Carbon tax is like a bad smell that won't go away

THE Labor government is unusually wedged between the desires of the union movement in lock step with big business: wanting industry compensation for the carbon tax, and the need to compensate households directly to alleviate cost of living pressures to stop the bleeding in the polls.

That's before you even consider what compensation will do to a carbon tax's ability to force habitual change, address climate change and ensure the Greens stay committed to the tax.

Normally, Labor would line up with its union compatriots against big business and argue over minimum wages, collective bargaining and workplace safety: traditional linkage points for the Labor Party and the labour movement.

While we can debate the effect of such policy variables on the economy and business competitiveness, the labour movement's position is the more popular one in the electorate.

But with respect to the carbon tax, union bosses are fearful their own jobs are in danger if members decide the tax is a bad thing and union representatives should oppose it in members' interests rather than lend support to it just because the Labor Party (in alliance with the Greens) would like them to. Labor MPs need to worry too. If union bosses don't like them backing a carbon tax without adequate compensation for industry, they might withdraw support come preselection time.

And in the case of prime ministers, Kevin Rudd's political demise proved union bosses can exert influence there, too. But preselection threats are one thing; electoral threats are quite another matter. If the government compensates business at the expense of households, it won't win re-election, which makes worrying about preselection an exercise in futility.

Who wants to be in parliament but stuck on the wrong side of the Treasury benches? Little money, less power.

The threat of job losses is something average Australians should be in tune with, but most are not. It is pressure on household budgets that is consuming the public's mind as it ponders if action on climate change in Australia is really worth it now that globally binding action is unlikely.

Cost of living pressure is something most politicians have recognised as an issue for years. While cost of living is a problem with or without a carbon tax, there is no denying the easy linkage points for Tony Abbott and the Coalition.

That Labor wasn't better prepared for this onslaught says much about why this government can't argue its way towards any meaningful reform. Those members of trade unions in industries exposed to the carbon tax are not the mainstream: all households facing up to a carbon tax being passed on by way of price rises are.

Which leaves Gillard with a choice: does she respond to voices inside the political Beltway and throw money at industry? Acting inside the Beltway has been her natural way of functioning, from her time as an industrial lawyer to negotiating with independents to form minority government. Or does she risk union anger and over-compensate households, perhaps limiting the backlash to the carbon tax in the community?

The latter approach should be the right option, but if insiders make Gillard's life hard by criticising her, outsiders will look on and see a government consumed by divisions and arguments.

We saw this with the mining tax.

Labor's carbon tax is fast becoming the sort of political dead animal you can't bury fast enough to get rid of the smell. Yet as the days go by in this debate the chances of it even being legislated are looking less likely.

What was assumed to be a first step that couldn't fail could now be blocked from a variety of directions: the Greens, unhappy with the amount of compensation going to business; one or more of the independents worried community support for climate change action has dissipated; even by sceptics in the government.

If Gillard doesn't even get to legislate her carbon tax, what does she do then? Call an election on the issue and get beaten? Or do what Rudd did and walk away from climate change action with no credibility for political courage? What a mess.