I may be some little time …

I’ve been planning for a while to write a post arguing that the one thing Julia Gillard can do to (at least, potentially) salvage her place in the history books is to secure passage of the carbon price package (and preferably the other outstanding items left over from the Rudd era, such as the mining tax legislation and health reform), then step aside, and let the Labor party choose a new leader. I was going to wait until the package was passed, but for various reasons, I’ve decided it’s time to speak up on this.

I’ve been very critical of Gillard, but I’m probably less hostile to her at this point than the majority of Australians. On the other hand, her success in holding a fragile government together, and in securing agreement on some complex pieces of policy, suggest she is much more appealing in person than her public persona would imply. My limited contacts with people who’ve worked directly with her support this view, as does the clear belief of her supporters that, if only we could see the “real Julia” we would all like her.

Unfortunately, that’s no longer a relevant possibility. After more than a year in office, there seems very little likelihood that the negative view of Gillard, based on her public record, is going to change, no matter how many rebranding exercises she undertakes. Her last chance, a big bounce when the release of the carbon price package showed the spurious nature of Abbott’s scare campaign hasn’t come off. Moreover, despite her contribution to getting the package together, she can never get past her promise that there would be no carbon price under her government. Only with a change of leader can Labor sell the carbon price.

As regards the choice of alternative, my natural inclination is for Rudd, but it seems clear that his colleagues won’t go that way, and he is doing a good job as Foreign Minister. Wayne Swan has been a good Treasurer, but he is too closely tied to the coup against Rudd and the dumping of the CPRS. Greg Combet would be my preferred choice, but Stephen Smith would also be good.

Given a change of leader, and if they aren’t forced to an election early, I think Labor still has a good chance. Abbott is incredibly unpopular, considering the circumstances, and the hostility towards Labor is very much focused on Gillard personally. If the government can survive long enough to see the carbon price in place, Abbott’s scare campaigns will collapse completely.

185 thoughts on “I may be some little time …

  1. Sam – I don’t see global harmonization making a lot of difference.

    Chris – Treasury doesn’t believe you.

  2. Well the paper you linked to gave “high capital mobility” as the reason for high dead-weight loss. This would matter only if some parts of the world had lower tax rates than others. There would be no advantage in moving from one high taxing region to another.

    Looked at another way, how much less economic activity takes place *globally* when a local company tax rate is increased? What’s the global dead weight loss from company taxation? I mean, I’m sure it would be more than zero, but much less than the locally stated rate.

    I think you do see harmonization making a difference, in fact I think you count on it. You would like to see global tax competition drive average rates down much lower, and closer to what you think is the social optimum.

    Am I way off?

  3. If the deadweight cost of taxation could be lowered through tax harmonization then that would be a positive outcome. However I think that tax competition tends to reduce taxes and in turn that reduces deadweight losses. So both lines of argument have some merit.

    I happen to think tax competition is far more likely to be effective given geopolitical considerations, the nature of politics in general and the fact tax cuts have more efficacy. So on balance I’m generally against tax harmonisation initiatives and prefer tax competition. However we could cut taxes and harmonise by reducing our payroll tax which would align us more with the rest of the world. This would also have some obvious important social benefits (reduced unemployment).

  4. @sHx

    That condescending tone has won legions for the Carbon Tax {carbon price} (my correction).

    LOL ‘Tone’ troll (pun intended)

  5. @TerjeP
    I’m not quite saying tax harmonization would lower the dead weight loss. I’m saying the true global deadweight loss is lower than the headline figure suggests, since capital that flies one region to escape tax is still put to work in another.

  6. @Fran Barlow
    I wish you’d stop pushing this as though it were a settled semantic matter, Fran. Not many people agree with you on it, and it’s not an important point anyway. sHx is wrong about much more substantial things than this.

  7. @sam

    Now I’m concerned that you’re confusing deadweight costs with a transfer. Deadweight costs are not benefits that leak to some other third party. They are benefits that would have been created in the absence of the tax which never get created if the tax is present.

  8. TerjeP :

    Chris – Treasury doesn’t believe you.

