low-carbon economy.

Well, congrats!  You’ve got me to write over 1,000 words on the carbon tax, so if you’re still with me: thank you.  If you’ve left the site and not finished reading, well, I hate you too.

If you disagree with me or want to add ‘constructively’ to the debate, please comment as I’d love to hear from you.

1: In other words, way more successful than me
2: I’m not including me in that sample
3: I always fail this test


David Maher said…
Hi Dylan, from a science/economics point of view, I cannot see at all how the carbon tax could reduce Australia's carbon footprint (I should probably write my own article on this...).

From a political perspective, the whole thing appears a schmozzle. It does not come across as a win - instead, after spending so much politcal capital making this a reality, everyone seems to be ducking for cover.
Dylan Malloch said…
Great points Dave! Thanks for the comment.