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The virtuous circle of Gillard's climate tax

  • 11 July 2011

The Government and the Multi Party Climate Change Committee (MPCCC) have crafted a historic package of reforms: driving long-run reductions in carbon pollution, simplifying personal tax and making it fairer, and reducing poverty traps and barriers to work.

Each of these steps would be worthwhile on their own. Together, they send two clear signals. First, the Government has found its mojo. Second, minority government is not an impediment to good policy.

The package lays the groundwork for Australia's transition to a clean energy future, allowing us to play our part in global action to address climate change. It will put a price on carbon, drive public and private investment in the development of a strong low carbon energy sector, and support energy efficiency. It adopts a more ambitious, and realistic, long-run emissions target. It also establishes the institutions required to oversee and fine tune policies to reflect changing circumstances, providing flexibility to pursue larger pollution reductions at home if global ambition moves closer to the goals called for by the climate science.

Crucially, the package ensures that low income Australians will not be left behind. Low income and vulnerable Australians will receive permanent increases in allowances, pensions and family benefits that more than cover average cost of living impacts. Initial upfront payments, followed by fortnightly payments, will greatly assist households on tight budgets to manage cost of living increases.

Payments to most households will be provided as an upfront lump sum before the carbon price takes effect in July 2012, with fortnightly payments beginning in March or July 2013 for pensions, most allowances, and family payments, and in January 2014 for students on Youth Allowance.

The real value of these payments will be maintained through indexation. This protects households who have few options and are least able to cope with rising energy prices. There are also commitments to provide targeted supported for improved energy efficiency for low income households, with potential to address both the causes and consequences of fuel poverty among vulnerable groups.

One disappointment is that the arrangements are based on a 1.7 per cent increase in existing payments, rather than basic energy needs. This means that a single pensioner will receive up to $80 more per year than someone on unemployment benefits. For a couple, the gap is $130 per year, despite evidence showing that people on Newstart often spend a