Carbon tax a mere hiccup, economically speaking

THE federal opposition's scare campaign against the carbon tax has failed its first test. The Bureau of Statistics reports that seasonally adjusted employment rose by 14,000 in July the month the tax took effect while unemployment fell to 5.2 per cent.

For the government, it was a double bonus after the TD Securities-Melbourne Institute monthly inflation gauge reported on Monday that inflation rose just 0.2 per cent in July, and was flat over the past three months.

While this was only the first test of the carbon tax, if the duo of rising employment and low inflation continues, it could have huge political implications undermining Opposition Leader Tony Abbott's repeated claim that the carbon tax would be "like a wrecking ball through our economy".

Mr Abbott yesterday stuck to his claim, pointing out that jobs rose only half as much in July as they had fallen in June. "Make no mistake, this is a python squeeze on our economy, and as time goes by it will squeeze families' cost of living, it will squeeze employment in this country," he said.

But Treasurer Wayne Swan was quick to claim vindication.

"It is yet more evidence that Tony Abbott's scare campaign on the carbon price and the mining tax is absolute baloney," he said. "Today's figures are the latest proof that he is deliberately misleading Australians and talking our economy down."

With the election not due for another year or more, the real test of the tax's impact on jobs and inflation lies ahead. But if the economy thrives over the coming year despite the tax as most forecasters expect it could become the political "game-changer" Labor is hoping for, discrediting the Coalition and its leader.

The bureau's preferred trend figures, however, paint a bleaker picture, which, if sustained, could give the debate to the Coalition. The trend data, which smooths out the ups and downs of monthly figures, estimates that job growth slowed to just 24,000 over the past three months, down from 42,000 over the previous three.

Forward indicators for employment are sending warning bells. The bureau's measure of job vacancies shrank by 15,000 in the 15 months to May.

Most of that decline was in Victoria, and mostly in white-collar jobs in professional offices, administration and healthcare.

Yesterday the SEEK index reported online job ads down 5 per cent last month and 11 per cent over the past year. The rival ANZ series was slightly less bleak, but it reported that job ads, online and in newspapers, shrank by 1800 last month and by 18,500, or 10 per cent, since February last year.

In trend terms, the bureau estimates that jobs have grown by 74,000 this year, or 10,000 a month. Only a third of the growth has been in full-time jobs. But the adult population is estimated to have grown by 136,000 in that time. Of the other 62,000, in net terms, the bureau estimates just 5000 more are unemployed, whereas 57,000 more have settled on the sidelines, not looking for work.

The jobs figures show Australia is still deeply divided between boom and bust, with Western Australia at one extreme, Tasmania at the other, and Victoria and NSW somewhere in the middle.

Western Australia is way out in front of any other state, adding 50,000 full-time jobs in the past year and cutting trend unemployment to 3.6 per cent. NSW takes the silver medal, but a long way behind, adding 20,000 full-time jobs in the year to July, with unemployment down to 5.1 per cent.

Victoria and Queensland were fighting out for the bronze. In Victoria, the bureau estimates, full-time jobs shrank by 23,000 in the year, but part-time jobs grew by 42,000. The state's unemployment rate was 5.4 per cent last month, down one notch from June.

Queensland, by contrast, added 4000 full-time jobs in the year while losing 10,000 part-time jobs. Its unemployment rate stayed at 5.6 per cent.

South Australia and Tasmania were clearly going backwards. On the bureau's figures, South Australia lost 18,000 full-time jobs in the past year one in 30 with unemployment up to 5.7 per cent. It now has fewer full-time jobs than it had before the GFC. Tasmania is in even worse trouble, losing 6800 full-time jobs in the past year, or more than one in 25.

Most forecasters still expect unemployment to edge up in coming months, if only slightly, with the Reserve Bank likely to deliver another interest rate cut this year.

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Emissions trading. The economists are right

I'VE come to think we should take more notice of economists. You might see them as impractical nerds. But look back over our long debate on how to tackle climate change, and one thing stands out: the economists got it right, the politicians got it wrong.

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.

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Today, we start the heavy lifting on climate change

WHAT do you do when the world has a problem that can be solved only by global action but we have no global government to solve it?

Should each nation make itself pay its share of the cost, knowing that some others won't? Or should we try to shield ourselves from the pain until every other nation we want to compare ourselves with has already started the heavy lifting?

