Carbon tax can't be fixed, so it must be fought

LAST week The Weekend Australian prominently reported the head of the Business Council of Australia lamenting the present public focus on the carbon tax and the mining tax ahead of much more important reforms. Graham Bradley is right to be disappointed.

Of course, the public conversation should be about measures that will make our country more prosperous. But if the only measures likely to be implemented in this term of parliament are those that will make us less prosperous, these, perforce, will be the subjects people talk about.

The Coalition, I stress, is not arguing about the carbon tax and the mining tax because we choose to. We're talking about them because that's what the Labor government has placed top of the national agenda and because the most positive thing an opposition can do is stop a bad government from making people's lives worse.

The Coalition has had much to say about welfare reform and will have more to say about workplace reform once the field evidence is in. As long as we are in opposition, though, and an election is supposed to be at least two years off, our most constructive contribution to public debate is to establish beyond doubt that the present government is a threat to our prosperity and that its so-called reforms are no such thing.

It's only when an incumbent's signature policies evoke derision from all but its most rusted-on supporters that an opposition can fully focus on being an alternative government and that's far from the case with the carbon tax, especially when so much business commentary still begins with the observation that "we support a carbon price".

The Coalition's fundamental contention is that the unilateral imposition of a carbon price will put Australia at a competitive disadvantage compared with countries taking no such action.

Contrary to the government's repeated assertions, there are no countries planning to impose an economy-wide carbon price, as the Productivity Commission has just confirmed. In the absence of comparable international action, an Australian carbon tax will damage our economy without helping the environment, which is why it can't be fixed; it just has to be fought.

Before the last election both Julia Gillard and Wayne Swan made explicit commitments to the Australian people not to proceed with a carbon tax.

Their justification for trying to introduce one is that Australia risks being "left behind" and not doing its "fair share". Recent presentations by the Prime Minister and the Treasurer have been littered with these phrases despite the Productivity Commission's explicit finding that Australia's existing emissions abatement, without a carbon tax, is in the "mid-range" of the countries it studied.

Since the collapse of the 2009 Copenhagen conference, all the movement internationally has been away from any form of binding commitment to reducing greenhouse gas emissions. The Prime Minister frequently claims China is shutting down coal-fired power generation facilities "at the rate of one every one or two weeks".

What she doesn't say is that they're just replacing old and inefficient coal-fired power stations with newer and bigger ones, dramatically increasing the amount of coal they burn and the emissions they produce.

In the US, all moves towards a national cap-and-trade scheme have been abandoned. Now, without Australia's comparative advantage in fossil fuels, Europe can have an emissions trading system with much less impact on its economy. But to put the European ETS into perspective, it raises only about $500 million a year.

At $26 a tonne, an Australian carbon tax would raise more in three months than the European ETS has raised in five years.

Of course, Australia should take prudent steps to reduce emissions but the case for doing so is not improved by pretending that other countries' actions are stronger than they are.

The government sometimes claims that pricing carbon is worth doing unilaterally, like tariff cuts, because it's a historic reform, akin to financial deregulation or introducing the GST. But unlike the genuine reforms of the Hawke-Keating and Howard-Costello governments, a carbon tax increases overall business costs, decreases economic efficiency, reduces employment and massively and permanently boosts the size of government. Change it certainly is, but reform it most definitely is not.

To count as reform, change should improve economic outcomes. Instead, the carbon tax looks like an act of economic self-harm.

The Treasurer recently told the National Press Club that under a carbon tax annual growth in gross national income per person would be "only" 0.1 percentage point lower than otherwise and that, with a carbon tax, real national income per person would be "16 per cent higher than current levels by 2020".

That increase in per capita gross national income, if it happens, would be just half the 32 per cent growth achieved by the Howard-Costello government in its 11 1/2 years. The Treasurer's boast, in other words, is that, under a carbon tax, Labor will deliver just half the real income gains of the Coalition.

The Treasurer assured his press club audience that "the modelling [which he referred to rather than released] shows aggregate employment is approximately the same with or without a carbon tax". In fact, the modelling doesn't show anything of the sort.

Rather, it seems to assume this outcome in the medium term on the basis that other things in the economy, such as real wages, will adjust to make it so. So Swan owes it to the workers of Australia to explain how much their real wages may have to be cut to achieve this outcome.

If the government's previous modelling for the abandoned carbon pollution reduction scheme is to be believed, the figure is something like 2.6 per cent by 2020, which on today's average full-time wage of about $70,000 a year would amount to a pay cut of about $1800. So it's hardly surprising the Treasurer only partially released the modelling on which he relied.

The government's latest commitment, to move from a carbon tax to an emissions trading scheme in 2015 come what may, junks its February commitment to make a transition to a carbon market only after considering "carbon pricing in key competitor economies" and "the integrity and price" of units in the "international carbon market".

Direct action, as the Coalition proposes, is a more practical market-based approach to emissions reductions than an emissions trading scheme.

A tender process for emissions abatement is as real a market as a water buy-back scheme. It is a more transparent and direct way of establishing a carbon price than the establishment of a carbon exchange.

On close consideration, carbon pricing turns out to be just another pot of gold for government. It's instructive that the International Monetary Fund has just recommended a 25 per cent hike in Iceland's carbon tax to address not an environmental problem but its fiscal crisis.

When Gillard promises to over-compensate low-income earners for price rises, the carbon tax has become just another vehicle for redistributing wealth. It's a form of socialism masquerading as environmentalism.

This is an edited extract from a speech yesterday by the Opposition Leader to the 2011 Economic and Social Outlook Conference in Melbourne.