A new tax, praised by policy nerds but distrusted by the general population: it’s not hard to pick the analogy between carbon pricing and the GST. George Megalogenis gave it a full treatment three years ago, and I’m sure he wouldn’t have been the first.
But the parallels have never seemed as strong as they do now. The Gillard government is starting to plumb the same depths of unpopularity as the Howard government did in the GST period but, as Peter Brent pointed out earlier this month, if it runs its full term it will have a similar gap between implementation and the following election as Howard did with the GST, and might therefore hope for the same electoral vindication as he received in 2001.
And last month Arthur Sinodinos gave a fresh twist to the analogy by suggesting the government should abandon carbon pricing and increase the GST instead — giving it the opportunity to achieve the same unpopularity but without actually doing anything about climate change (evidently a plus from Sinodinos’s point of view).
But much of the commentary on this issue — including the three pieces cited above — is marred by what I have long regarded as a myth, or at best a half-truth: that the implementation of the GST was smooth and uneventful, that public opinion quickly came around to its inevitability and that the scare campaign against it was unjustified.
That may be how it looked to pundits who (as I put it a while back: “don’t do their own tax returns, don’t run small businesses, and don’t worry much about the cost of living.” But the results on the ground from 2000 and 2001 told a different story.
John Howard was fortunate that there were few electoral tests in the second half of 2000, immediately after the GST came in, but even then the opinion polls and local elections showed that all was not well. Then in early 2001 state elections in Western Australia and Queensland and a federal byelection in Ryan recorded massive swings against the Coalition, and the polls showed that it was facing electoral annihilation.
Labor only started to lose ground when two things happened: Howard started furiously back-pedalling, overhauling the GST administration and throwing around other electoral bribes, and Labor’s Kim Beazley, as was his wont, started tying himself in knots as to what he would actually do with the GST when he won government, failing to rule out increases in income tax.
Those were enough to save Howard’s bacon in the Aston byelection of 10 years ago, but the swing of 4% was still enough to presage defeat for a government sitting on a wafer-thin margin. Opinions differ on this, but I remain firmly of the view that Labor would have comfortably won the November 2001 election were it not for the deus ex machina of Tampa followed by the September 11 terrorist attacks. (As it was, Labor came much closer than most people remember, with 49% of the two-party-preferred vote.)
The element of truth in the “GST success” myth is that its impact was not primarily on ordinary taxpayers. Those who were hurt most were small business operators, suddenly confronted with masses of additional paperwork. The main problem was the bureaucracy, not the price increase.
And that’s where the analogy with carbon pricing breaks down. There’s no reason why a properly designed carbon tax should require any extra administrative burden on the vast majority of businesses; it will only affect the minority who are actually engaged in carbon pollution. And if ordinary consumers aren’t hurting, there will be much less of a constituency for any promise to repeal it.
So if Julia Gillard can actually get her scheme through parliament and into operation (by no means a foregone conclusion), she may yet be able to avoid the electoral blowback that almost consumed the Howard government.
To quote Bob Brown at the National Press Club today…” once the final details of the agreement on the carbon pricing are announced within a couple of weeks, Abbott may find he has bitten off more than he can chew.”
Eat those apples Mr NO NO NO.
“There’s no reason why a properly designed carbon tax should require any extra administrative burden on the vast majority of businesses; it will only affect the minority who are actually engaged in carbon pollution.
Most of the companies that will be subject to the ETS (it’s not really a tax, more of a permit to pollute with a starting fixed cost, however the Government is doing a piss poor job of selling that message) already know what their emissions are as a result of existing greenhouse gas reporting requirements (the difficult area is fugitive emissions from coal mines, but we’ll leave that for another day).
What the ETS will do is force these companies to really analyse their operations to identify where emissions reductions can be achieved at a cost of less than the the price of the permits under the ETS. Working out this marginal cost of abatement is likely to be expensive (if it hasn’t already been done) however for some operations, it is likely that this sort of top to bottom audit of operations is long overdue and a byproduct of the exercise is likely to be significant productivity improvements through the elimination of waste picked up in the audit process.
I suspect that good operators will identify efficiency gains as a result of the introduction of an ETS that will more than compensate for any additional administrative compliance costs and may drive productivity improvements in Australia more than any other reform in the past 15 years.
@Dave: thanks for that. Yes, I think it’s quite possible that carbon pricing will oblige some companies to make the sort of efficiencies that they really should have been doing anyway. Politically however that won’t help the govt much because it will probably take a couple of years for it to become apparent, too late for the next election. More significant for the govt is the fact that there are relatively few firms involved, as distinct from the hundreds of thousands covered by the GST.
The only area of similarity between the two to my mind is that each impacts lower income earners in a disproportionate way, thus the need for compensation. While this is to be provided with the carbon tax it was sorely missing with the GST. I don’t think there was as virulent an anti tax campaign with the GST as there is with the carbon tax. After all it was Keating who first suggested the idea and it was generally seen to be good public policy.I certainly agree that the carbon tax will drive innovation and productivity gains. The GST certainly did none of that.
@DAVIDK
I don’t know whether you think this is an advantage, or not, but one benefit of the GST is that most businesses now have some sort of computer-based accounting system, rather than the proverbial shoe-box of receipts that many had prior to the GST.
Presumably, most of these packages will be able to be modified fairly easily to accommodate ETS reporting as well, meaning most of the costs people are complaining about are introductory costs, in setting up the system, and which will have minimal long-term impact.