CLIMATE SPECTATOR: The amazing disappearing carbon tax grab

POSTED May 17, 2012

Yesterday the cheques started rolling out to households as part of the household compensation package for the carbon price. And in July pay cheques will start hitting bank accounts with slightly less tax taken out of them.

While I was hoping the government would give all the compensation in quarterly cheques – which could not possibly be ignored – the government has chosen the economically and administratively wiser, but politically less effective, route of adjusting the existing tax and transfer system.

I’m afraid people will go cash in the government’s cheques they receive in May at the local Harvey Norman – making their electricity bills even worse – and forget all about them when the next electricity bill hits. Also they’ll probably barely notice an extra $10 or $20 in their back account each fortnight.

A few weeks ago I had a chat with my father-in-law who was absolutely convinced the only reason the government was introducing carbon trading was to raise taxation revenue. I could sense the anger and resentment he felt that this government was in a desperate scramble for cash to patch-up financial waste and mismanagement. I believe he is representative of a large proportion of the Australian electorate that will be pivotal to who wins the next election, and it will be incredibly difficult for this perception of the carbon trading scheme to be dislodged.

Yet the amazing thing is this incredibly strong belief that the carbon trading scheme is just a tax grab has absolutely no basis.

The table below provides estimates of the total revenue and the total compensation/assistance associated with the introduction of the carbon pricing package.

Yes, the scheme has the potential to raise significant revenue of $27 billion. But you need to remember the government has already given the coal power stations a billion dollars in compensation before the scheme has even started. Then they’ll give a further $2.054 billion in free permits to coal power stations, plus $9.2 billion free permits to trade exposed industry. This leaves them with almost $15 billion in revenue that they’ll actually get their hands on.

Then the government will provide some considerable cash assistance to coal mines and steel mills, give small business a tax write-off and offer some further support, mainly to manufacturing, to help reduce the impact of the carbon price. This leaves the government with almost $13 billion. This amount completely disappears through tax cuts, pension increases, etc, in compensation for households, leaving the government with a net deficit of nearly $2 billion

To read more, go to:

Tristan Edis (Climate Spectator, 17 May 2012)