Abbott needs reality check on repeal of carbon tax

NEW taxes are never loved by anyone but businesses and investors quickly adapt.

NEW taxes are never loved by anyone but businesses and investors quickly adapt.

Of course, removing new taxes, especially a carbon tax that could easily be back on the agenda in the future -- leading to more implementation pain -- might end up being a greater evil for business.

That is a line Labor is using as one of the reasons to oppose Tony Abbott's campaign to vote for the Coalition at the next election because it will repeal the carbon tax and the mining tax.

Threats to business certainty are usually threats to business prosperity, which is one of the reasons the Coalition is pushing so hard for an early election. Apart from wanting to take advantage of the current bad polling for Labor, Abbott and his minders recognise that winning government without the twin taxes having already been legislated will create easier governing circumstances than winning after they are in place (with a pledge to repeal them).

Of course, federal Labor is in trouble and if it can't find a way out of its woes Abbott will be prime minister in just over two years' time. Assuming that we aren't thrust into an early election, the mining tax and the carbon tax will be legislated before that happens.

The question then becomes: will the Liberals really repeal the twin taxes?

I know Abbott claims that they will; he has staked his political reputation on it. But I also know some of his senior colleagues don't think that doing so is realistic. And then there is the question of what Labor would do in defeat. Having undergone so much political pain legislating such taxes, will they allow them to be unwound? Perhaps not, and you can bet the Greens would oppose repealing them.

That would leave Abbott needing to call a fresh double-dissolution election to roll back the laws, with a joint sitting of the parliament. I wonder whether he would be prepared to do so. Fighting back-to-back elections isn't fun, for anyone, and from the perspective of business it just creates more uncertainty and a loss of consumer confidence.

If Abbott repeals both taxes, savvy heads inside the Coalition realise that he would be punching a massive hole in future budgets.

It's one thing for the current Coalition costings (notwithstanding the supposed $11 billion hole Treasury discovered) to find alternative funding for its plans without the twin taxes now. It's another thing entirely for that to stay the case two years down the track as circumstances change.

Labor continues to hope that, once the taxes are legislated, Abbott's negative campaigns against them will be hard to sustain, especially if the business community's angst dies down. And Labor questions whether Abbott will be able to continue to argue against the taxes as well as the compensation measures in voter land.

People don't like tax cuts (read compensation) being reversed, even if doing so would be part of repealing a carbon tax.

Wayne Swan told the National Press Club yesterday the national income will keep rising even with a carbon tax. If that is right, the longer its attendant compensation is in place the less likely the public will be to support removing it. Abbott would need to find a fiscally sound way to get rid of the carbon tax while maintaining the compensation. That's a hard script to follow, but Coalition MPs are already urging the leadership to find a way to make it happen.

As vigilant as Abbott and his colleagues must be to plan for how they will campaign if the twin taxes are legislated, they will need to also consider how they will govern if victorious at the next election.

Oppositions tend to focus more on getting into power than what they would do with power.

If the lessons out of Victoria and NSW at state level have taught us anything, it is that being prepared for government is important. Ted Baillieu's government didn't expect to win and it shows months later. In contrast, Barry O'Farrell knew he would win the recent NSW election, and he had plans in place for after that happened. O'Farrell's first two months in the job have been surprisingly impressive.

Abbott's favouritism for the next federal election means the business community and the public won't give him any slack if he doesn't start well in government.

If they don't, they will quickly find themselves in the same hole the Labor government is in.