Today, after almost 20 years of debate, the House of Representatives will decide Australia's answer. Assuming no last-minute twists, assuming the Senate numbers hold, it will commit Australians to start paying their share of the global cost of reducing greenhouse gas emissions.

In effect, Australia will join Europe and New Zealand as the first countries to start the heavy lifting needed to reverse global warming. In the past century, average temperatures worldwide have risen by almost a degree most of it in the past 40 years.

Back in 1992, in Rio de Janeiro, the world's governments agreed that the risks of man-made global warming required them to find ways to reduce greenhouse gas emissions. You have to admit, we've been a bit slow to get going.

Even since 1992, global temperatures (on the rolling 10-year average) have risen by a third of a degree. Australia and other countries have tried to tackle the problem in light-handed ways. Big emitters have been required to monitor and publish their emissions. Governments of left and right have moved to ban the sale of filament light globes, limit new appliances to using 1 watt of electricity in standby mode, and to ban new electric water heaters where gas is available.

The one tough change we made was to cut the land clearing which had been one key reason for Australia's high greenhouse emissions. That reduced our emissions for a while, but they've rebounded since, and the experts say they are on track to rise 24 per cent from 2000 to 2020.

There are lots of political reasons why each party is where it is in this debate. But the main reason why Labor, the Greens and most of the independents have united to introduce a carbon tax is that the light-touch stuff is not slowing emissions enough. We need to start the heavy lifting, in the cheapest way.

Economists tell us this is the way. Start charging people for their carbon emissions, and you instantly get them thinking about how to reduce them. Put an economy-wide price on carbon and everyone has an incentive to find ways to avoid emitting carbon.

We've seen it before. When petrol prices rise, we use less petrol. With electricity prices rising, households are using less electricity. It'll be the same with carbon.

For households, Treasury forecasts, there will be very little impact on the prices of most things we buy. It will contribute marginally to higher prices in the supermarket and the department store, but far less than the GST did. Overall, Treasury estimates the impact on household budgets will be 0.7 per cent, less than a third that of the GST.

The biggest whack will be on power bills. Treasury says the tax will lift them 10 per cent. That will hurt just as the 70 per cent rise in Melbourne power bills over the past four years has hurt. If that hasn't changed your use of electricity, the carbon tax probably won't either.

But that's the aim of this tax: not so much to raise revenue, as to drive changes in the way we live. Its goal is for us to find ways of living with less. If Treasury is right, most households will actually be made better off, receiving more compensation than they pay in higher prices.

Those worse off will be the higher-income households, whom Labor assumes will be able to cope.

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The death of coal?

"I just make the point that the whole purpose of tax is to phase out the coal industry . . . I think that the coal industry is the foundation of a modem economy.

"If you look at the Government’s own figures, they say that coal will go from 80 per cent of our power generation to 10 per cent, or 25 per cent if you include clean coal using various forms of sequestration. So the government’s own figures involve a radical downsizing and ultimate demise of the coal industry."

— Tony Abbott yesterday.


Does a price on carbon spell the end of the coal industry? Tony Abbott says it will, and the Greens hope he’s right. But if so, that end is decades away, and the experts who try to gaze into the future of power prices believe that coal can clean up its act and live on.

It's a big issue for Australia. We have a few years’ supply of oil, a few decades’ supply of gas, but several centuries’ supply of coal. If a Way can be found to burn coal without filling the air with carbon dioxide, our descendants will be grateful.

What might worry us more is whether we witl still have affordable power. (No, we haven’t lost it yet, despite all the steep price hikes since 2005. On a global comparison, Australia still has cheap electricity, and is tipped to stay that way.)

But the further out you look, the less we know. Future power costs will depend on how much gas is discovered, which technologies make the biggest breakthroughs to bring down costs, and howmuch global demand raises fuel prices here.

The coal industry is no danger of being killed off by the carbon tax. The great bulk of Australia’s coal production is exported. A carbon tax of $1 or so a tonne on coal output will barely dent export growth when coal prices are more like $200 a tonne.

Treasury estimates the carbon tax will mean coal exports will grow 45 per cent over this decade instead of 48 per cent. So long as Japan, China, India and Korea keep burning coal, the industry will keep upsizing. If they stop burning coal, it’ll be because of their own policy choices.

