Wednesday, June 27, 2012

Carbon tax is nothing to object to

When psychologists study those sects that predict the end of the world on a certain day, they find the leaders rarely willing to admit they were wrong and their true believers rarely willing to admit they were duped.

Rather, the sect members find some dubious rationalisation. It was our prayers, brothers and sisters, that interceded for this wicked world and persuaded the Good Lord to stay his hand.

Since the day he won the leadership of the opposition on the strength of his willingness to switch from supporting to opposing putting a price on carbon, Tony Abbott has been predicting the carbon tax would wreak devastation on the economy, wrecking industries and destroying jobs.

To be fair, running scare campaigns against new taxes has always been accepted as a legitimate tactic by our ethically challenged political class.

Labor was happy to exploit the fears of the ill-informed in its opportunist opposition to John Howard's ''great big new tax on everything'', the goods and services tax.

The biggest difference is that Abbott's misrepresentations have been so much more successful.

But with the carbon tax taking effect from Sunday, the moment of truth approaches. Soon enough it will become clear that, for consumers and the vast bulk of businesses, the dreaded carbon tax will have an effect much smaller than the GST.

The retail prices of electricity and gas will rise about 9 per cent, but the increases in other prices will be very small.

Whereas the GST increased the consumer price index 2.5 per cent, the carbon tax is expected to raise it just 0.7 per cent.

Whereas the GST is expected to raise revenue of $48 billion in the new financial year, the carbon tax is expected to raise about $4 billion in its first year and about $7 billion in subsequent years.

Julia Gillard and her supporters have been hoping against hope that, as soon as this reality dawns on a fearful public, as soon as the magnitude of the Liberals' hoax is revealed, voters will switch back to Labor in droves.

I don't see it happening. It rests on an unrealistic view of the lack of self-delusion in human nature.

Political parties and their cheerleaders don't like admitting they've been dishonest - even to themselves. And you and I don't like admitting we've allowed ourselves to be conned by unscrupulous politicians and shock jocks.

So we look for rationalisations, no matter how tenuous. And in these the carbon tax abounds. With the GST, the object of the exercise was clear and simple: to raise more revenue. With the carbon tax the object is far from clear to anyone who hasn't done their homework.

For a start, it's clear the object is not to raise revenue, because much of the revenue raised is being returned to households as ''compensation'' in the form of a small cut in income tax for most people and small increases in pensions, allowances and family benefits.

But if the object is simply to discourage people from using emissions-intensive goods and services - which it is - why give back to most people the extra tax they'll be paying?

Because economists believe that to change people's behaviour it's necessary only to change the relative prices they face: to raise the prices of fossil fuels (particularly electricity and gas) relative to all other prices. It's not necessary to leave people out of pocket by keeping the proceeds from the tax you used to bring about the change in relative prices.

You may say you can't see how such a relatively modest rise in the price of electricity could make much difference to households' use of power. That's probably true, though it may encourage people to buy a more energy-efficient model next time they're replacing an appliance.

Actually, the price increase is aimed mainly at big industrial users of energy and, more particularly, the generators of electricity.

If the industrial users can be induced to eliminate wasteful use of power, this will make a difference. And if power companies can be induced to replace their present generators with less emissions-intensive models when the time comes, this will make a big difference. Raising the price of electricity produced by burning fossil fuels helps make the price of power produced from renewable sources more competitive.

But if those objections to the tax don't wash, there are plenty more. One is that the tax of $23 per tonne of carbon dioxide is way too high. I discuss this one in my little video on the website.

Yet another objection is that, since there's nothing an individual country can do to have a significant effect on global emissions of greenhouse gases, in the absence of a binding agreement to act by all the major countries there's no point in us doing anything.

Trouble with that argument is it increases the likelihood of failure. Only if enough countries demonstrate their good faith by getting on with it is effective global action likely to eventuate. We should line up with the good guys, not the bad guys - and we're far from the only good guy.

But if all else fails - if you can't find any other argument to confirm the wisdom of your original conclusion the carbon tax is a terrible thing - just tell yourself that, when the vast majority of scientists specialising in the area warn us continued emissions of greenhouse gases will lead to devastating climate change, they've got it all wrong.