It’s marvellous what a difference packaging makes.
Before yesterday, the government hadn’t even got out the message that there would be any compensation of any kind for households for its carbon price.
That was partly because the compensation Labor intended to provide under the CPRS had, as far as voters were concerned, the status of one the secrets of the Illuminati, courtesy of the Rudd government’s unwillingness to aggressively sell the need to address climate change and the merits of the CPRS, such as they were.
Under the CPRS, low- and middle-income earners would have been compensated primarily via the transfer payments system, through mechanisms such as increased Family Tax Benefits A and B, Newstart allowance and pension entitlements. You can feel your eyes glazing about it before you get to the end of the sentence. But “tax cuts” — well, say no more. Your main job is to avoid getting trampled in the rush of people trying to work out how much they’ll get. It’s suddenly about appealing to people’s greed, not their interest in halting climate change.
Bear in mind that Ross Garnaut isn’t some dry economist. He was one of Bob Hawke’s most trusted advisers. He’s been in the thick of the politics of economic reform at its most intense, albeit in a different political era and with far better political leaders — Hawke, Keating, Howard — than the motley crew we’re lumbered with these days. He’s plugged together the carbon price, tax reform and the productivity agenda, observing “carbon price revenue can be used to improve the tax system through reducing tax disincentives to work”, and admitting that his previous modelling in 2008 “ignored the benefits to productivity and incomes that could be secured by judicious use of the revenue from the carbon price”. There would still be compensation via transfer payments, but mainly for very low income earners and pension recipients.
That’s the intellectual justification for shifting from a compensation mechanism dependent on transfer payments and one based on tax cuts. In a properly-designed, efficient tax and transfer system that minimises EMTRs and maximises incentives to work, there shouldn’t be much difference. But we don’t yet have one of those, despite the recommendations of the Henry Review. And, more to the point, hey – tax cuts!
There’s a bit of that in yesterday’s paper. This is Garnaut at his most political — and, contra Nick Minchin, it’s by no means all in favour of the government that’s paying him. His urging that some assistance to low-income households be via energy efficiency programs won’t be welcomed by a government that will never touch an energy efficiency program again in its life after Green Loans and insulation. Funding the one-off cut in petrol excise designed to offset the carbon price impact on petrol by ending the $1 billion-plus per annum fringe benefits tax concession for private cars would be welcomed by the Greens, but looks rather shoehorned into the analysis (even so, anything that gets rid of that concession is a good thing).
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But most of all, Garnaut’s said “uncle” on compensation, backing the CPRS model of industry handouts that in effect neutered the impact of a carbon price in the emissions-intensive trade-exposed sector, albeit in a modified form. Garnaut sees it is as a pis-aller until the Productivity Commission can work up a principles-based model of compensation.
It’s typical of Australian business that the reaction to Garnaut’s shift was to criticise it as insufficient. Christine Milne is dead right about the failure of leadership of Australian business. You could write some software that could play the role of most of the corporate sector in this debate, spitting out “no” and “more assistance” and “20,000 job losses” at random intervals.
Garnaut’s rationale for three years’ worth of generous handouts sounds suspiciously like the one Julia Gillard advanced some weeks ago when she declared that a lot of work had been done on the CPRS compensation arrangements and, well, it would be a shame to waste it. The only real justification is its temporary nature; compensation was the primary reason why the CPRS would have been ineffective for over a decade, putting off the full impact of a carbon price until well into the 2020s. Under Garnaut’s revised approach, it’s designed to help get a carbon price in place without too much fuss from rent seekers, but on the basis that eventually the hard heads at the Productivity Commission would establish a proper model, not politicians prone to scare campaigns and rubbish modelling from the Mitch Hookes of the world.
All in all, Garnaut’s paper contains more wisdom on the selling of a carbon price than we’ve seen displayed at any time in the last three by the government.