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Federal

Nov 3, 2009

Revealed: The high cost of the CPRS

Yesterday’s MYEFO figures reveal in clear terms just what a policy disaster the current version of the CPRS is. It also gives the lie to the absurd line from ETS opponents that the CPRS is a giant tax.

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Yesterday’s MYEFO figures reveal in clear terms just what a policy disaster the current version of the CPRS is.

How the government started with the basic principles of an emissions trading scheme and ended up with this car wreck should become one of the key lessons in policy failure for future generations of politicians and public servants.

It also gives the lie to the absurd line from ETS opponents such as the Nationals that the CPRS is a giant tax.

Sorry chaps, but the numbers show that, far from taking money out of the economy, the CPRS requires a huge Budget subsidy until 2016. Even assuming a generous growth in revenue thereafter, the CPRS won’t break even until 2022.

This is the first time the government has provided a full costing of the CPRS — previously we had only seen the figures to 2012-13. And no wonder they kept them hidden. On launching the most recent version of the scheme — with more assistance and a later, softer start — earlier this year, the government released figures showing the scheme in surplus in its first proper year of operation, 2012-13. According to MYEFO, that has been revised downward by $1 billion, so that in 2012-13, the scheme will require supplementation from the Budget of more than  $300 million. The call on the Budget peaks at $1.6 billion in 2013-14.

Part of the problem lies in the strengthening of the Australian dollar, assumed as a consequence of stronger terms of trade and the appreciation of the Aussie since the Budget. This will reduce the cost of Australian permits, and thus reduce revenue. In 2012-13, MYEFO downgrades forecast CPRS revenue from $13b to $11.5b. There is a lower requirement for compensation for households and businesses, but nowhere enough to offset the fall in revenue.

But some of the problems have been built in right from the start. The fuel excise offset, intended to cancel out the impact of the CPRS on motor vehicle fuel, was devised to blunt Brendan Nelson’s hysterical, wheelchairs-in-Taragos-based campaign on petrol prices at the time of the Green Paper launch last year. More than $2 billion a year will therefore be wasted ensuring petrol prices do not go up by a few cents beyond what they otherwise would be — which will inevitably be across a far greater range than the impact of the CPRS.

And then there’s compensation for trade-exposed industries, which, remarkably, increases over the life of the scheme. In 2012-13, free permits to EITEs account for 28% of revenue. By 2020, they account for nearly 35% of scheme revenue, while compensation to households remains steady. This is despite assistance to EITEs intended to taper off.

This was a scheme that was intended — accepting some transitional costs — to be revenue-neutral. By 2016, it will have cost taxpayers nearly $5 billion. All for a scheme that will oversee a rise in Australia’s carbon emissions, courtesy of permits bought from countries such as PNG and Indonesia, and that assumes continuing, subsidised growth of our most polluting industries.

The few remaining supporters of this scheme outside the government must surely now accept that the CPRS in its current form must not go ahead. It will not drive a transition to a low carbon economy and it will impose a significant burden on taxpayers. Only the removal of the fuel excise offset or a significant reduction in assistance to big polluters can justify the introduction of this monumental stuff-up.

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