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 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 Dodds is national director of UnitingCare Australia and chair of the Australia Institute.