Carbon Tax - There is a better way - Joe Hockey Speech

11/10/11

The Hon Joe Hockey MPShadow TREASURER

SPEECH ON CARBON TAX LEGISLATION

“THERE IS A BETTER WAY”

TUESDAY 11 OCTOBER 2011

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I oppose this package of legislation which introduces a carbon tax because it is not the right plan for Australia.

It is not the right plan for Australian households and it is not the right plan for Australian businesses.

In the absence of agreed international action we are placing enormous pressure on the Australian economy for little gain.

Without agreed, consistent and measurable international action this legislation takes Australia out on a limb.

To oppose this legislation is not to oppose the science of climate change. That’s the Labor Party spin.

I do not and never have denied the science in support of recognition of climate change. I am not a scientist nor am I an expert on climate change but I must make my decisions based on the best interests of the community. As a legislator I aim to make decisions based on the best available evidence and advice.

I believe on the evidence available that our climate is changing.

I believe on the evidence available that human behaviour does contribute to climate change.

And I believe on the evidence available that reducing carbon dioxide emissions will slow down the pace at which the climate is changing.

I have held these views consistently for more than ten years now on the public record.

The Coalition is committed to the same carbon reduction goals as the government. We are committed to reducing Australia's greenhouse gas emissions by 5 per cent per cent below 2000 levels by the end of 2020.

Where we differ from the government is in the mechanism for achieving those goals.

As a Liberal I believe that markets are the best pricing mechanisms for commodities.

I was a strong supporter of an emissions trading scheme up to the disaster at Copenhagen in December 2009. At that conference, despite the predictions of the Government, there was no binding global agreement for climate change action. And with no global scheme in place, it no longer made sense for Australia to unilaterally commit to its part of an emissions trading scheme.

In this light I do not believe that a new tax which will increase the price of everyday goods is the right solution for Australia.

There is a better way. The Coalition’s Direct Action plan tackles the challenge of human generated carbon dioxide emissions at its source. It provides incentives for emitters to do the right thing and to find less carbon intensive ways of doing business.

Our solution does not impose additional costs on households.

Our solution does not penalise Australian industries and drive investment and jobs overseas.

Cost and Budget

The government’s scheme is a very expensive tax churn. New taxes over the forward estimates rake in $27.3bn. All of this money and more is spent, with the budget bottom line worse off by $4.1bn.

The Treasurer has not explained how this “carbon hole” in the budget will be financed but it is a safe bet that he will put it on the national credit card and increase the deficit.

The hole of course is already getting bigger. Where carbon tax costs are not borne by the Federal Government other governments will have to pay. And it’s of course the same taxpayers in each case.

For example NSW has announced it will be looking to offset the expected cost to their budget of the introduction of the carbon tax, expected to be $900 million or more over the forward estimates. This will be done by increasing mining royalties paid by companies subject to the Commonwealth’s proposed Mining Resources Rent Tax. This will capitalise on the Commonwealth’s commitment to reimburse companies for their state royalty liabilities.

And that is before the government pours another $10bn of debt into the Clean Energy Finance Corporation, dubbed the ‘Gillard Bank’.

The government’s Carbon tax scheme creates a structural hole in the budget. Revenues beyond the forward estimates are highly uncertain and volatile as they rely on the international price for carbon. There is no way of predicting what that will be or whether it will occur.

In contrast, the costs of compensation will rise steadily through time.

That compounds the structural fragility stemming from the mining tax.

The Coalition’s Direct Action policies are just as effective at achieving Australia’s carbon reduction goals but at much less cost.

The cost is known - $3.2bn over the forward estimates.

It is fully funded as I said through budget savings, not more taxes and more debt.

There is no structural hole because there is no tax churn with escalating compensation funded by uncertain revenues.

The Coalition policy provides business and the community with the financial certainty that they need and with the added assurance that the government budget will remain in the black.

Problems with the Modelling

The modelling of the impacts on the macro economy was originally based on a carbon price of $20 per tonne, not the starting price of $23 per tonne.

Revised modelling, which most members haven’t been able to comment on because it was released after the debate began, has now been released using the correct starting price.

The big surprise is that there is no change in the key economic forecasts.

Apparently a 15% increase in the starting carbon price has no effect on the economy.

I find that very hard to believe.

But there is an even stranger finding.

The government wants us to believe that introducing a carbon tax will have no impact on employment.

There is a statement in the modelling, and I quote:

“Employment continues to grow strongly, with national employment increasing by 1.6 million jobs by 2020, with or without carbon pricing.”

Apparently all the workers in trade exposed industries and those carbon intensive industries will magically and immediately find new green jobs.

The final modelling is still not complete.

