Coalition not fooling anyone with tax confusion

THE same reason business interest groups don't like the Gillard tax is why most voters should prefer it over Abbott's.

THE same reason most business interest groups don't like Julia Gillard's carbon tax is why most voters should prefer the government's scheme over and above Tony Abbott's direct action plan.

Abbott's plan would use taxpayer dollars to pay for government to fund industry to lower its emissions. The Gillard scheme taxes industry to give it a price incentive to change its ways and, to the extent it can't or won't, funnels much of the revenue from the carbon tax back to the public (lower- and middle-income earners) through tax cuts to compensate for expected price rises.

It isn't that industry doesn't think direct action is a better way to go: either for the environment or efficiencies. Businesses have a stake in the game, and their best interests are served by preventing the government taxing pollution, instead taking cash handouts (our tax dollars) from the Coalition to change their polluting ways (if it suits their business model to do so). Just yesterday on this page, the chief executive of the Business Council of Australia, Jennifer Westacott, took aim at the government's carbon tax (although she couldn't bring herself to advocate the Abbott approach as a better way of doing things).

Westacott argued that the right approach for Australia "should be a slow and steady start, with a low initial carbon price during the fixed-price period".

I couldn't agree more, except that the government's priority is to hit a 5 per cent emissions reduction target on 2000 levels by 2020, and to achieve that they need to set the bar higher than industry might like to begin with.

The significance of achieving this target shouldn't be under-estimated for the clarity it brings to why Labor's scheme (for all it's flaws) is better than the Coalition's. It is a two-horse race, and when it comes to doing something about climate change, Labor's poorly bred horse beats the Coalition's lame one.

Abbott's response to Labor's package is a bundle of contradictions. He'll have significant tax cuts of his own we are told, just without the carbon tax which pays for them. He scoffs at the value of a 5 per cent emissions reduction target by 2020, even though the target is bipartisan and underpins Coalition climate change policy.

He won't cut emissions as part of his direct action alternative by purchasing abatements from overseas, even though, without doing so, hitting the 2020 target would be nigh impossible under direct action. And that means the costs of direct action will go sky high, or it will be a multi-billion dollar exercise in window dressing that is never expected to meet the reduction targets.

Shadow treasurer Joe Hockey says Labor's tax cuts "aren't real" because the package includes a tax increase via the carbon tax. But in 1998, Hockey was the financial services minister, at the time rebutting claims that income tax cuts weren't real because the GST imposed another type of tax at the same time.

You don't have to like Gillard's plan to price carbon, but it would be nice if the opposition would at least pretend to run a consistent argument when opposing it. At the moment, their approach revolves around hoping that voters can't see the inconsistencies they are throwing up. Business certainly can, but it chooses to ignore it in the hope that defeating Labor and its carbon tax will mean a rethink in Coalition policy on direct action after the next election. Or, at the very least, more money won't be pushed into it, because that kind of pressure on the budget will guarantee that company tax rates can't be cut.

In all the complexity surrounding the carbon tax and what it means for business, the most heartening part of the package is the tax reform elements.

Commentators like myself have been on Wayne Swan's back for months for not taking tax reform seriously, especially after he raided revenue measures from the Henry review without also looking at the more than 100 other ideas the package contained.

Lifting the tax-free threshold to $18,200 is an excellent reform. It will encourage people not in work to find work and simplify tax time for a large number of Australian taxpayers.