The virtuous circle of Gillard's climate tax


'Carbon tax' by Chris JohnstonThe 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 higher share of their income on energy.

But the package goes beyond offsetting cost of living impacts. In addition to the increases in allowance and payments, the package provides significant reductions in personal tax for people on low and middle incomes. This raises revenue from a bad activity (the creation of carbon pollution) to fund good activity (progressive reform of the taxation system).

This is a historic reform. It is clever policy. It is good policy. It's a bit like spinning gold from straw. It's exactly the kind of smart and gutsy approach we want to see from this Government, and from every government.

It also creates a virtuous circle. Analysis commissioned by the Garnaut Review Update found that combining a carbon price with this sort of targeted tax reduction could promote employment and halve the short economic impacts of reducing emissions. This means Australia could achieve a minus 15 emissions target for around the same impact as the minus 5 target without these tax reductions. Clever, and good.

For those who like detail: the tax changes triple the tax free threshold from $6000 to $18,200 per year from July 2012 and rolls in most of the existing Low Income Tax Offset to make the personal tax system simpler and more transparent. This helps reduce barriers to employment by lowering the excessive effective marginal tax rates that create poverty traps for low income earners.

The most immediate benefit is that Australians moving from welfare to work will no longer have to wait a year or more for their tax refund, and instead will receive that money in every pay packet.

This is a significant first step towards the income tax reforms recommended in the Henry Review, although more needs to be done. (So we do not need to cancel the Tax Forum yet.)

A final dimension is the comparison between this package and the Carbon Pollution Reduction Scheme that failed to attract the support required before the last election. Usually, you would expect a controversial package to return in a weaker, watered down form. In this case, minority government and good negotiation skills seems to have delivered the opposite.

The new package has a stronger long term target (an 80 per cent reduction from 2000 levels by 2050), more transparent and independent advice (through the Climate Change Authority), a market based buy out of high polluting electricity generation, and more attention to complementary action on energy efficiency and land-based emissions reductions.

All in a context where only one side of the Parliament, and the cross benches, seem to have any interest in constructive debate about how to respond to the real and pressing challenges facing our nation.

The Government, the Greens, and the independent members of the MPCCC all deserve commendation for delivering leadership and a practical package of measures that hit several important policy targets. This package positions Australia for the future.

Lin Hatfield-DoddsLin Hatfield Dodds is national director of UnitingCare Australia and chair of the Australia Institute.

Topic tags: Lin Hatfield Dodds, Julia Gillard, carbon tax



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Existing comments

If the goal of the carbon tax is to help moving towards a low carbon use economy, then the carbon tax is a big failure. For 90 % of all individuals and 99% of all businesses, there will be no incentive to reduce energy consumption or to change behaviour. Does anybody think that the “rich” will freeze in winter and die of heat exhaustion in summer because of higher prices? The “big” polluters can pass on the cost to customers and the customer will be compensated. Where is the incentive to reduce CO2 emission?

The real winner will be the Government in having more money in its coffers as they will be able to charge GST on the carbon tax. If we want the environment to win, then we would have clear targets and legislations to achieve this. The carbon tax merely represents a capitulation by Julia Gillard to the Greens.

Beat Odermatt | 11 July 2011  

Thank you for what seems like a reasoned and reasonable discussion of the issues

GAJ | 11 July 2011  

Low income people are doing it very tough at the moment. In my state, the electric Authority owned by the state government increased the price of electricity 2 years ago " to get us used to paying more for electricity" The low income battlers are least likely to be using energy, to be driving or going off to expensive holiday jaunts overseas or even in Australia. Why all this added expense?? Because some people believe in man-made climate change which is totally bogus. These elite Alarmists know nothing of the sciences of the climate and could never understand the huge variety of forces behind our weather and as someone who has studied meteorology at graduate and post graduate levels, there is no way that man can presently be responsible for any form of climate change- whether it be cooling or warming. yet we are about to be saddled with a tax that will always make the end consumer pay. Businesses are just going to pass the costs on and again, like the GST, hurt the most vulnerable in our nation. This stupidity is unbelievable and shows how unfit our politicians are to govern this great rich country of ours!

Trent | 11 July 2011  

If the tax fails on reducing the CO2 emissions, how is this a capitulation to the Greens? your argument defeats itself Beat Odermatt

Sue Kealy | 11 July 2011  

It is unfortunate that the carefully designed plan to combat climate change does not receive bi-partisan support. Instead there is a negative 'knee-jerk' reaction from Mr Abbott and his supporters. While we should usually overlook past mistakes, when it comes to choosing a Prime Minister it is appropriate to look back. Despite his personal abilities and opportunities Mr Abbott's history is one of changes and irresponsibility. His response to the danger of global warming is typical.

