Australian carbon tax

This bit is sensible:

Australia\’s government launched a third attempt on Thursday to make carbon polluters pay for their emissions, unveiling plans for a fixed-price scheme from 2012 and vowing not to surrender this time in the face of fierce opposition.

Yup, a carbon tax, just what is needed. One single fixed price for emissions, whatever the source or technology.

But crucial details, such as the actual starting price and the level of compensation to be paid to affected industries or households, have yet to be agreed with the Greens. Gillard said no decision had yet been made on any of these issues.

This bit is not sensible.

Making it revenue neutral is very sensible indeed, one might increase the income tax allowance, reduce social security taxes of GST by the amount you think you\’ll raise. But even the idea of compensating the industries affected is ludicrous.

19 comments on “Australian carbon tax

  1. Yes, in the long term. But *in theory* compo would be paid as a short-term deal to cover transition costs, help people shut down unprofitable operations, retrain workers, etc.

    (obviously there’s massive scope for it to be captured, rigged and generally kept going forever, but that’s not *inherent*).

  2. Levying a tax on a harmless trace gas is not sensible, however it’s done. Just following the rest of the Western World to the economic grave.

  3. Ian Reid is correct.

    One of the reasons I like this blog is the tension between Worstall’s entirely logical economic arguments and his entirely illogical acceptance of the ‘CO2 emissions are bad’ myth.

    Tim, you are going to be so embarrassed in a few years when the sky stops falling, or at least when the loons run off and find a new sky falling.

  4. One single fixed price for emissions, whatever the source or technology.

    Really? You want to tax me for baking bread (emits carbon)? For keeping a compost heap (emits carbon)? For breathing (emits carbon)? That’s good of you Tim. kthx.

    If carbon dioxide increase in the atmosphere is really a problem (I am a sceptic, but let’s all pretend for now) then the only sensible thing to control is the extraction of carbon sequestred sources. Once any carbon is in the carbon cycle, it will be “emitted” over and over and over again, just as water in the hyrdrological cycle is emitted, over and over again.

    So, here’s some “simples”. Fossil fuel extraction is a large scale operation which is easily monitored, as opposed to “emission” which is not concentrated and hard to monitor. The only thing you should be interested in is addition of carbon to the carbon cycle.

    So, apply quotas to oil and gas and cola mining at the point of extraction. Issue each site with a quota, and reduce the quota year on year. No need for taxes, no more money going to the State. No complex monitoring schemes. No carbon “trading” exchanges needed. Just reduce extraction.

    Simples.

    The tax system is not there to alter behaviour. It is there to raise revenue. That’s all.

    Stop calling for more money to go to the State, Tim. Especially when you’re taxing people- literally- for just being alive, since being alive means emitting carbon. Nobody can so much as cook a meal without emitting carbon. Stop thinking about taxes as social instruments. Please.

  5. One of the reasons why I like this blog is that Tim generally accepts the evidence and proposes solutions based on it, irrespective of the area of policy. Both because that’s, y’know, the kind of writer I prefer to read, and because it’s hilarious watching cranks (whether they’re lovers of Murphy or Watts) pretend that when he does this in their particular area of obsession, it’s somehow an aberration.

    Ian: the effects of taxes and quotas on production, economically speaking, are *exactly the same*. The only difference is whether the extra profit created by reducing supply goes to the producer (quota) or to the public (tax). If – as for the Australian scheme – the levy will be revenue-neutral in aggregate, then a tax is far superior to a quota, because it replaces taxes on things we want to encourage (ie “people making money”) with taxes on things we want to discourage (ie “pollution”).

  6. The real problem here is that the PM explicitly and repeatedly stated during the election campaign that there would be no carbon tax, which turned out to be a blatant bare-faced lie.

  7. Hi from Australia Tim!

    There’s two (or three) major problems with it. As you point out, they’re talking about compensating people. Which sort of defeats the purpose. And no John B, the compensation is not transitional, they’re talking about compensation to families and small business for increased cost of living – the sort of welfare that never goes away (also I’m single and in permanent employment so I’m particularly pissed off). And of course takes away any incentive for people to change.