It does not include the Clean Energy Finance Corporation because the government is yet to finalise consultation with key stakeholders about how the corporation will operate. So the effect of the debt financed $10bn Gillard carbon bank is left out.

It does not include policies that provide investment and innovation grants, such as the $3.2bn Australian Renewable Energy Agency, the $1.2bn Clean Technology program or the $300mn Steel Transformation Plan. The Carbon Farming Future Fund and the Biodiversity Fund are not modelled.

These programs are omitted from the modelling because their “investment and behaviour is difficult to predict”.

Well that is just great. These are expensive programs. The government does not know if they will achieve their objectives. But they are ploughing ahead regardless spending taxpayers money. That is typical Labor.

The modelling also does not include the planned closure of 2000 MW of electricity generation capacity of the most emissions intensive power plants.

The modelling still assumes other countries also act to mitigate climate change, in marked contrast to the real situation where the United States and many other countries are moving away from economy wide schemes.

Overall there remain significant holes in the modelling of the carbon tax package and significant doubts about the veracity of the findings. The Coalition is not convinced and more importantly the Australian people are not convinced.

The imposition of a carbon price is not without economic cost.

The modelling concedes that gross domestic product and real average incomes will grow less with a carbon tax.

There will be significant impacts on the mix of industries. Mining will be smaller, with big hits on coal, gas and non ferrous ore. Manufacturing of aluminium, alumina and iron and steel will also be significantly impacted.

The new modelling confirms that consumer prices will rise by 0.7% in 2012-13 with a second increase of 0.2% by 2015-16.

The new modelling also confirms that electricity prices will rise by 10 per cent in 2012-13.

This is not the end of the story. There will be a further increase in electricity costs of 8% by 2022, with another 35% out to 2050. So the carbon tax will lift electricity prices by at least a cumulative 50%.

And this is on top of the already inflated impact of renewable energy costs on electricity prices. The Productivity Commission in June 2011 estimated that Australians are already paying a subsidy equivalent of up to $694 a tonne for existing emission reduction policies. And in the case of large scale renewable energy initiatives the implicit abatement subsidy is up to $111 a tonne. This is an enormous amount of money that is already being spent and it flows through to electricity bills.

Not the Time for a Further Burden on Households

The Coalition does not believe it makes any sense to introduce a carbon tax which will add to the financial burden for households already under significant financial pressure.

Headline inflation was up 3.6% over the past year, the highest rate in 2½ years.

Interest rates have continued to increase on seven occasions over the past two years.

This government has increased or introduced 19 taxes. The flood levy commenced on 1 July this year. And the mining tax and the carbon tax are both scheduled to hit from 1 July next year.

Consumer confidence is weak.

Growth in retail spending is soft.

Dwelling construction approvals are comparatively low.

House prices are down, with established house prices falling in three out of the past four quarters.

Demand for credit is weak, with household borrowing for housing rising at the slowest pace in a generation.

The household savings ratio is close to generational highs, as Australians cocoon concerned about the uncertain outlook.

Impact on Business

It is no wonder that ACCI business conditions in the June quarter was down to levels not seen since the survey began in 1998.

Every business is affected through increased costs in their supply chain. In Australia, the more manufactured a product is, the larger the energy component will be and the larger the impact of the carbon tax will be on the end price of the product.

Some industries will receive partial compensation and adjustment assistance. This is a short term fix for long term costs.

Businesses across a range of sectors must now be reconsidering future investment.

Aspects of the Tax Changes

The Treasurer has claimed that a feature of the compensation measures accompanying the carbon tax will be an increase in the tax free threshold for personal income tax from $6,000 to $18,200.

This claim of course is an exaggeration. The tax changes are being accompanied by a phasing down of the low income tax offset.

The effective tax free threshold this financial year is in fact $16,000 when the impact of the low income tax offset is taken into account.

Another issue is that the legislative design of the tax makes carbon units a form of personal property. The government of the day may be liable to compensate the holder for the value of the units.

This is a backdoor attempt by the government to lock in this unpopular tax. The government deceived the Australian people about this tax.

Both the Treasurer and the Prime Minister emphatically rejected plans for a carbon tax before the election. They then announced a carbon tax just a few months after the election.

They refuse to seek a mandate for the tax at another election.

And now they are seeking to make it as difficult as possible for the tax to be repealed, even if that is the will of the Australian people.

The Coalition will not be deterred. We remain committed to rescind the tax when we are returned to government.

The curse of the modern Labor Party is that it choses to govern for Balmain rather than Bankstown. Given that this tax will leave Australians worse off without making any discernable difference to climate change makes this tax the most compelling evidence of a Party and a Government that has clearly lost its way.