    Treasury is running a Keynesian Capitalist Titanic – and one still based on their theory that debt can be balanced with growth and population growth and underpinned by a subjective theory of value (ie whatever comes out of the market).

    Treasury is not an objective, independent, or useful party.

    In 1973 Treasury was aghast at the “extreme” idea that was prevalent at the time that “heat and carbon dioxide – have pollutive effects which could wreak death and destruction on a global scale”. Treasury winged:

    Scientific speculation of this kind about possible distant catastophes do however appear to reinforce viewpoints already opposed to continued growth on other grounds relating to its alleged pollutive effects

    Treasury promised an escape from a life ‘nasty, brutish and short’ and held out the progandist carrot of ‘the possibility of a high civilisation participated in by all’. Treasury asserted “there is no logical inevitability about the connection between continued economic growth and the effects (see above)”.

    Treasury Economic Paper 2, AGPS, 1973, p11-13.

    It also kow-towed to mining capitalists saying:

    “It may be … technically feasible to recycle a very large proportion of a given metal, but it would be pointless to do so if the metal can be produced more cheaply from new ore [p38]… concern about the rate of depletion of the earth’s capital stock of minerals sometimes appears to result in a loss of perspective [p39]”.

    Although Treasury did admit recycling may have a point if it removed ‘unsightly wastes’ or if it gave fundraising opportunities for boy scouts.

    So, maybe it is Treasury that ought not be believed. Have a look at its looney predictions for economic growth in the Budget papers. Treasury sings the song of masters.

  9. I’m not confusing it. KPMG is. I’m saying that some of what looks like a deadweight loss from taxing capital is in fact just transferred value to another, lower taxing country. KPMG says that for every dollar of company tax collected, 40c is destroyed from the economy as a result of capital going “somewhere else.” Do you agree with me so far?

    I’m saying that since the capital goes to another country and is put to work there, some extra value is created in that other country ( Not as much as 40c of course, because otherwise it would already have gone there even without the tax). The effect of taxing a dollar here might be 40c less for the local economy, and 30c more for Othercountrystan, leading to a true deadweight loss of only 10c.

  10. @sam

    Those with expertise in this area have acknowledged the point. The use of the term “tax” in this context is what happens when cultural objection intersects ill-considered defensive politics by the ALP fringe.

    And FTR, given that the counter claim is entirely cultural, rather than based on matters of technical or economic feasibility, it is the key point. If this usage can be struck down and exposed for the trolling that it is, the way will be clear to an argument on merit for the actual proposal.

    For as long as the ALP fails to see this, it will do this debate the hard way. I don’t really care about the ALP, but I do care about the policy’s survival and improvement.

  11. @Fran Barlow
    “Those with expertise in this area have acknowledged the point.”
    No they haven’t. Economists regularly use the term “pigovian tax.” Even the government uses the word “tax,” interchangeably with “price.” Some people agree with you, most don’t. There is no basis on which you can claim to have won the argument outright.

    There are no political problems that come from freely using commonly acknowledged terms. It makes the tax advocate look strong for biting a silly rhetorical bullet (fired I might add, by the likes of Alan Jones). On the other hand, people who try to force vocabulary look petty, and afraid of words. What we should really be saying is “Yes this is a carbon tax, and there’s nothing wrong with that.”

    I might not bring this up every time you “correct” someone on this point, but know that I continue to disagree with you, both on semantics, and on the politics.

  12. @Sam

    Economists regularly use the term “pigovian tax.”

    They do — and excises on alcohol are case in point. However, very few if any are using “carbon tax” for what was proposed a few weeks back here.

    Even the government uses the word “tax,” interchangeably with “price.”

    That’s what happens when cowardice hooks up with ignorance and stupidity. They wanted to avoid falling into the “trap” you refer to above — doing spin, and instead bought the term “Juliar” which could be mapped to the trolling claim that this was an illegitimate government operating at the whim of The Greens. Now they are locked into carrying around their own political sandbags on exactly the same grounds. They ought from the first have shot this troll down and then publicly spat on it every time it raised its head. That’s what the UK Energy Secretary did when he spoke to the vacuous LNP fangirl Fran Kelly a few months back and she immediately backed off, chastened.

