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PMs baggage of carbon tax uncertainty
letter published in The Australian Financial Review, 25 October 2011
[Phrase in italics added by Editor]

You report that Treasury head Martin Parkinson told a Senate Estimates hearing on 20 October that “the cost impact of the carbon tax or mining resource rent tax are very, very small” (“Facts help allay fears”, 21 October). As a former deputy secretary of the Treasury, this is consistent with indications at earlier hearings that Treasury modelling shows only a minor reduction in growth even under carbon pricing likely to be the highest in the world.

If that is the case why isn’t it confirmed by the public release of the detailed bases of Treasury modelling of the impact of the carbon tax ?

Perhaps the answer is the uncertainty about the behaviour of the major components on which the modelling is based. Relevant here is that in the current year’s budget papers the statement of risks does not include any risks surrounding the then stated government policy of adopting a carbon tax that will increase to $29 per tonne. Yet the budget forecasts and projections for strong growth out to 2014-15 are based on assumed trends in terms of trade and other variables, but without a carbon tax.

One serious problem with such carbon-free projections is that there is a major uncertainty about the possible effects of the carbon tax on Australia’s international competitiveness. Earlier Senate hearings confirmed that Treasury modelling of potential climate price effects assume there will be a global agreement on reductions of CO2 emissions based on pledges made at Cancun. But such an assumption implies that major emitters in developing countries, which are now responsible for over 60 per cent of world emissions, would be members of a binding global agreement. Unless Prime Minister Gillard can obtain the agreement of those developing countries attending the G20 meeting with her in Cannes in early November, this seems extremely unlikely in the foreseeable future.

In short, we know that it is very, very unlikely that there will be a meaningful international agreement and that this means the government’s carbon tax policy will cause a continuing loss of international competitiveness and hence continuing uncertainty for Australian businesses.

This suggests that at a minimum the introduction of the carbon tax should be deferred. That would also be consistent with reports that expectations for next month’s Durban meeting are low and that the European union and Japan are re-assessing their emissions reduction policies.

Des Moore
Director, Institute for Private Enterprise
South Yarra Vic

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