For both critics and supporters, the obvious starting point for analysis of the Garnaut carbon tax proposal is a comparison with the GST. Like the GST, the carbon tax is, effectively, a tax on consumption. While it will not be uniform, it will have some cost effect on most items of consumption. And, as with the GST proposal the aim is to return all or most of the revenue in such a way as to maximise economic benefits while minimising political costs.
At a rate of $26/tonne, a broad-based carbon tax could be expected to raise around $11 billion or about 20 per cent of the revenue raised by the GST. The revenue can be expected to rise roughly in line with national income, given a 4 per cent annual increase in the real price, partly offset by a gradual decline in carbon emissions. But it is never likely to go much above 1 per cent of national income, and the predicted price effect is also around 1 per cent on average.