But What is the future of coal in Australia’s power mix? The reality is that it depends on whether carbon capture and storage develops into a economically viable technology. If it does, coal — including the brown coal of the Latrobe Valley — has a future here. If it doesn’t, it won’t.

Coal is in limbo. For years, few new coal-fired stations have been built in - Australia. Projects have been put on hold until the future of carbon prices becomes clearer. They look set to stay on hold.

The power companies have turned instead to gas and wind. In Victoria, the Western District is home to the new power industiy, with Origin’s 550 megawatt (million watt) gas plant about to open in Mortlake, and AGL building a 420 MW wind farm by Macarthur.

By 2009-10, coa1’s share of our electricity supply was already down to 75 per cent. Gas now provides 15 per cent and wind 2 per cent. By 2030, officials forecast, gas will provide 37 per cent of our power, Wind 12 per cent and coal just 43 per cent.

As the graph shows, we have a range of options. It is taken from a report by the Australian Academy of Technologicial Sciences and Engineering, whose experts predict that by 2020 carbon prices will make lower-emission gas decisively cheaper than black coal, let alone brown.

Coal’s future lies with carbon capture and storage (CCS). Its progress has been disappointingly slow; industry plans have foundered, and last year Tony Abbott promised to withdraw all government funding from CCS programs. But in the long term, it has to work if coal is to have a future in a world of carbon pricing.

The experts believe coal will make it. As the world cuts emissions, carbon prices rise, CCS technology will become cheaper, and finally, economically viable. By 2050, Treasury forecasts, almost 30 per cent of Austra]ia’s electricity will come from coal and gas-Fred power stations that Will bury their carbon dioxide underground.

Let’s hope it’s right.

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Sense in carbon tax oddities

IT DOES seem weird. With all Australian households facing higher costs from the carbon tax, how is it that the biggest compensation will go to retired couples with a combined private income of $80,000?

Why is it that single working Australians on the same income will receive virtually no benefit from the tax cuts Labor proposes to ease the cost of the carbon tax?

And what is it about having a combined income of more than $150,000 that seems to disqualify households from receiving any benefit from Labor government programs - whether it's tax cuts, family benefits, paid parental leave - or now, relief from the carbon tax?

A close look at the detailed costs and benefits for households of 18 different types and 28 levels of private income might well leave one puzzled as to why the package was designed this way.

Treasury estimates that, of the 504 different households modelled:

. The biggest winners are (mostly) self-funded retiree couples with no dependants and a combined income of $80,000, split 70/30 between them. Thanks to a combination of tax cuts, pension rises and increased Medicare levy thresholds,they will get $2289 more from the government, yet they face a carbon tax bill of only $501. They will end up ahead by $1788 a year.

. In sharp contrast, a couple with three young children and a single income of $150,000 will get only $77 back from the government to help them pay an effective carbon tax bill of $785. They will end up behind by $708 a year.

. And single individuals will be net losers from the tax package if they earn more than $50,000. A single earning $80,000 will receive just $16 in benefits but pay $441 from businesses passing on the carbon tax.

This outcome seems to make no sense, but there are reasons why it happened.

Firstly, Labor wanted to ensure no one at the bottom was worse off. So it decided to lift benefits by 1.7 per cent, even though the modelling estimated the carbon tax would cost people on benefits just 1.1 per cent (which is more than the 0.7 per cent average for all households, because people on benefits spend more than they earn).

But in a futile bid to avoid complaints from the seniors lobby (which complained anyway), Labor passed on this benefit to anyone with a seniors health card. So self-funded retirees won on every count: pension rises, tax cuts, and for those in the sweet spot, exemption from the Medicare levy.

Secondly, the tax cuts. Since 2008, to boost work incentives, Labor has doubled the low-income tax rebate for millions of workers, from $750 to $1500. But people didn't see it as a real tax cut. So this time Labor will strip back the rebate and lift the tax-free threshold for all to $18,200 - and then claw back most of it by raising marginal tax rates. That means the tax cuts erode as your income rises, and cut out at $80,000.

While one aim was to lure more women and older people into part-time work by making it tax-free (to $18,200), inevitably, the main gains will go to people who did not get the low-income tax rebate: retirees whose incomes are from investments.