Bob Corcoran | 11 July 2011  

There is something terribly wrong with the statistics I am looking at which makes me wonder whether the aim of the exercise was to get an uncontrolled system in place by seemingly gentle means prior to going for the Doctor. We know without doubt that to achieve a 5% reduction in carbon emissions on 2000 levels by 2020 will require a carbon price in excess of $60 per tonne yet we have an opening price of only $23 which after giving half away as compensation is worth onle $12.Also the tonnage level has been set at a high 25000 thus limiting those to pay.Also we see a comment of a 2.5% increase per year in carbon price which is less than $1 per year--quite misleading.If we assume the Government is up to no good there is nothing to stop them increasing the price per tonne dramatically ( the greens have already stated that )and dropping the minimun tonnage figure to 15000 tonnes.

Perhaps the biggest furphy is to assume that we are going to have a minimal cost of living increase at the same time as introducing this tax---obviously terribly untrue.

Every trader who thinks they are escaping the tax will get a rude awakening when hit by increased energy costs plus others.
Renewable energy cannot move one step forward on the present figures--it is just not possible.

John Byrne | 11 July 2011  

A clear and concise summary from Lin that should go a long way to dispel the alarmist nay-saying that will inevitably do the rounds and encourage all reasonable-thinking people that some long-term beneficial environmental policy will finally have a chance to do its work.

Stephen Kellett | 11 July 2011  

I don't fully know enough about the carbon tax and the taxation system to know whether the author presents a reasonable view. However, I note that she is pushing the view that minority government can deliver good policy outcomes. Given this I feel the editor ought to have required the author to declare she is affiliated with the Australian Greens.

JB | 11 July 2011  

In one breath Trent says the lowly-paid are doing it tough and boasts what a rich country we are. There are many things wrong with his response, not least of which is his apparent failure to see the injustice of anyone being vulnerable in the sea of plenty. Why shouldn't rich businesses pay more in tax?

Equally breathtaking is his comparison of his own expertise against a large consensus of professional scientists. I'll prefer the likes of Professor Garnaut to Trent, thank you.

His sweeping condemnation of our politicians makes it clear he didn't hear Tony Windsor and Rob Oakeshott's press conference where they answered questions directly and presented a holistic, balanced and future view very different from the short-term provincialism implicit in Trent's "rich country" boast.

The point is, however rich the country, it's surely important for future generations to be able to say the same thing.

It seems clear from Trent's responses as a whole that his complaint about a carbon remission scheme is grounded in two beliefs: (1) nothing humankind can ever do can ever affect or impact on God's perfect planet; and (2) to suggest it can equates to a disbelief in his conception of God.

Stephen Kellett | 11 July 2011  

to Sue Kealey: The tax is good for Julia Gillard and her boss, Bob Brown but not for the environment,

Beat Odermatt | 11 July 2011  

Australia has far better opportunities to improve the environment then just to increase the taxes on a few.

The Greens are not an environmental party, just a ultra-left party pretending to "care". Please read their policies and try to get the hand on the minutes of their meetings and then you know what the Greens are all about.

Beat Odermatt | 11 July 2011  

Stephen Kellett: "Why shouldn't rich businesses pay more in tax?"

Wealth is not a static entity. Wealth creation is not a zero-sum game. Contrary to Marx, the rich are not richer because the poor are poorer. A vastly greater proportion of the world's people today are wealthy according to the benchmark of, say, 1750 than the proportion in 1750. Is this because the wealth that existed in the world in 1750 has been redistributed? Clearly not - there are billions more people around today, and all that wealth would, even redistributed perfectly equally, barely make any difference to an individual's standard of living.

No, it's because the size of the pie has vastly increased. Through human enterprise. Invention. Trade. ie, business.

A genuine business ( unlike Tim Flannery's) creates wealth where there wasn't any before. It doesn't flog it from someone else.

We should be grateful that there are wealth creators out there, just as there are artists, footballers and, yes, theologians. We shouldn't punish any of these extra hard because they chose to fully exercise their God-given talents. We should be rather creating a culture that encourages everyone to get in on this non-zero-sum act of wealth creation.

HH | 11 July 2011  

Greetings, HH. Setting aside a debate about the nature and dynamics of wealth creation, for the purposes of this article isn't it a good thing that a plan will be set in motion to encourage wealth creation with less pollution and climate impact than would otherwise be the case? I would have thought so.

