Carbon tax will make working families pay for problems markets created

Households will bear more financial burdens as Gillard’s carbon tax regime matures. AAP

The carbon tax is short-term carrot and long-term stick. The Coalition’s campaign against “a great big new tax” drove Gillard to introduce a tax for which most people and businesses affected will be compensated.

Some will be overcompensated, at least in the first years of the scheme. But that compensation will prove illusory over time, because the package is designed to soften us up for a future attack on our living standards.

There is also a fair bit of spin going on. For example, the government is proclaiming this to be a great income tax reform, announcing that the tax free threshold will increase from $6000 to $18,200.

But that needs unpacking. The government will reduce the low income tax offset (LITO) from $1500 to $445, increasing the effective tax free threshold for those on LITO from $16,000 to $20,542.

The government will also increase the first marginal tax rate from 15% to 19% to help pay part of the increase in the tax free threshold. This may act as a disincentive for some people to enter the workforce or to work more hours.

The tax will be set initially at $23 a tonne of carbon. It will come into effect on July 1, 2012 and will be imposed on the top 500 polluting companies. That in itself is a back down. The original proposal would have covered the top 1,000 polluters.

It will also not apply to petrol for households and small business.

To be effective in changing people’s behaviour, and making less polluting fossil fuels like gas or renewable energy like solar or wind viable, the price of carbon will have to rise rapidly in future years.

That is partly why there is a price escalation clause in the scheme to move it from its low $23 a tonne to $25.40 a tonne when the emissions trading scheme replaces the carbon tax in 2015.

Both figures are too low to change the behaviour of the big polluters. While the carbon tax is a mini-GST, it is also in theory at least a Pigovian tax. Such taxes are imposed specifically to change behaviour – think tobacco and alcohol taxes, for example.

Yet The Greens have said, based on a Deloitte’s report commissioned by Energy Minister Martin Ferguson, that a switch from the more polluting fossil fuels like coal to less polluting fossil fuels like gas would only be economically viable if the price on carbon were around $40 a tonne.

Deputy Greens’ leader Christine Milne told ABC radio: “I certainly recognise that you are going to need a price at $40 or more to shift from coal to gas and then a higher price still from gas to the renewables.”

The Greens are arguing for a combination of measures because even at $40, it is not a high enough price to bring on renewable energy at large scale.

Greens Senator Sarah Hanson-Young has put a price on that change – $100 a tonne. “If we want to transition right through to renewables it’s going to have to be in the vicinity of you know $100 a tonne but that’s of course not on the table,” she told the ABC.

Treasury figures show that to achieve the target of an 80% reduction in greenhouse gas emissions by 2050, the price will need to be $131 a tonne.

Introducing a carbon price of $40 a tonne, let alone $100 a tonne, would be political suicide. As it is, $23 a tonne might spell the end of the Gillard Government anyway, although the current compensation package might save it from a massacre and deliver it just a big defeat.

Let’s see how the politics play out against a backdrop of working people not spending and fearing job losses and price increases that will eat into their living standards.

What is on the table is a low carbon price plus, as Christine Milne put it on ABC radio some time ago, “the [price] escalator and … complementary measures.” This is what constitutes the carbon package – a tax with a price escalator, the $10 billion Clean Energy Finance Corporation funding and the shift to an emissions trading scheme in 2015, which will have a more drastic impact on consumers than the carbon tax.

That is the long term goal – a mechanism for increasing prices that imposes the burden of pollution for profit on the backs of ordinary working Australians. The government and Greens hope the ETS will do that. However as the European experience to date shows, an ETS benefits the finance speculators but doesn’t reduce emissions.

In addition, the compensation package for individuals will erode over time as inflation moves people into higher income tax brackets and increases the average tax take from their pay. The current compensation package for example is in part paid for by previous bracket creep.

The package will produce a $4 billion hit to the revenue over the first four years as the compensation and spending associated with it are greater than the revenue raised. It is possible the government will cut budget expenditure on hospitals, schools and roads to pay for that shortfall. Working class people will pay for the largess to the polluters.

It says much about the degeneration of the Left in Australian politics that most of it welcomes a market mechanism whose specific long-term aim is to make workers pay for the environmental crisis of capitalism.

The carbon tax and the ETS scheme are neoliberal solutions to a problem that the market itself has created. The market is the problem, not the solution.

A left-wing solution could involve taxing the polluters specifically and increasing taxes on other businesses, controlling their prices so they don’t pass on the costs to consumers, and using the increased tax revenue to build government-owned solar and wind farms as part of a shift to a renewable energy economy by 2020. Any capital strike as a consequence could be met with nationalisations.

Workers were right to distrust the carbon tax before they saw the details. They will be right to distrust it now the details are out.