    The second is that the fixed price tax is intended to be transitional, shifting to cap and trade within a few years. Not sure how that’s going to happen. Possibly staged by industry sector, which strikes me as especially disruptive. So it isn’t the nice simple tax you want anyway.

    I’m on the skeptic bandwagon, but I could live with a fixed price carbon tax compensated for by general reductions in income tax. That’s just broadening and simplifying the tax base similar to a value added tax, and carbon emissions track economic activity pretty well so I could see it working. Unfortunately they’re not suggesting anything of the sort.

    Third problem, as pointed out by Matthew, is that the PM and Treasurer explicitly and repeatedly ruled this out less than six months ago in an election campaign. If she wants to change that, fine, dissolve her (minority anyway) government and call an election. Such a fundamental re-wiring of our economy should be voted on, same as we did with a goods and services tax.

  8. And yes, you’re right, it’s ludicrous. Compo is what sank the last attempt too – the Greens wouldn’t support it if the evil coal miners got money. Most sensible thing they ever did…

  9. The real problem here is that a hundred thousand voters at the margin are holding the rest of our country hostage, we are mad as hell and we aren’t going to take it any longer. Look for an image of the announcement. The PM and a junior minister, crowded out by the Greens leader AND his deputy (but not the deputy PM) and a couple of Independents facing electoral oblivion for their Faustian pacts.

    Unlike say tariff abolition, where reducing your own is advantageous even if your competitors don’t, we face a situation where if our iron ore is made into steel here in Australia, it will face costs that are not incurred if the ore is shipped off to China for smelting. No one else is doing this (except New Zealand, who can’t afford it). ‘Carbon’ credit exchanges are closing or failing the world over.

    The business about revenue neutrality fails because the Labor party is desperate and will shunt all the revenue into its client base, particularly the miners and so on who will be obliterated by the tax. People like me – contractors, tradesmen, professionals – who have high annual incomes due to an inability to hold income in a company structure but heavy responsibilities have been explicitly told that we will not be compensated, and this kind of thing makes mobile professionals think about taking the seven hour flight to Singapore and starting over.

    In conclusion all I can say is that if the rest of the world is watching this to see if carbon pricing works, be prepared for disappointment. This administration is probably the most incompetent and politically inept in our history, so the chance of them sorting this out before being voted out of office is miniscule. And if it does happen, people are seriously talking of marching in the streets – I haven’t heard talk like this in this country for decades.

  10. rech – I used to work for myself via a company structure and remember well the stupidity of having to predict my income a year out because of the personal services income tax rules. I sympathise with you – yes, you’re going to get screwed. Labor only cares about businesses with union representation.

    The good news is I doubt they’re competent enough to get it up and running without totally stuffing it up.

  11. John B, the point is that Emissions taxes target emissions, not extraction. Emissions aren’t the problem. Extraction is the problem. Focus on that.

    Secondly, tax money doesn’t go to “the public”. It goes to “the government” which is a very different thing.

  12. I think PSI rules have changed and I can adjust my payments quarterly now Ltw. Still annoying.

    The latest news is that agriculture, industry, transport and petrol will be excluded (?). All these morons have actually confirmed is that low-income earners will receive a veritable bonanza of cash from people like me. I’ve had it.

  13. The election manifesto point is nonsense. A Labor government wouldn’t have introduced a carbon tax – but we don’t have a Labor government, we have a Labor/Green/independent coalition. Just as it’s a nonsense to accuse the UK Coalition of not following Tory or LD manifesto promises, the same’s true for the Australian government.

    (btw, a million and a half people voted Green – not just a hundred thousand voters at the margin…)

    Compo-wise, what the government’s actually talking about doing – in terms of households – is offsetting the impact of the carbon tax by introducing other tax cuts for low earners. Cutting tax for low earners is a *good thing*, irrespective of your political hue. Meanwhile, in terms of industries, it’s talking about short-term compensation packages.

    “this kind of thing makes mobile professionals think about taking the seven hour flight to Singapore and starting over”

    Given the enormous queues of skilled professionals who’re desperate to take the [whatever length] flight *from* overseas, I doubt you’ll be greatly missed.

    Ian B: Oz is, of course, also taxing the extraction.

