The government has announced its carbon tax will commence in July 2012. Consumers and taxpayers should be very concerned about this new tax.
The announcement is even vaguer than either of the mining taxes announced last year. All we know is that a new and complex tax will be introduced next year. So far, we can't even be sure how much revenue it will raise, except that it will be budget neutral; not even revenue neutral.
This should not inspire confidence. The government has shown itself capable of spending more than the revenue it already raises, and now it is promising to spend all the revenue from the new tax.
There is a dirty little lie at the centre of the government's plan to introduce a carbon price. That is the notion that carbon isn't already priced. The government must be hoping nobody has noticed the plethora of programs that have contributed to rising living costs while minimally reducing carbon emissions.
Some of these programs have enjoyed a high profile. For example the home insulation scheme, which resulted in numerous house fires and four deaths. Solar panel rebate schemes have proven as expensive as they are popular, while others, such as the Green Car Innovation Fund were probably just old-style protectionism.
The fact is the Australian government has introduced several expensive carbon prices. The best that can be said for the proposal to introduce a fixed carbon price is that it will be cheaper than many existing programs.
The test the government faces is in abandoning the more expensive programs. In the presence of a well-defined, well-designed carbon tax all those other schemes simply become corporate welfare. Keeping them in place is a double hit on consumers. That means mandated renewal energy targets, and windmills, and all those boondoggles so beloved by politicians will have to go.
The whole argument for a carbon tax is that it represents the most efficient way to achieve a given outcome. If that is true, then it should substitute for all existing programs.
But that is not what the government seems to have in mind. The carbon price mechanism announced last week makes no mention of substitution; in fact the mechanism does not preclude other measures. In other words, this price is not a substitute for other higher, yet less effective, prices, it is an additional price to those already in place.
How often will consumers have to pay for the same carbon? Not often enough it seems.
There is another problem with this scheme. It has the potential to generate vast streams of revenue to the government. Governments quickly become addicted to easy money. The whole idea of a carbon price is, over time, that revenue should decline. But the government has spending plans. It is going to be very difficult to increase spending when the funding source is expected to decline.
Making the tax budget neutral invites future deficits as revenues decline. Conversely it gives government the incentive to stymie carbon substitution in order to maintain revenues. In short the vagueness of the proposal introduces sovereign risk.
The vagueness of the proposal also means that its effects have not been modelled. The government cannot know what impact it'll have on the economy and as such cannot have designed any compensation packages.
In their Shitstorm: Inside Labor's Darkest Days, Lenore Taylor and David Uren recount how then climate change minister Penny Wong came to the conclusion that business was quite serious about the adverse impact the emission trading scheme would have had on the economy.
There is nothing in last week's announcement to suggest any of those problems have been addressed or resolved. If anything a less developed proposal has been announced to commence next year. The community is being asked to pay its money and await developments.
The challenge this government faces is that it has no track record in delivery of programs. Its 2007 promises are yet to be achieved from healthcare reform through to the rather simple task of delivering computers to schools. It has failed at every turn. The community is now being invited to trust that they can successfully introduce a tax on every aspect of the Australian economy from a standing start to implementation in less than 16 months.
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