Tuesday, July 3, 2012
Last year the Economic Society of Australia surveyed its members on 46 policy issues. On some, it found economists evenly divided: on the merits of the NBN, for example, or whether Australia should promote nuclear power, whether patients should pay more of their health bills, and whether the GST should be lifted so income tax and company tax can be reduced.
But on other issues economic opinion is clear cut. Top of the list is whether taxpayers' money should be spent on big infrastructure projects without an independent publicly released cost-benefit analysis first to check the project stacks up. The survey found 85 per cent of economists want cost-benefit studies to be mandatory. (Who doesn't? Politicians.)
Surprisingly, the second most clear-cut response was on climate change: 79 per cent of economists agreed that price-based mechanisms a carbon tax, subsidies or an emissions trading scheme are a better way to tackle climate change than using direct regulation.
Tony Abbott has an economics degree but, being Tony, I doubt that he's a paid-up member of the union; he probably didn't take part. But after his insistence that the NBN be subject to a cost-benefit analysis, we might have hoped that he would apply the same rule to his own policies. Alas, not so.
On Saturday, Abbott pledged to spend $4 billion of our money on three showpiece road projects, with no requirement that they pass a cost-benefit analysis. His Melbourne project was the East-West Link, which failed a cost-benefit analysis when proposed in 2008.
The Gillard government is now paying for the Baillieu government to try to come up with a business case for a revised plan. If it does, fine. But surely our money should not be used to pay for projects that cost more than they're worth.
Labor's cost-benefit rules are far from comprehensive, but they're better than none. It matters because the start of any new government is a chance to improve the rules or make them worse. Abbott is signalling that, under his government, cost-benefit equations won't matter. Politics will rule.
The start of a carbon price is a rare victory for the economists, and the biggest reform by the Rudd/Gillard governments. It culminates a process that began a decade or so ago when Peter Costello, Alexander Downer and David Kemp took a joint submission to cabinet proposing a price on carbon emissions. John Howard rejected it at the time, but finally took it to the 2007 election as policy.
It should not be a left/right issue and, in most of the world, it isn't. Go to Britain, Germany, Sweden, the Netherlands, South Korea or New Zealand, and you will find Abbott's counterparts there are just as committed to carbon pricing as Julia Gillard is. (Britain's Tory PM David Cameron wrote to Gillard last year to congratulate her on the carbon tax, praising it as "a strong and clear signal" to the rest of the world.)
Abbott will destroy it, but future Australian governments, left and right, will bring back carbon pricing, because it is the cheapest, most effective way to tackle global warming, which, if left unchecked, could do immense damage to our world.
A carbon price works because it gives business and individuals an incentive to cut greenhouse gas emissions. Despite the Coalition's claims, it is not an economy-wide tax if it were, it would be far bigger. Rather, it is a tax on emissions from electricity, gas and emissions-intensive industries. It will cost households $10 a week, $5 in electricity and gas bills if we do nothing.
But the beauty of this tax is that you can avoid it, by using less electricity and gas. Of all the options to cut emissions, it pushes us towards making our use of energy more efficient.
There are many ways to do this: turning the thermostat down a degree or so, or the aircon up; replacing energy guzzlers such as plasma TVs or halogen lights with energy-efficient alternatives; just turning switches off. You pay that $5 a week only if you do nothing to adapt.
It's a decentralised, democratic way to reduce emissions: we choose how to do it, in ways that preserve profits and living standards. Treasury and the Productivity Commission had been nudging the Howard government to do it for years. They were right, and had Howard responded in time, it might have been as uncontroversial here as it was in Europe or New Zealand.
Instead, both sides derailed us into bad policies and point-scoring. If energy efficiency is the cheap way to cut emissions, putting solar panels on our roofs and paying excessive prices for the power they generate is one of the most expensive. We've finally realised that now, but the economists warned us from the start.
The politicians gave us gimmicky programs that cost us heaps, but put off the low-cost solution. Both sides used the issue to divide us, rather than unite us behind making a modest but effective start to tackling this potential crisis.
We didn't listen to the economists then. Let's start listening now.