    Allowing your opponents to define the terms of debate is bad enough, but when these are clearly wrong, it adds insult to injury for those of us who support the policy. They are sandbagging us as well.

    Yes I am aware that you think that this is a matter of little import. This is your way of “defending” the ALP regime, but it’s stupid with knobs on, as current ALP polling shows. On almost every occasion in the world out there I find myself defending the current policy, the very first thing people say is that they can’t trust a liar followed shortly thereafter by “how can a tax change the climate?”

    Only after I point out that if they can’t trust liars, then Abbott, who is lying about the introduction of a carbon tax, ought to be disbeleived, can we talk about substantive matters.

  13. Fran, I can’t believe you’re still arguing this. The fact is, the Clean Energy Future leglisation has been designed on the assumption that the fixed price component is a tax, and the Commonwealth Government’s view (based on legal advice) is that the fixed price component is an excise.

    Your argument from political timidity is also inconsistent with the known facts. Remember the CPRS? Nobody in the government was calling that a tax. What did the Opposition call it? A “Great Big Tax on Everything”. The “debate” would be the same no matter what the government called it. Time to move on from this one, I would have thought.

  14. Oops. That should be legislation, not “leglisation”. I never seem to get by without at least one typo.

  15. I’m not trying to defend the ALP. Like you, I’d be pretty indifferent to its fate, if only the alternative wasn’t so horrible. I’m trying to defend clear exposition against wrong-headed, counterproductive pedantry.

  16. Fran is correct.

    It isn’t a carbon tax.

    It is an ETS which starts with a fixed price but then after a period changes to a floating rate.

    When the opposition negotiated a THREE year fixed price no-one was calling that a carbon tax

  17. KB Keynes: read the legislation, and take it up with the Australian Government Solicitor.

  18. Mainly I just don’t like the word police. Anyway, now I’ll stop complaining that this issue isn’t worth talking about, and actually stop talking about it.

  19. Tin,

    i really don’t care what the legislation says I am saying what economics tells us.

  20. KB Keynes: if you haven’t read the legislation, you don’t know how the scheme works. If you don’t know how the scheme works, you can’t apply economics (or anything else) to it. Your comment about the Opposition negotiating a three year fixed price period makes it pretty clear you’re not across the facts.

  21. I said that is was they previously negotiated.
    It is a fixed price for a certain period and then it is a floating price.

    This is the norm for an ETS. business has a known price before the market rips it.

    It aint a carbon tax.

  22. @Sam

    Sam – okay I’m happy to concede some of what they call deadweight cost may in fact be a displacement effect. However it does not change my conclusion from a national interest perspective nor my general view regarding tax harmonization initiatives. Nor do I think the actual deadweight cost would be as low as 10%. It is however a reasonable point of inquiry.

  23. I said that is was they previously negotiated.
    It is a fixed price for a certain period and then it is a floating price.

    This is the norm for an ETS. business has a known price before the market rips it.

    Yes, I’m aware of how it works. However, the fixed price period is clearly capable of being described as a tax (whether you as an individual choose to call it that or not), which is why the legislation is drafted in a manner that ensures its constitutional validity in the event that the High Court decides it’s a tax or excise.

    The characteristics of the fixed price phase of the scheme have apparently led the Commonwealth’s legal advisers to take the view that it is likely to be an excise. I surmise that the characteristic that has led to this view is the fact that during the fixed price phase, the units issued (and for which the price is paid) are immediately and automatically surrendered, meaning that the eligible entity only ‘owns’ the units instantaneously, if at all, and cannot trade them. The net result of this is that the eligible entity has paid a fixed unit price, based on its emissions volume, without receiving anything in return. That looks a lot like a tax.

    I’m not insisting that it has to be called a tax, mind you, only that it’s obviously reasonable to call it one (the fixed price phase, anyway). Clearly it’s also an ETS scheme, and to the extent that it’s a tax, it’s a tax that transitions into an ETS scheme after three years. I know Fran has her own reasons for insisting that it’s not a tax. I’m not sure what yours are. I don’t think the legal notion of a tax is sufficiently divorced from the economic one that the two ways of thinking generally lead to radically different conclusions on whether or not something is a tax.

