The need to examine the consequences of a Labor-Greens Carbon Tax
Address to the Pacific Rim Policy Exchange
Firstly, thank you for the invitation to address this Pacific Rim Policy Exchange.
More specifically, thank you for asking me to share my insights into the significance of removing barriers to entrepreneurship and into the free market’s role in strengthening economies worldwide.
The Pacific Rim comprises over 40 countries and landmasses whose territory abuts the Pacific Ocean.
It is undeniable that, in the last 50 years, the acceleration of globalisation has produced unprecedented increases in the market competitiveness of nations, particularly, around the Pacific Rim.
In response, Governments have been forced to reduce imposts and regulation in order to enable gains from trade to be realised.
This in turn has led to increased trade, significant reductions in poverty and often overlooked social good, higher living standards, greater entrepreneurship, stronger economies and greater national security.
Since APEC’s inception in 1989, total trade in the APEC region – which accounts for roughly half the countries in the Pacific Rim - has grown 395%, significantly outpacing the rest of the world.
In the same period that GDP (in purchasing power parity terms) in the APEC region has tripled, GDP in the rest of the world has less than doubled.
It is thus rather strange that, at this point, the Australian Government, at the behest of the Australian Greens, is hell bent on unilaterally imposing a new tax which will make Australian industry and businesses less competitive.
Yes, one by one the pieces are being put into place for Australia to have a Carbon Tax.
I just want to run over a brief chronology of statements and events:
- Before the election, Treasurer Wayne Swan said: “what we rejected is this hysterical allegation that somehow we are moving towards a carbon tax.” (Meet the Press, 15 August 2010)
- Ms Gillard also said: “There will be no carbon tax under the government I lead.” (Channel 10, 16 August 2010).
- On the Friday before the election Prime Minister Gillard stated categorically: “I rule out a carbon tax.” (The Australian, 20 August 2010).
Of course, the Greens went to the recent election with the following policy:
The Australian Greens will
implement a gradual and long term shift in the tax system from work based taxes to taxes on natural resources and pollution including:
- a carbon tax levied on generators of mains-supplied electricity or gas;
- a national carbon trading scheme; and
- other ecological taxes and charges at a level sufficient enough that their prices reflect the full environmental cost of their production, use or disposal.
After the election - which resulted in a hung Parliament - on 1 September 2010, the Labor Party and the Greens released a signed agreement.
It announced that “Labor will work with the Greens to… pursue policies that…address climate change” – whereupon the famous “Climate Change Committee” was given life and the infamous Citizens Assembly of “real Australians” slipped into the background…
It did not mention a carbon tax per se.
On the 15th of September, BHP Chief Executive, Marius Kloppers, jump-started debate with a “timely” speech to the Australian British Chamber of Commerce in which he said Government should implement a range of initiatives, including a carbon tax.
Mr Kloppers also suggested that trade exposed companies be able to claim a rebate, as without a global price, they would become uncompetitive and might shift polluting assets to countries without a carbon tax.
This aspect of his speech did not get the same attention, but it led Andrew “Twiggy” Forrest to retort that:
“He (Kloppers) says you get a complete rebate if you are an exporter. BHP is a total exporter so he is embedding a tax that will be paid for by everyone else, a la the minerals resource rent tax.”
Still, BHP’s Director of Public Affairs, Geoff Walsh - the former Hawke and Keating adviser – would have been very pleased with the front page headlines his boss’ speech generated.
Needless to say the Prime Minister, Julia Gillard, welcomed Mr Kloppers’ call for a carbon tax, but was understandably coy about endorsing a carbon tax so soon after ruling it out.
Instead, she used the call by Mr Kloppers’ and her agreement with the Greens to give herself the necessary wriggle room:
Just to recap – after ruling out a carbon tax before the election on 20 August, less than a month later these “rule-in, rule-out” games are now somehow “a little bit silly”.
JOURNALIST: Prime Minister, are you ruling out a carbon tax? Is that something you will look at?
PM: Look, we've said we would work through options in good faith at the committee that I have formed involving, of course, the Greens… We want to work through options, have the discussions at that committee in good faith.
JOURNALIST: So you're not ruling it out then?
PM: Well, look, you know, I just think the rule-in, rule-out games are a little bit silly.
