Understanding Climate Risk

Science, policy and decision-making

Spooner again

with 3 comments

The Age cartoonist John Spooner returned to climate policy this weekend. I won’t have go at Spooner as I did after last weekend’s effort but I will discuss his theme. Spooner maintains that the carbon tax and GST double up, giving the example of a little boy with his lawyer trying to avoid a shopkeeper double taxing his chocolate. What Spooner is doing here – to put a generous point on it – is to reflect what many people are thinking.

Illustration: John Spooner

So how realistic is this scenario? On Friday, the Minister for Climate Change Greg Combet and the assistant treasurer David Bradbury issued a joint statement that GST does not apply to the $23 per tonne price of permits. This avoids double taxation where GST is charged on GST (which they shouldn’t be anyway). Where permits are given free, the prices will not be carried through, limiting its effect. I can’t see however, that GST won’t be levied on general goods and services as reported here. But these numbers will be comparatively small.

A CSIRO/AECOMM report (pdf) on the impact of the carbon price of $23 on food prices concluded that the carbon levy fully passed through would add 0.5% to total food prices. Let’s say little Tristan here is after a Mars Bar, RRP $1.75. A 0.5% increase on that bar would be 0.875 cents; GST cost, 0.09 cents. Yep, little Tristan has called out his lawyer to protect a penalty of 0.1 cent. Even if he spent his whole allowance of $20 on Mars Bars (and he wouldn’t be the skinny tyke you see above if he did), the GST increase would be 1 cent. Do you reckon his parents could afford a 1 cent increase to Tristan’s allowance? Perhaps he could sic his lawyer onto his parents if they don’t pay up. Do you reckon his lawyer would work for a percentage of that?

Various costs of the carbon price on households are $9.40 per week CSIRO/AECOMM and $9.90 Treasury. According to Treasury also, the average compensation is $10.10. Neither of the assessments suggest how GST has been handled in these calculations, but they add a small number onto a pretty small number if they haven’t been factored into existing estimates. Any intelligence on this matter would be welcome.

Would Spooner’s cartoon be based on a Liberal Party press release? This from Greg Hunt, shadow climate change minister:

Customers are being hit with a double whammy price rise from the Carbon Tax.

People receiving invoices which include the Carbon Tax, are then having to pay extra due to the 10 per cent Goods and Services Tax being added on top of the already increased price.

They are effectively paying a tax on a tax.

It’s come as a surprise to many customers that not only are they paying the $23 a tonne Carbon Tax, they then pay even more due to GST  being added to the higher price.

The GST take from the Federal Government confirms that the overall price increases Australians will pay due to the Carbon Tax will be much higher than Labor will admit.

The Government is in complete denial about the price increases and the cost of living impact on families and businesses.

They simply dismiss any price rises as wrong and refer the matter to the ACCC, even when a business has done exactly what the law has required them to do.

The tax on a tax will hit families hardest when the GST is added on top of their much higher electricity and gas bills due to the Carbon Tax.

According to the Australian Bureau of Statistics, Australians emitted an average of 18.75 tonnes per head of CO2 in 2008. Now if we each paid a levy across the board for those emissions, it would come to an annual bill of $431.25 (with GST added of $43.13). Estimating a household number of 2.6 people and 60% coverage, the final cost of $9.90 per week comes out at pretty close to this. However, with an estimated one-off inflationary effect of 0.7% according to Treasury and 1% according to Warwick McKibbin the  Reserve Bank can adjust interest rates to cover this, all other thing being equal (as economists like to say). With the compensation package, the distributional effects of this legislation seem to have been pretty well managed. It will be important to plug the gaps as they become clear.

I’m not here to justify Labor Party policy, but in the current political climate, the present climate policy is what we have. It is worth explaining more fully in light of the attacks it is constantly coming under, given the constant misinformation flooding the mainstream media. The policy is a product of a multi-party process and more robust than previous policies. It needs to be given a chance to work.


Written by Roger Jones

July 15, 2012 at 3:05 am

3 Responses

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  1. Yes there will be a GST on the tiny amount of carbon content in most goods. That makes it a tiny tiny additional cost.

    There are two things to say to this:

    That GST amount collected goes right back to the states, and aren’t the states clamouring for more GST money?

    It was the Coalition that created the GST and at a time when the need for Climate Action was well understood, although being denied by that same Coalition. So as the creators of the GST they considered the costs of that tax and were happy with it, so it is a bit rich that they now cry foul over this little additional tax, which they created.

    Greg Hunts comments aren’t worth commenting on other than to point out, again that this is operating exactly as the Coaltion meant it to operate when they created the GST, and is in line with every other “tax on a tax”, …… again exactly as the Coalition planned.

    The sad fact of all of this is that the world that is possible, and certain, from an energetic adoption of alternative energies, and their associated technologies, is far better in so many ways than the one that we currently have, AND far, far, far, better than the one that is guaranteed by delayed adoption of alternative energies. We are at a parting of the ways. Will humanity choose failure?

    But that is what you get from government by lawyers.


    July 15, 2012 at 10:52 am

  2. There is actually no moral, legal or economic reason why a so-called “tax on a tax” is in fact a bad thing, in the first place. This is all just pure BS.


    July 16, 2012 at 9:18 am

  3. One of the things that is wrong with Australia is that both federal and state governments are obsessed with not raising taxes instead of being willing to levy the taxes required to provide good government.
    This post from Pollytics http://blogs.crikey.com.au/pollytics/2012/06/11/what-australians-believe/ highlights what people want in general with what they want in particular. (Want more government services and smaller government depending on the questions asked.)

    John D

    July 16, 2012 at 6:24 pm

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