  14. A million and a half voted green as FIRST preference? I find that hard to believe. gillard ruled out a tax “under the government she leads”. She leads this government. In my industry, I would be missed, that’s just the way it is. And no, income tax cuts for the poor are not a good thing if they come straight from my increased tax bill, rather than letting me spend my money on productive uses.

  15. Anyway if she didn’t want to introduce it, and the main opposition party doesn’t want to introduce it, how can the wishes of the minority government party prevail over the clear majority of the parliament. Nevertheless, this will destroy her leadership at it destroyed Rudd and Turnbull’s so perhaps it will turn out for the best.

  16. A million and a half voted green as FIRST preference? I find that hard to believe.

    You might find it hard to believe, but they did.

    Nevertheless, this will destroy her leadership at it destroyed Rudd and Turnbull’s so perhaps it will turn out for the best.

    I’m instinctively a supporter of left-wing parties, so I suppose I should be glad that Turnbull’s leadership was destroyed. I’m not, though. I’d rather have a Liberal government under Turnbull than the current mess on either side.

    He’s the kind of right-wing politician I can happily tolerate – someone who’s sound on economics, believes in science, isn’t demented about gods or darkies, has a genuine love for his country and desire to see it do well, but wants to cut taxes. A Tim, if you will.

    Abbott, on the other hand, is a dodgy bigoted fanatic.

  17. Ian B: Oz is, of course, also taxing the extraction.

    Which is what I am opposing. Taxation is an extremely bad idea. It gives the government money. Ignoring the question of what they will do with that money (probably bad things), it gives them a vested interest in actually maintaining the thing they’re supposed to be reducing via taxation, because they profit from its continued existence.

    Carbon extraction is a big enterprise which is easy to manage centrally, if managing centrally is what you want to do. There are relatively few extractors of coal and refiners of oil compared to myriad consumers of them. A quota system is thus relatively easy to implement and manage, and has the great advantage that the government does not make any money out of it; nor do non-producers such as “carbon traders”. The profits remain with the extractors as the price rises due to reduction of supply. Consumers then switch to other energy sources as they become more economic. Everybody wins or, at least, the losing is more economically just.

    The single worst type of system is one in which everybody loses except the government who win massively, as with tax-based regulatory systems.

  18. Okay, I was wrong (Jesus, I heard some people at work bragging about their dinner party in the dark for Earth Hour, but one in ten??). Nevertheless, they only have one MP in the lower house, and the other ten million or so voters voted for parties that claimed they would not introduce this.

    Perhaps Turnbull could indeed have introduced a carbon market that made some sense (if you ignore the fact that Australia would be pretty much on their own doing this). But what we are about to see will be a bonanza of jobs-for-the-boys, handouts to client groups and so on. Nothing here seems to make much sense. As an example, take the Government’s claim that for every one cent rise in the petrol price, they will reduce other fuel taxes by one cent. So you have carbon pricing, but no-one needs to pay!

    And I may well have misunderstood, but are we about to repeat the European experience, and give polluters free carbon credits, so that they can fire their workers and make a fortune selling the credits instead?

    Tim adds: “As an example, take the Government’s claim that for every one cent rise in the petrol price, they will reduce other fuel taxes by one cent. So you have carbon pricing, but no-one needs to pay!”

    That bit does make sense. Government only needs so much money after all (hollow laugh). So if it raises money by taxing something “bad” like emissions, then it can reduce the taxes it charges on something good like incomes.

  19. The profits remain with the extractors as the price rises due to reduction of supply.

    I’m not a “state control of the means of production” loony – firmly in favour of private companies running mining projects. However, given that a country’s natural resources fundamentally belong to its people (in Australia, this is a matter of fact rather than a conjecture – land ownership rights do not extend to the resources beneath the land; the latter are owned by the Crown), royalties on extraction make sense.

    So if it raises money by taxing something “bad” like emissions, then it can reduce the taxes it charges on something good like incomes.

    Is the giant, massive point. I know, if you don’t believe AGW exists, then this doesn’t apply – but assuming it does, then shifting the tax burden from something which is good and we want more of (ie people earning money) to something which is bad and we want less of (ie people burning coal) is a Good Thing.

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