Stephen Kellett | 11 July 2011  

I thought Barack Obama was going to save the planet. I was wrong. Julia Gillard will save the planet.

Ron cini | 11 July 2011  

Thanks, SK:

It sticks in my craw a bit to use this terminology, but: there is no "debate" re. wealth creation. To the extent that it's empirically and theoretically possible, the "science is in" as some put it, that free markets and private property maximise wealth creation opportunities for all, and, conversely, statist regimes manifestly don't.

The science is not, however, in re. whether dangerous AGW is occurring. IE, whether CO2 can indeed be labelled a "pollutant" any more than oxygen or water. (I'm one who thinks a 2-degree global rise might actually be beneficial, so I'm hoping that the "warmists" are correct about the causal link.)

It's also not "in" re. the best means to tackle it even if CO2-based dangerous AGW were occurring. There are free market solutions to all forms of pollution, based on the concept of pollution as an infringement of private property rights. These have long been aired in the journals. Scoffing at these at first, statists have over the last couple of decades sought to crudely ape them. The ETS is one such cude attempt. The carbon tax is just la-la land. "Gold from straw", as Hatfield Dodds puts it. Indeed. Shouldn't that ring a bell somewhere?

HH | 11 July 2011  

It's an uncomfortable feeling to have to reassess one's opinions, but as someone who hasn't been a fan of Julia Gillard's, I would have to say "Well done". From what most commentators have said was a weak bargaining position, she has delivered a small step forward where none seemed likely. The progressive tax changes make the policy a real ALP policy. It's a triumph for Julia Gillard - truly she must be Australia's best negotiator!

Russell | 11 July 2011  

I do not care about the details now of this carbon (dioxide) pollution tax. Gillard said before the election that any government she led would not have a carbon tax. Now she is on a persuasion tour.

What a load of useless, token PR nonsense. She has the numbers in parliament and will likely get it through. What's the point of trying to persuade people about a fait accompli? If she had a modicum of integrity she would have tried to persuade us before an election. With such sweeping reforms of our system, we should have had a say in whether we wanted it. I hope that the voters remember that this woman did not keep her word.

John Ryan | 11 July 2011  

I agree with JB that we should have been told that Lin was a Greens candidate. I made a similar point in another post about a Socialist alliance candidate. However, that doesn't automatically negate what she has to say. Her criticism of some of the detail (the % nature of the increase in benefits for example) is fair comment. Her observation that 'minority government is not an impediment to good policy' is also worthy of further consideration. Clearly, minority government can deliver good policy decisions if the parties to the negotiations act in good faith. And there's the rub. Abbott, unlike some of the posters here, accepts the need to reduce CO2 emissions, and could have been involved in the negotiations and consequentially influenced the outcomes, but he refused. The problem is that Abbott knows only one way of working - the might is right model - in which you gain a majority, no matter how small, in your own right, formulate policy in closed cabinet, and then use your majority in parliament to impose it on everyone else. Unlike Gillard, Abbott could never flourish in a minority government because he is unwilling to compromise.

Ginger Meggs | 12 July 2011  

A variety of opinions have been expressed here but everyone has failed to ask the question - what will this carbon dioxide tax actually achieve? Leading Scientists say it will make abosolutely no difference to world temperatures. Why? Because Australia is a small blip on the carbon producing map. Equally there are plenty of scientists who dont believe Carbon Dioxide is a pollutant- yes there are plenty who do but alarmists would have you believing the world is about to end. The dinosours didnt 'pollute' with carbon dioxide and yet an ice-age happened..long before mand involvement in this world. I have just moved here from the UK and have found the taxes extortionate with a very high cost of living. We cannot afford yet another tax. You are deluded if you think this wont affect the average person.

Sam | 15 July 2011  

Sounds good the proof of result will be the outcome if there is any action which there is little or none of todate

pamela byrnes | 15 July 2011  

Why not replace all base load generators with nuclear powered ones and have almost zero carbon emissions.

Peter | 19 July 2011  

Nothing new here,just a repeat of previous mischief already espoused by others.
1) Carbon dioxide is not a pollutant. Coal fired power plants are not dirty because they produce carbon dioxide.
2) Carbon increase follows temperature increase not vice versa?
3) Temperature increase not anthropogenic but natural and cyclical. See Pacific Decadal Ocillation as one of many cycles.
4) Tax incentives or rather handouts for low paid? There should not be a low paid or rather an underpaid at all. The minimum wage should be a living wage. Recalculate it and sort it out proper, Now.

Brian Johnston | 24 November 2011  

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