Family benefits will also rise, but they start cutting out at about $100,000, depending on how many children you have. By $150,000 they are gone, so families earning above that will get no help paying their carbon tax.

They also missed out on family handouts during the global financial crisis, on paid parental leave, on the baby bonus - and if Labor can get the legislation through, on tax breaks for private health insurance.

But bear in mind that individuals on $150,000 were the big winners from the Coalition's tax cuts. From 2003 on, they gained a massive $14,430 rise in take-home pay. Both sides protect their own.

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At last, a tax they want you to avoid

AUSTRALIA is set to embark on its biggest economic reform in a generation, with a surprise last-minute twist: a Robin Hood tax reform that will make lower and many middle-income earners better off but make higher-income earners pay most of the cost of the carbon tax.

The core of the plan unveiled yesterday sounds simple. The 500 biggest greenhouse gas emitters in Australia will have to pay a tax on their emissions, starting next year at $23 a tonne. Households will be compensated generously at the bottom, not at all at the top. The firms most at risk will be given free permits. And several billion dollars will be spent to cut emissions by changing technologies.

But it's complex. Be warned: you are about to be bombarded by claim and counter-claim from all quarters. Truths, half-truths and outright lies will be difficult to tell apart.

The first complexity: within three years the carbon tax will morph into an emissions trading scheme, in which companies buy and sell emissions permits including from overseas to meet the target to reduce Australia's emissions in 2020 to 5 per cent below 2000 levels.

Second: only 500 firms will be taxed, but they will pass on their costs to their consumers. The people really paying will be us. Overall, the impact on prices will be small: a 0.7 per cent lift in consumer prices initially, and then about 0.1 per cent a year.

Third: the compensation is very uneven. If you're in the bottom half of the income range, your price rises will be outweighed by big tax cuts or benefit rises: you will be better off. If you're in the top half, the balance probably will be the reverse: most will be worse off, if only by a few dollars a week.

Those at the top the top 10 per cent according to the government, though that looks like an understatement will pay the full tax, costing roughly 1 per cent of their take-home pay.

But it's complex. Try some of the key facts.

Will it cut our emissions? If so, how much?

Yes and no. Australia now emits 582 million tonnes of greenhouse gases a year. By 2020, Treasury projects, that will rise to 679 million tonnes without a carbon tax, and 621 million tonnes with one.

Even with a carbon tax, that is, Australia's emissions will rise, to be well over our 2020 target of 530 million tonnes. To meet the target, we would have to buy 91 million tonnes of international permits, from tribes pledging to preserve rainforests or whomever, at a global price Treasury estimates by then at $37 a tonne.

Treasury estimates the carbon tax would cut our 2020 emissions by 58 million tonnes. That's a cut of 0.1 per cent of projected global emissions at that time. Only global action can end global warming; Australia's actions would be part of that.

Would Australia be out in front of any other country?

In some ways, yes. More broadly, no.

More than 30 countries already have a price on carbon, mostly through the European Union's emissions trading scheme, which up to now has been smaller than what we're planning. But its third stage, to start from 2013, will be similar in coverage, and will move gradually to auctioning permits.

But the EU scheme is targeted at electricity and transport; even in stage three, most manufacturers will get their permits free. Australia's new tax promises fewer free permits, to fewer sectors, and for only five years, with a review in 2014.

We will lead the world in taxing emissions from mining and manufacturing. By contrast, our plan will exempt petrol, agriculture, and diesel for freight (at least until 2014). It had to Tony Windsor and Rob Oakeshott helped write it but many see congestion taxes as a better option.

Who are the big winners?

Senior couples living on investment income. Treasury estimates that a couple earning $70,000 evenly divided will get $2008 in government help, even though their share of the carbon tax would be only $480.

Welfare beneficiaries, part-time workers and people in low-wage jobs all come out ahead, although most by only a few dollars a week. But a couple splitting a household income of $40,000 and supporting a teenager would get $1793 in help to pay a carbon tax of $389.

And the losers?

Some will be on ordinary incomes. Singles are treated badly again: a single earning $80,000 will get only $16 aid towards his or her carbon tax of $441. Treasury assumes the tax is proportionate to your spending, so the more you earn, the more you pay and even for families, compensation virtually cuts out at $150,000.

So you can't avoid this tax?