  24. @Tim Macknay

    Without reduxing too much of what I’ve argued at some length before, I’ll simply note that functionally, if the fixed price phase is merely an enablisng measure for what is to become an ETS, then calling this phase of the ETS “a tax” seems daft if not actually political cherrypicking.

    Once upon a time, I used to drive a government bus. Before I’d begin actually driving the bus, there were forms to fill out (called “journals”) and indeed, at the end of each trip I’d have to update my journal before commencing a new journey. When I was unfortunate enough to get the old 417 route in Sydney (from Circular Quay to Central) I’d sometimes spend as much as 25% of my trip time filling out my journals. It never occurred to any one to call me a journalist or even a clerk, even though I spent quite a bit of time doing clerical work. I also took money from passengers, but I wasn’t a salesperson. I handed money to the revenue clerk back at Randwick or Waverley Depots but wasn’t a cash courier. For some reason everyone thought I was a bus driver and saw these other activities as merely part and parcel of bus driving.

    The FPP of the ETS is called a tax only by those who want to strike it down, or else are too cowardly or intellectually ill-equipped to defend their public policy from the rightwing populist hyenas attacking it. This is not a one-off, but a persistent pattern with this regime in many areas of public policy.

    The debate prior to July of 2009 was whether a carbon tax would be a preferable instrument to a cap and trade system. This was the subject of discussion by experts on both sides. McKibben favoured this view but it was ulitmately passed over. Abbott for a time said “why not introduce a simple carbon tax”? (see his book Battlelines, p219). He knew the difference, or spoke as if he did.

    Nothing has changed except the context. Today, it’s foundational to the opposition strategy to cast this government has having won the election on a lie. For some reason the regime is on this issue and in a number of others, willing to allow itself to be adjudged by the opposition’s standards. Even if I cared not a jot about ethics, were I one of the ALP’s spivs, that would seem to be mind-numbingly stupid.

  25. I call the carbon tax a carbon tax, because I like the carbon tax. I think the carbon tax is the best piece of Australian public policy since Harvester. I really hope the carbon tax get’s passed, because the carbon tax is great.

    Carbon tax carbon tax carbon tax.

    See, it’s not so scary.

  26. I’ll simply note that functionally, if the fixed price phase is merely an enablisng measure for what is to become an ETS, then calling this phase of the ETS “a tax” seems daft if not actually political cherrypicking.

    Given the simply bizarre arguments you have put forward in the past to argue that the carbon price is a ‘service charge’, I don’t think you’re in a position to accuse me of being daft. As for political cherrypicking, what rot. I am strongly in favour of the policy and you know it.

    The FPP of the ETS is called a tax only by those who want to strike it down, or else are too cowardly or intellectually ill-equipped to defend their public policy from the rightwing populist hyenas attacking it.

    Yes, the opposition calls it a tax because they call the whole thing a tax, just like they called the CPRS a tax. But you know full well that many other people call it a tax as well, including many of those who are in favour of the policy. Some people call it a tax as shorthand. Others call it a tax because it resembles one. Your implication that the choice of terminology is some kind of moral issue is risible.

    Driving a bus must have been quite an interesting job. I’ve driven courier vans, myself, but it’s not really the same thing, obviously. In the present context, I’ll take the fact that you’re resorting to such odd analogies as evidence that you’ve run out of substantive arguments.

    I am familiar with the policy history aware that there was a ‘carbon tax vs ETS’ debate in the years prior to the introduction of the CPRS, however I am sure you can recognise that carbon pricing policy, and the terminology at issue, is more than a simplistic dichotomy.

    I realise Abbott has been calling it a tax since it was the CPRS, but I don’t really care, frankly. I don’t accept your analysis of the policy communication issue (other than your assessment that the Gillard Government has handled it badly). I think the debate over terminology is a distraction, and the Government’s choice of terminology would have no effect on Abbott’s calling it a tax.

    see his book Battlelines, p219

    No thanks, I’d rather hit myself in the head with ahammer.

    Also, what sam said.

