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Swan Tries To Reassure On Australia's Carbon Tax

by Mary Swire, Tax-News.com, Hong Kong

09 June 2011


During a speech to the National Press Club in Canberra, Wayne Swan, Australia’s Deputy Prime Minister and Treasurer, stressed that the proposed carbon tax will not cause a significant reduction to Australia's long-term economic prospects.

He said that, in any case, Australia needs to price pollution so that it can drive new investment in clean energy. In his opinion: “It is the most cost-effective way to decouple economic growth from emissions growth, building a low-pollution economy by making dirty energy relatively more expensive, and clean energy relatively cheaper.”

Swan disclosed that the Productivity Commission will issue a study on international action on carbon emissions that will show that all of the countries studied, including seven of Australia’s top ten trading partners, have adopted major policies to reduce pollution and support clean energy. He emphasized that: “The approaches vary from country to country, but the report will make it clear that market mechanisms are a far more cost-effective way than other approaches like regulation and subsidies.”

He confirmed that the government is attempting to “consult and communicate openly” with the community, and has laid out clearly the basic policy parameters of its policy – a broad coverage emissions trading scheme with a fixed price for three to five years beginning as early as July 2012, converting to a 'cap-and-trade' emissions trading scheme with a flexible price.

In addition, he added, every cent raised by the scheme would be directed to three important purposes - generous assistance to households and families, to help them make the transition to clean energy; support for businesses, to protect jobs, investment and energy security, without affecting the incentive to reduce pollution; and new ways to support investment in clean-energy projects. The household assistance would be targeted to pensioners, and low- and middle-income households.

He recognized that the difficulty for the carbon tax proposals is that the benefits of introducing the policy will not be felt immediately, but, he said: “Don't believe the vested interests who argue Australia must choose between a stronger economy and decent environmental outcomes. Jobs will still be created, industries will prosper, and our economy will continue to grow strongly with a carbon price.”

While the economic modeling has not been finalized, Swan disclosed that, at the AUD20 (USD21.35) carbon price he used as an example, real national income “would continue to grow strongly … at an average annual rate per person of around 1.1% until 2050 instead of 1.2%. This means a carbon price would only reduce annual growth in gross national income per person by about 0.1%.”

“Real national income per person would be 16% higher than current levels by 2020, which is an increase of more than AUD8,000 in today's dollars. By 2050 the increase is about 56%, or more than USD30,000.”

In addition, the studies have concluded that employment continues to grow just as strongly after a carbon tax is introduced. “The modelling shows aggregate employment is approximately the same with or without a carbon price,” he confirmed. “By 2020, national employment is projected to increase by 1.6m jobs.”

However, it is still generally seen that the government is facing difficulties in turning public opinion in their favour over the introduction of the carbon tax, with special concern being expressed over its inflationary effects, particularly by way of increased energy costs. Tony Abbott, the leader of the parliamentary opposition, said that the new tax “won't clean up the environment but it will clean out your wallet.”

TAGS: environment | tax | economics | business | fiscal policy | energy | Australia | carbon tax

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