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The “job-killing” carbon tax

June 11th, 2014

Tony Abbott hasn’t exactly covered himself in glory on his overseas trip. But he has found one ally: Canadian PM (at least until next years election) Stephen Harper, also a climate denialist. They made a joint statement denouncing carbon taxes as “job killing”. I didn’t notice any massive destruction of jobs when the carbon price/tax was introduced in 2012, but rather than do my own analysis, I thought I’d take a look at the government’s own Budget outlook, to see how many jobs they claim to have been destroyed by the carbon tax, and what great benefits we can expect from its removal. Here’s the relevant section of the summary (note that the outlook is premised on the Budget measures being passed)

The Australian economy is in the midst of a major transformation, moving from growth led by investment in resources projects to broader‑based drivers of activity in the non‑resources sectors. This is occurring at a time when the economy has generally been growing below its trend rate and the unemployment rate has been rising. During this transition, the economy is expected to continue to grow slightly below trend and the unemployment rate is expected to rise further to 6¼ per cent by mid‑2015.

In this environment, the Government is focused on implementing measures to support growth and jobs while putting in place lasting structural reforms to restore the nation’s finances to a sustainable footing. The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013‑14 Mid‑Year Economic and Fiscal Outlook (MYEFO).

Since MYEFO, the near‑term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth. This is partly offset by weaker business investment intentions, particularly for non‑resources sectors.

The outlook for the resources sector is largely unchanged from MYEFO. Resources investment is still expected to detract significantly from growth through until at least 2015‑16, as reflected in the outlook for investment in engineering construction which is forecast to decline by 13 per cent in 2014‑15 and 20½ per cent in 2015‑16. Rising resources exports are only expected to partially offset the impact on growth. Overall, real GDP is forecast to continue growing below trend at 2½ per cent in 2014‑15, before accelerating to near‑trend growth of 3 per cent in 2015‑16.

The labour market has been subdued since late 2011, characterised by weak employment growth, a falling participation rate and a rising unemployment rate, although outcomes since the beginning of 2014 have been more positive. The unemployment rate is forecast to continue to edge higher, settling around 6¼ per cent, consistent with the outlook for real GDP growth. Consumer price inflation is expected to remain well contained, with moderate wage pressures and the removal of the carbon tax.

The reference to the CPI effects of the carbon price (around 0.4 per cent) is, as far as I can tell, the only mention in the whole of the Economic Outlook statement.

  1. J-D
    June 22nd, 2014 at 15:01 | #1

    @Midrash

    ‘You can’t spend the same dollar twice’ is not synonymous with ‘you can’t spend money you don’t have’ and is also not synonymous with ‘sometimes you have to choose between different purchases because you can’t afford all of them’.

    If you want to spend money and don’t have it, you will have to raise more: perhaps by earning it; perhaps by borrowing it. Raising more money is a routine activity of governments: sometimes they resort to taxation; sometimes they resort to borrowing.

    What relevance does any of this have to the earlier subject of climate change from which your remark apparently arose?

  2. Collin Street
    June 22nd, 2014 at 20:32 | #2

    You shouldn’t think in nominal/dollar terms for government spending anyway: governments only have to deal with real limits, as currency issuers, governments are only bound by nominal limits if they chose to be or the nominal limits reflect real ones.

    [besides, dollars are fungible, like electrons without individual identity: "the same dollar" is an incoherent concept.]

  3. Mercurial
    June 24th, 2014 at 17:14 | #3

    midrash, you could print money

  4. Mercurial
    June 24th, 2014 at 17:15 | #4

    J-D, you could print money

  5. J-D
    June 25th, 2014 at 08:16 | #5

    @Mercurial

    Really? The government prints money? I’m sure glad you explained that to me, because otherwise I might have gone on thinking they had to dowse for it.

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