When Adam Smith famously pointed out that ''there is a great deal of ruin in a nation'', he had in mind the foolishness of its political leaders. The passage of the carbon tax through the House of Representatives, underscores his insights.
It is far from unprecedented for a government to sacrifice its nation's wealth and income the way the Labor-Green coalition is doing to Australia with its carbon tax.
The Bolsheviks' abolition of capitalism consigned a Russia that was the world's fastest growing economy in the early 20th century to poverty from which it is only just escaping. Mao Zedong did it in China after 1949 and Fidel Castro's economic destruction of Cuba is yet to be unravelled.
In all these cases a minority government seized power and proceeded on policy paths involving a change in the structure of their nations that could not be undone.
They also considered the changed structures would prove popular with key supporters and eventually lead to superior economic outcomes to those that would otherwise have prevailed.
But it must be unique for a nation to deliberately sabotage its own competitiveness by shackling the industries that represent the highest value in terms of productivity: coal and electricity. It would be worse than the United States abandoning IT or Denmark deciding that dairying should be phased out -- worse because of the ubiquitous nature of fossil fuel sourced energy in the economy and because the alternatives come with very low levels of productivity.
In light of the impending legislation, the wholesale price of energy for the fourth quarter of 2012 compared with the current year will rise $20 per kilowatt hour, or more than 60 per cent, in NSW, Victoria and Queensland.
Proponents of the carbon tax concede, albeit reluctantly, that their policies will mean lower income levels than under business as usual. They do so because the Treasury modelling which lends them respectability says that will be the case. That modelling elevates Treasury into the world of technological forecaster since it assumed all these new technologies -- carbon capture and storage, low-cost wind and the like -- will emerge. And this comes on top of the heroic assumptions, against all the evidence, that the whole world will swing behind the tax.
Perhaps even more importantly, Treasury has not drawn its willing political supporters' attention to the fact that its modelling is circular -- it shows increased productivity because this is one of the assumptions. No matter how heavy the sledgehammer taken to economic drivers, the model would inevitably forecast increased national income. This would be the case if the carbon tax was at $23 or $1000 per tonne.
Although the Treasury forecasting arm tells the Labor-Green coalition that, even with its fantasy assumptions, according to the modelling income levels will be lower, ministers don't really believe it. They keep saying how we are getting in on the ground floor with these new industries on the back of which we will have the incentive to develop Obama's Solyndra-like factories that will take the Chinese and Indian markets by storm 20 years hence.
Well Solyndra went down spectacularly, as did its smaller-scale variants like the Victorian windmill blade factory that got taxpayer funding to open up a new world conquering infant industry and promptly went bust.
Government-created industry champions just never seem to cut it.
Some industry bodies that previously supported ''putting a price on carbon'', like the Business Council of Australia, have at the 11th hour realised what disaster the proposal, as it stands, will wreak on the Australian economy and their members' shareholders.
Its concerns are especially focused on the loss of competitiveness the tax will bring in the absence of other nations following our lead.
All this is rather late -- the business establishment concentrated on seeking specific exemptions and caveats. This reinforced the government's view that the wealth creation process is inevitable and its flexibility makes it immune from the effects of taxes and regulations. The Prime Minister is already boasting, that the costs cannot be rescinded and perhaps she's right.
Meanwhile, the Treasurer is echoing the Bank of England's warnings that the world is heading for another global financial crisis. That would trigger an early recognition of the carbon tax's damage to Australia, an outcome far preferable to the slow strangulation that would follow from steady growth of the international economy.
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