Thursday, June 13, 2013

Taxes on carbon too drastic and too soon

Julia Gillard's loss of voter confidence was massively compounded by her reneging on the pledge that ''there will be no carbon tax under a government I lead''.  Greenhouse gas policies remain the coming election's signature issues, with Tony Abbott saying repeal of the carbon tax is his first priority.

Greenhouse gas policies remain the coming election's signature issues, with Tony Abbott saying repeal of the carbon tax is his first priority.

Both sides say they want to lower carbon dioxide emissions by 5 per cent.

To do this the Government's policies will cost between $20-$30 billion a year, more than the entire defence budget.  Labor's strategy employs four kinds of measures.

First there is the carbon tax with costs to consumers this year at $9 billion.  The current tax rate at $23 per tonne was to increase annually, but the Government has now linked Australia's tax to the European Union's carbon price.  Because this is only $4 per tonne, for 2015 the Government intends to reduce Australia's tax rate, but it is forecasting escalating increases in later years with tax rates at $30-plus.

Secondly, the Government is spending about $5 billion a year on subsidies to green schemes, half through the Clean Energy Fund's low interest loans.

Third, there is the renewable energy target, which subsidises windmills and rooftop solar through customers' electricity bills.  The target increases year by year and its annual costs will be $5 billion a year by 2020.

And finally, there are measures such as efficiency standards on housing, refrigerators and other items.  These impose up-front costs on purchasers, estimated at $750 million a year for new home owners.

The Liberals say that action is worthless unless it is global and that Australia has the world's most costly carbon abatement policies.

A Liberal Government would replace the $9 billion a year carbon tax with direct action policies.  These involve spending $500 million a year to buy out carbon emissions from firms that can profitably reduce them.  The Liberals would also discontinue $2 billion a year in subsidies for the Clean Energy Fund and intend to toughen approval processes for new windfarms.

The Opposition claims its policies would achieve the same emission reduction outcome as the Government programs at about a third of the cost.

That's a bit of a stretch.  So, too, is the credibility of a proposal by the Liberals to seek global cooperative agreements on aluminium smelting, steel and cement in order to reduce Australian industry's disadvantage from carbon emission policies.

But the Opposition's policy approach does start to roll back the senseless waste of money Australia is incurring with our unilateral decarbonisation policy.

The brunt of that policy falls on the gas and electricity bills of households and businesses.

For households, the carbon tax and renewable requirements have together already added 15 per cent to electricity bills, and the Government's plans will increase that cost annually.

The effect on businesses is even greater.

Unsurprisingly in view of the greenhouse taxes, electricity consumption is falling.  Some welcome this.  But business energy consumption is falling because our most productive industries — including smelting and steel — are relocating overseas.

This and cost impositions that force excessive economies on other businesses mean a sacrifice of national productivity and income levels.

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