Then, on the 22nd of September, the Minister for Climate Change and Energy Efficiency, Greg Combet, and compere Kerry O’Brien, had the following exchange on the local TV current affairs program, the 7.30 Report:
O'BRIEN: But let me just nail down the- what's made it different, that the Prime Minister says, as I say, the day before the election “I rule out a carbon tax”. Are you saying that the change has been forced on her by the Greens and that the Government is being forced to consider this option even though you don't believe that it's a sensible option?
COMBET: No, I'm not saying that, but I just think in the political reality in the formation of the government, the circumstances are a bit different than we anticipated and it does mean that alternative policy options will come onto the table.
It is clear to me that a carbon tax, imposed unilaterally, is all but inevitable unless the Coalition can win the public debate, as it did with the Carbon Pollution Reduction Scheme.
Only on Monday, the Prime Minister announced that her Climate Change Committee would consider mechanisms for introducing a carbon price, including “a broad-based carbon levy.”
I predict that the timetable for its introduction will be after 1 July 2011, when the new Greens Senators begin their terms.
In the meantime, the Labor-Greens Climate Change Committee will try to make out the case and condition the Australian public and business to accept a carbon tax.
And no doubt, a few in business, who have little to lose, or who judge it’s in their interest to curry favour with the new Labor-Greens Government, will support such a move.
The consequences for the majority of Australian consumers of a carbon tax will be that the cost of living and in particular energy prices will go up while their living standards will decline.
The extra costs to business will be passed on as increased prices and this burden will ultimately fall on the average consumer.
In a world without a global carbon trading or taxing system, the huge increases in electricity pricing will inevitably lead to companies going offshore.
In fact, you could say that a unilateral carbon tax at whatever rate it is set will comparatively disadvantage Australian industry to the same degree.
Moreover there will be a perverse outcome for the environment as more power is generated and more business is conducted in countries with lower environmental standards.
In other words another great, big new tax – albeit a carbon tax – will lower Australian living standards and drive business and their jobs offshore.
We are already seeing this in microcosm in the state of New South Wales.
A story which did not make national headlines was one which appeared in the Daily Telegraph on the 20th of September.
Entitled “Power bills force big firms to flee NSW” this story revealed that some of the state’s biggest employers are planning to quit NSW after rises of up to 50% in their power and gas bills:
Energy Markets Reform Forum spokesman Bob Lim said predicted increases in electricity and gas bills - as well as rises in water charges and rates - had forced big companies to look elsewhere and scale back their operations in NSW.
Mr Lim, who represents dozens of big energy users including Tomago Aluminium, VISY, Bluescope Steel, Kimberly-Clark and OneSteel, said the long-term impact on the NSW economy would be severe.
Job losses and the closure of factories were a reality as companies eyed overseas and interstate options before an emissions trading scheme was introduced, he said.
“There are some members, of significant size, that are considering whether to stay in NSW or take their operations offshore.”
I know that some small businesses in NSW, such as printers and dry cleaners, are already extending their working days by operating their machinery at night or early in the morning as a result of surging power prices.
Some are even closing on certain days, in an effort to reduce their electricity costs.
And, at the risk of being somewhat parochial, in my home State of Tasmania in recent days there has been anger and tears from average Tasmanians attending a public hearing into energy prices.
Tasmanians are already facing a devastating 16% hike in power bills over the next three years. Can you imagine just how damaging a further projected 50% rise in electricity and gas prices would be if a carbon tax were to be implemented by Labor?
As one Tasmanian pensioner put it, “We’re sitting on the bottom rung and we need help and it’s about time we got help.” “Unless we do (get help), you’re going to find a lot more people out there freezing and not having food on the table.”
Can I suggest that the unilateral imposition of a carbon tax – or a “broad-based carbon levy,” to use the Government’s euphemism – would place all Australian industry at a competitive disadvantage, and adversely impact on consumers, besides mugging the environment?
Ladies and gentlemen, before Australia dashes off on this course there needs to be a proper examination of the consequences.
I have therefore announced today that, at the Opposition’s request, the Senate has established a Select Committee inquiry into New Taxes proposed for Australia, such as the Mineral Resource Rent Tax and, in particular, the impact of a carbon tax.
I would expect this inquiry to focus on the cost to exporters and consumers of such a tax.
Unlike the Labor-Greens Climate Change Committee, this Senate Select Committee will not conduct its deliberations in secret.
Submissions to this Committee and its hearings will be public.
