Friday, June 03, 2011

Why Garnaut's ''independent'' committees aren't a good idea

Ross Garnaut has put a lot of work and effort into designing a carbon pricing regime.

In particular he has thought about the rules of the game -- how the scheme will operate to ensure that it actually meets stated objectives.

Let's ignore for the moment the merits or otherwise of a carbon pricing scheme and simply accept, for argument sake, that such a scheme should be implemented.

The biggest problem facing such a scheme is that we don't really know what we're doing and will have to muddle through.  Government, unlike individuals, isn't very good at muddling through.  That involves changing ideas and conceptions quickly, revising strategies, and changing direction if need be.

Built into the carbon pricing scheme is a switch from a carbon tax to an emission trading system in the next few years.  But we can't be sure when to switch, or even if a switch should be made at all.  Time will tell.

The other problem Garnaut faces is that we can't trust politicians, especially those politicians who face re-election and might be prone to populist sentiment.  In other words, all of them.  So once a carbon pricing scheme is in place how would we ensure that it functions as planned and as anticipated?

Garnaut has proposed a complex set of ''independent'' committees that would set policy and the government would have to implement that policy or explain itself to the Parliament.

An open letter, published in The Australian, endorses this idea of an independent committee setting what are really tax rates.  In the early stages what is being proposed is a tax regime that will evolve into a trading scheme.

There are, however, a number of very serious problems with this aspect of the Garnaut proposal.  We already have an independent committee whose job it is to set tax rates.  It is called the Parliament.  Unelected parliamentarians is a system of government that is undesirable and certainly inconsistent with Australian sensibility.

Parliament must approve all taxes.  This is a long standing tradition in our system of government.  The last king of England to flaunt that tradition, Charles I, was quite rightly executed for his troubles.

The separation of powers at the core of our system of government relates to the power to tax.  The executive proposes taxation and the Parliament approves taxation.

Ironically it is confusion over this very point that currently befuddles the federal Parliament.

Anthony Albanese had to stand up in the Parliament yesterday morning and explain the Constitution and standing orders to the House of Representatives.

A broad brush description is as follows:  money bills can only originate in the House of Representatives, from the executive, and must be supported by the Governor-General.  This is a specific and deliberate process that ensures that taxation is kept well under control and a coherent budget process is maintained.

What Garnaut proposes is a very different system -- an independent body would be in a position to force the government to levy taxes.  Right now, even the Parliament cannot force the executive to levy a tax;  it can change the executive but that is another matter.

Of course, there is no reason why the Parliament couldn't pass a bill imposing any taxation it can get away with, but it isn't at all clear that the Parliament should, or even can, sub-contract tax setting powers to an independent authority.

So independent bodies levying taxation is a foreign concept to our system of government.  But is it a good idea anyway?  We hear so much about the need for independence.

Independence is very over rated.  If you can't trust the politicians to do the right thing, you can't necessarily trust the mates they appoint to these independent bodies either.

Rather than rely on ''independence'' to provide good policy outcomes we should look to government to provide good policy.  In some instances that will rely on an arms-length separation from government.

So while the Reserve Bank of Australia is not independent of government, its conduct of monetary policy to meet government mandated objectives is said to be independent.  Many other government positions are statutory positions with some insulation from government interference.

As yet Garnaut hasn't explained why people, who at best can only offer advice, should be independent of government.  A smart government would want independently minded advisors anyway.


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