Yes, you can! This is a tax they want you to avoid! Its purpose is to drive change. Cut your use of things generating carbon emissions, and you get the cuts while dodging the worst of the tax.

Overall, Labor and its allies have given us a tax that will make only a modest initial impact on most households and business, and only a modest contribution to driving change and cutting emissions.

If global warming grows, both impacts will grow. If it doesn't, they won't.

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$23 carbon price, $4billion blowout

THE government has dramatically slashed the number of companies hit by its carbon tax from 1000 to about 500, in a scheme expected to have a $23 a tonne starting carbon price.

But the cost of the plan, which was to be broadly revenue neutral, has blown out to about $4 billion over four years from its start on July 1 next year. Most of the extra costs come upfront, from implementing the scheme.

As the government seeks to minimise the political damage, the exclusion of fuel has reduced the number of companies liable to pay the tax.

Companies that will be excluded include liquid fuel suppliers, small wholesale suppliers and importers of liquid fuels and suppliers and importers of synthetic greenhouse gases, including companies that service air conditioners. Only 0.02 per cent of businesses will be directly liable to pay the carbon tax.

Despite the deal having been done with the Greens and country independents Tony Windsor and Rob Oakeshott, the full cabinet has not yet seen the total package, although it agreed earlier in the week to its Sunday release. A cabinet meeting has been called for Saturday at 5pm, with ministers dialling in from interstate, to give final approval.

Opposition Leader Tony Abbott yesterday obliquely threatened a Coalition government would consider a double dissolution if the Senate blocked the repeal of the carbon tax.

He said if the Coalition won, he would not expect a demoralised Labor Party to stick with something that had cost it the election.

But if it did, "there are provisions under our constitution for deadlocks to be resolved . . . I hope it wouldn't come to that but nevertheless there are mechanisms and everyone is aware of them".

Ms Gillard told Parliament, "I will of course be speaking to Australians about any issue they want to raise with me". She expected one they would want to raise was what was said in the election campaign when she promised there would be no carbon tax.

The Age understands the scheme will cost more than the revenue it raises over its first four years, with most of the cost blow-out coming in the first two years. It is expected to become budget neutral later, but Treasury modelling to calculate the exact costs is still being finalised.

The government will make budget savings to cover the extra costs over the early years, including a reduction in the 38-cents-a-litre diesel fuel tax credit for some industries.

It is understood while mining companies will face the partial cut to the diesel rebate rumoured to be about six cents a litre a number of other sectors will be shielded from the rebate reduction, including the agriculture, fishing and forestry sectors.

Mining companies last year claimed $1.7 billion back in diesel rebates and accounted for about 30 per cent of all claims under the scheme.

Along with the package, the government is expected to reveal its plans to reduce carbon dioxide emissions from new vehicles, which have been simmering on the backburner for almost a year, since Ms Gillard foreshadowed them in last year's election campaign.

Labor floated a target to reduce average emissions of new cars, sports utility vehicles and light trucks from 213 grams per kilometre in 2010 to 190g/km by 2015 and 155g/km by 2024. But these targets were denounced as "weak" by Greens deputy leader Christine Milne, who pledged targets of 160g/km by 2015 and 95g/km by 2020.

A spokesman for Infrastructure Minister Anthony Albanese promised an announcement "very soon". The decision to exempt petrol from the tax, along with the reality that emissions are falling rapidly as buyers turn to smaller cars, could see the target tightened further.

The carbon deal comes as the head of the Australian Coal Association Ralph Hillman said yesterday the industry would fight the carbon price until the last minute it passes Parliament, claiming it will render Australia less attractive for investors and force the closure of some existing mines.

But Mr Hillman also conceded the coal industry would continue to grow under a carbon tax, adding "I think it is naive and blase to say 'oh we've got growth, it will just be a bit less' growth is precious."

Reports yesterday said Treasury modelling is expected to show that under an indicative $20 carbon price, coal exports and production would still double during the next 40 years, although will be lower than without a carbon price.

The government is expected to include a $1.275 billion compensation package for coal miners under the scheme. The Age understands some of the compensation roughly $70 million will be committed to research and development of technologies to reduce emissions from gassy coal mines.

Ms Gillard said: "I am very confident the coal industry has got a fantastic future in this nation - a future of growing jobs with $70 billion in the pipeline."