  27. @Tim Macknay

    Let me first clarify that I don’t reagrd you or Sam for that matter as ‘daft’, or lacking in sincerity. Neither of you gives me the impression that you can’t make sense of the world and speak your mind. My comments referred to the major players in this conflict.

    . In the present context, I’ll take the fact that you’re resorting to such odd analogies as evidence that you’ve run out of substantive arguments.

    Put less polemically, I’m simply building on arguments that are yet to be refuted. My analogy simply illustrates the unreasonability of defining something by one of its minor enabling measures. It’s understandable that the LNP would adopt this ipopulistic cultural cherrypicking practice, but the ALP ought not to go along with it.

  28. Tim,

    what Fran is saying is what every decent economist has been saying.

    There is a large difference beteen a carbon tax and an ETS. I actually prefer a carbon tax.

  29. @KB Keynes

    I’ve made the point here too that a well designed carbon tax is preferable to a poorly designed ETS, and further that

    a) it’s probably easier to design a robust carbon tax than an ETS
    b) if Australia were largely isolated on pricing emissions, then a carbon tax might make more sense

    In practice though, the current political climate makes it improbable that a well designed carbon tax or ETS could see the light of day, and a carbon tax would in practice be easier to white ant and eventually destroy than an ETS, which creates securities. As we also see, the word “tax” is politically toxic — a rallying point for all sorts of unsavoury types with dissembling slogans.

    Accordingly, I prefer an ETS, largely on political grounds — it wedges business- but also because if we succeed in creating cross-jurisdictional instruments to abate emissions, this structure will be better suited to the task. With NZ now in the mix, this is an obvious albeit modest first step.

  30. KB Keynes and Fran:

    To the extent that you both appear be saying that, in the context of the categories broad carbon pricing strategies typically discussed by economists, which contrast ‘carbon tax’ polices from ’emissions trading’, the Government’s Clean Energy Future package (and the CPRS that preceded it), clearly falls into the latter category. In that broad sense, I agree with you both that the government’s policy is not a “carbon tax policy”. In a narrower, technical sense, I maintain the view that it’s prefectly reasonable to refer to the fixed price phase as a type of tax, nor do I think it was necessarily unreasonable to refer to the policy that way before the details of the Clean Energy Future package were announced.

    As to which sort of policy is better, I don’t have a particular preference – I’ll take either a carbon tax or ETS if it can do the job of starting to drive down emissions and promote technology substitution.

  31. @Tim Macknay

    Nor for that matter do I have a preference that is separate from the efficacy of the policy in contributing to global mitigation. If the 20 most serious per capita emitters all introduced carbon taxes or indeed any other strategy that resulted in adequately lower emissions trajectories without prejudicing equity or producing other seriously undesirable consequences and these models became part and parcel of the policies of the bulk of other jurisdictions I’d be just fine with that.

  32. KB Keynes – I have thought about that, and contrary to what I said earlier, it seems clear to me now that our disagreement arose as a result of a difference between the legal and economic terminology. I don’t think there is any substantive disagreement between us.

  33. Basically a price is set per tonne of emitted carbon (as gases, whatever they may be), and it is fixed for one or two years; then, the price is effectively floated by allowing a market mechanism to determine the cost of a tonne of emitted carbon.

    Fran resents the fact that the ALP and others promote the fixed price period as being a “carbon tax”, tax being the word in dispute. I don’t know whether calling it a tax is technically correct or not; while it looks like a tax it has several distinguishing features:
    i) it is a temporary measure until the floating occurs;
    ii) the floated version is treated like any other commodity traded in a market;
    iii) compensation is offered to consumers to offset any price hikes, even allowing them to determine how they spend the compensation (eg on something other than fossil fuels or products largely dependent upon fossil fuels);
    iv) other tax reforms, such as lifting the tax-free threshold, are involved.

    Maybe it’s a tax, maybe not—certainly, an argument may be mounted that it isn’t a tax; however, the main thing is understanding how it works, for that is what will quell the anxiety felt by the consumers, who are fed a diet of what passes for news-reporting in this country.

  34. the main thing is understanding how it works, for that is what will quell the anxiety felt by the consumers, who are fed a diet of what passes for news-reporting in this country.


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