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A potential game-changer for the government

March 18, 2011
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Carbon tax to help cut household taxes?

Professor Ross Garnaut says that a portion of the carbon tax revenue should used to reduce taxes for and middle-income households

Tony Abbott has been rehearsing for an election campaign in which he is the champion of the stretched household budget and the working man’s job, the guy who promises to repeal a great big new carbon tax. But a campaign where he can’t afford to match a personal income tax cut for most struggling families would be something else altogether.

Professor Ross Garnaut’s suggestion that the government link its floundering climate change reform with the Henry review’s proposed personal tax reform, shelved before the last election when things were getting a bit on top of them, could recast everything.

That’s why the government is considering it very seriously indeed. Julia Gillard and Greg Combet are working hard to claw back the early advantage Tony Abbott has gained with his blitz of radio interviews and visits to regional centres.

Garnaut insisted the Coalition’s Direct Action plan would be more expensive for households and less efficient in reducing emissions, a throw-back to Soviet-era central planning. He said this was in no way partisan because he (the professor) had been advocating free markets back when the Coalition had also believed in them and it was the Coalition that had changed its mind.

The intellectual antecedents of his policy have not mattered a jot to the Opposition Leader, who every day raises the spectre of what the tax could cost an industry or a family if there was no compensation at all, even though he knows generous compensation will be coming.

But it is difficult for the government to make the case that its scheme is comparatively less scary without details of exactly what it would cost and what the compensation would be.

Loy Yang Power Station in the Latrobe Valley, Victoria.

Loy Yang Power Station in the Latrobe Valley, Victoria. Photo: Paul Jones

And, given the complexity of the policy and the difficulty of funnelling every decision through the multi-party committee, we are unlikely to see those for some time.

The Garnaut report only starts to fill the information vacuum that has allowed the Coalition scare campaign to thrive. It concedes the government is going to have to offer generous industry compensation, at least in the short-term. It lays the groundwork for any petrol price increase to be delayed.

It will be influential, but it is not policy. That means a sensible debate comparing the cost of two schemes designed to meet exactly the same emissions reduction goal is still a way off.

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