British entrepreneur and founder of the Virgin Group Sir Richard Branson, speaking in Brisbane, said any tax should ideally be on a global basis, rather than country by country.

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Age Economic Survey: Carbon tax please

THE opinion polls disagree, but market economists in The Age survey panel almost unanimously endorse a price on carbon as the best way to tackle climate change.

BT's Chris Caton summed up the mood of the panel in a few terse words: "Yes", he said to a carbon tax. "The science is now beyond question. The key danger is making the legislation too complicated and inefficient by loading it up with 'special treatment' for polluting industries, petrol etc."

"The government should definitely have a carbon tax", said Richard Robinson of BIS Shrapnel.

"The main danger is affecting the competitiveness of the tradeables sectors, especially manufacturing sectors such as steel and aluminium. Some sort of compensation should be provided to these industries, but [it] should decrease over time . . . We should not, however, provide compensation to the electricity generators, coal producers or LNP/gas producers."

Monash University economist Jakob Madsen rejected the idea that a carbon tax would create unemployment. "Carbon prices have the same economic effects as oil price hikes," he said. "Oil prices have increased several fold over the past decade, and yet it has not had any visible unemployment effects."

Melbourne University iconoclast Neville Norman voted "maybe". While supporting a carbon tax in principle, he wants to see the detail of the plan, evidence of its likely impact and a compensation package focused "on those who hurt, rather than those who scream".

There were two dissenting voices. Greg Evans of the Australian Chamber of Commerce and Industry warned of "significant implications for our competitiveness in moving ahead of our trade competitors".

"We should not impose a unilateral carbon price on the domestic economy until there is agreed global action to do the same", he said.

"Prior to confirmed global action, Australia's response to mitigating climate emissions should rely on efficiency and technology measures adopted in the marketplace."

Sarah Gorman of Dun & Bradstreet mused that "it might be optimal for humanity in the long run if Australia imposed a steep export tax on coal". But rather than taxing emissions, policy should "help the economy prepare for the likely shocks of climate change".

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Hockey's truth target a long way off

PRIME Minister Julia Gillard says never mind the carbon tax: if you get the Coalition's direct action plan for tackling climate change, you'll end up paying $720 a year per household to finance it.

Rubbish, says shadow treasurer Joe Hockey: Treasury has costed our policy and endorsed its estimates of both the cost and the planned outcome to cut Australia's emissions by 2020 to 5 per cent below 2000 levels.

Who is right? Neither. In fact, the Coalition never submitted its direct action plan for costing by Treasury. It was one of the hundreds of policies it refused to have costed, arguing it could not trust Treasury because it works for the government.

In the immediate aftermath of the campaign, at the request of the three independents, Treasury costed the policies of both sides (the famous costing that estimated the Coalition had overstated its savings by $10 billion over four years). But that costing did not even mention the direct action plan.

There was no need to. It's pretty obvious that a plan to spend $3.2 billion over four years would cost $3.2 billion over four years. Treasury did not endorse the Coalition's claim that this would be enough to cut Australia's per capita emissions in 2020 by a third from their present trajectory which the 5 per cent target implies.

Quite the reverse. An undated Treasury note released in April under freedom of information laws warned that the Coalition plan as proposed presents a "significant budget risk relative to a carbon price". For the Coalition to achieve its target of cutting emissions to 5 per cent below 2000 levels, the note maker wrote, it would need to be "scaled up . . . [and would be] likely to have major fiscal costs".

But how much? When Labor talks of $720 per household, it is making it up. Like the Coalition, it makes assumptions that suit it about how much these projects would cost, how much carbon abatement they would deliver, and how much the Coalition would then have to spend to buy international permits to meet the target.

The reality is that it's impossible to say how much the Coalition's scheme would cost. Few observers believe it will deliver anything like a cut of 33 per cent in per capita emissions by 2020. They say Tony Abbott would then have to choose between spending far more than planned or scrapping the target.

If you think he would choose to honour the target, then you can make your own guess as to what he might make you pay. But I think he would scrap the target.

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Tax on carbon won't break us

IN SOUTH Korea, government and opposition have reached agreement on the design of an emissions trading scheme, to start from 2015. It shows us that others are acting to stop climate change, and that political rivals can work together to create big reforms.