Nor will participation in this Select Committee inquiry be subject to a “belief test” against or for some form of carbon tax.
I would expect membership of the Committee to include Senators who currently lean towards a carbon tax, Senators who are undecided about a carbon tax, as well as Senators who tend to oppose a carbon tax.
Tonight, I do not have the time to examine moves towards carbon taxes and the like in the entire Pacific Rim.
Suffice to say, as was clearly demonstrated at Copenhagen, there is no international consensus on the reduction of greenhouse emissions, let alone the best mechanisms to achieve this.
Given the attendance at this Policy Exchange – kindly co-hosted by the Americans For Tax Reform Foundation - I would like to comment briefly on the latest indications from the United States in relation to such measures.
To quote from a recent Reuters report:
President Barack Obama's dream of passing a big bill to battle global warming is likely dead for the rest of his term, according to a leading Democrat and long time backer of climate legislation.
“I don't see a comprehensive bill going anywhere in the next two years,” Senate Energy and Natural Resources Committee Chairman Jeff Bingaman told the Reuters Washington Summit on Wednesday.
Bingaman's comments are the most frank to date from a Democratic senator on legislation that Obama has said was key to giving the United States a lead role in global efforts to fight climate change.
And from the Houston Chronicle this week:
The administration's plan for an economywide cap-and-trade system for reining in greenhouse gas emissions is completely off the table, said Kevin Book, an analyst with the Washington, D.C.-based research firm ClearView Energy Partners.
“The notion of a big climate bill ... is over for as far as we can see,” Book said.
In its place: legislation that would bar the U.S. Environmental Protection Agency from regulating those emissions, at least for a few years.
“It's difficult to imagine passage of global warming legislation in the next Congress,” said Daniel J. Weiss, of the liberal Center for American Progress Action Fund.
It is thus entirely possible that there will be no global agreement on carbon emissions in the life of the Gillard Government.
Meanwhile, the United States is Australia’s fifth largest export market.
The cost to Australian exporters of unilaterally imposing a carbon tax on Australian business can only be imagined.
Apart from Marius Kloppers’ export rebate plan, which would put the onus on Australian domestic consumers to pay dramatically higher prices for electricity, there has not been much debate about other means by which one might address concerns over competitive losses if Australia introduces a carbon tax and if other countries do not.
Sorts of policies which have been suggested elsewhere include border adjustments, trade tariffs and trade bans. I could not see Australia going down these paths, which would only invite retaliation.
As the Shadow Minister for Climate Action, Environment and Heritage, Greg Hunt, has pointed out, we are currently in a situation where the Labor Government has no climate change policy or timetable, and only a vague commitment to use the pain of electricity prices to achieve over 15 years what the Coalition would have begun on July 1 next year: in short, the clean-up of our power stations.
The option favoured by the Coalition is Direct Action, or what is more technically known as abatement purchasing, centred on a $10.5 Billion Emissions Reduction Fund.
This approach primarily rests on incentives and not penalties.
Through the Fund, the Coalition will call for tenders for projects that will:
- reduce CO2 emissions;
- deliver additional practical environmental benefits;
- not result in price increases to consumers;
- protect Australian jobs; and
- not otherwise proceed without Fund assistance.
As Mr Hunt has argued, rather than taxing all 10 tonnes of a firm's emissions simply to get them down to 9 tonnes, the government would directly buy back just 1 tonne from a firm.
But it would do so through a market to find the lowest cost reductions.
So instead of having to raise $4.5bn in taxes across the entire economy to dampen emissions by 13 million tonnes (Treasury's exact figures), the Coalition would target the cheapest 13 million tonnes of emissions reduction available in the country and buy them directly.
The Coalition’s Direct Action Plan is thus good for the environment, without the perverse economic and social outcomes of a carbon tax.
So, in conclusion ladies and gentlemen, instead of talking about further burdening business and consumers, who are already highly sensitised to energy prices, we could be cleaning up our power stations and reducing carbon emissions now.
Furthermore we could be doing this in a way which does not involve creating impediments to trade or raising prices to consumers; which is not dependent on reciprocal measures by trading partners in order to create a level playing field; and which could start tomorrow were the Government so inclined.
Might I conclude by quoting former US President, Ronald Reagan, when he said:
“Governments don't reduce deficits by raising taxes on the people; governments reduce deficits by controlling spending and stimulating new wealth.”
I would commend such an approach.