It could have been that way here. But the Rudd government, rather than work with the Liberals to create an emissions trading scheme that both parties would own, tried to use climate change to divide them. It succeeded. By the time it finally sat down with Malcolm Turnbull, the damage was done, and it ended up with Tony Abbott, sworn enemy of any carbon price.

South Korean President Lee Myung-bak is a conservative, a former chief executive of Hyundai Engineering and Construction. In South Korea, the left prevaricated on climate change, whereas the right has begun an ambitious agenda to make the country a leader in ''green growth'', and the technologies and skills that create it.

In most of the West, climate change is not a left/right issue. If the science is right, global warming will wreak its effects whoever is in power. Tory Prime Minister David Cameron plans to halve Britain's greenhouse emissions by 2025 from 1990 levels. Governments of the centre-right in Germany, France, the Netherlands, Denmark and Sweden are all strong supporters of putting a price on carbon. It's a bipartisan issue in Europe, in South Korea, in New Zealand. Why not here?

Rudd's decision to play it hard when he could have negotiated with Brendan Nelson and Malcolm Turnbull is one reason. Abbott's decision to play it hard and rule out any price on carbon under his leadership is the other. Rudd's hardball play ended in unexpected, fatal consequences for him. What will be the ultimate impact of Abbott's hard line?

The very data source Professor Bob Carter relied on yesterday reports that from the 1960s on, every decade has been hotter than the decade before - and since 1980, significantly so. The average global temperature in the decade to 2010 was 0.7 degrees hotter than in the half century to 1950. If that trend continues, then climate change is an issue that governments cannot brush off.

Abbott promises that in government, he will deliver the bipartisan target of cutting Australia's greenhouse emissions by 2020 to 5 per cent below 2000 levels. But he aims to do so by spending just over $1 billion a year to bury carbon in the soil, plant more trees, capture waste methane gas from coal mines and tips, increase the use of composting and recycling, and pay electricity generators, industry and building owners to reduce their emissions.

Those all sound like good ideas, which his environment spokesman, Greg Hunt, has been advocating for years. But that target of a 5 per cent cut in emissions by 2020 is far bigger than it sounds. Official monitoring shows Australia is still on track to increase its emissions in 2020 to 24 per cent above 2000 levels. Add in population growth, and to reverse that to 5 per cent below will require us to cut our per capita emissions by 33 per cent - by 2020.

Scrapping a tax on carbon emissions may be a viable strategy to win the 2013 election: time will tell. But it is not a viable strategy to reduce per capita emissions by 33 per cent by 2020, which is what Abbott has pledged to do.

Treasury advice released in April warns that to meet its target, the Coalition plan will need to be ''scaled up'' and is ''likely to have major fiscal costs''. An Abbott government taking office in 2013 on a platform of tax cuts will not have buckets of money handy.

Labor is now at its low point: unable to spell out what its carbon tax will cost, what compensation will be given to households and industry, and what if anything will be invested to bring on low-emissions technologies. In this limbo, Abbott can go round Australia quoting any figure he likes on how much the scheme will cost, how much worse off it will make us, while Labor cannot refute him.

But we saw with the GST debate that once the details are settled, the tax introduced, and the compensation rolled out, the public anger whipped up by an opposition's scare campaign fades. If Labor, the independents and Greens stick to their resolve, the same is likely this time.

Treasury notes that a carbon tax set at $20 a tonne would be less than a third the size of the GST. Its preliminary estimate is that a tax of $20 would lift consumer prices by just 1 per cent - $11.10 per household per week.

If 50 per cent of the money comes back to households through tax cuts and pension rises, as pledged, the net cost would be about $5 billion a year, or 0.6 per cent of their income. That will rise over time, but it won't break us, or the economy.

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New Zealand proposes joint emissions scheme

NEW Zealand Prime Minister John Key has flagged that permits for greenhouse gas emissions could be traded across the Tasman to cut the cost of reducing emissions highlighting differences between Australian and New Zealand conservatives.

Mr Key, who introduced emissions trading in New Zealand last year, yesterday became the first New Zealand Prime Minister to address the Australian Parliament. But he found himself jammed between Prime Minister Julia Gillard and fellow conservative leader Tony Abbott on the issue dominating politics here.

While declining to take sides, he was enthusiastic about New Zealand's scheme, and joined with Ms Gillard in setting up a group to work out how the two countries might link their emissions trading schemes.

"What I can tell you about the emissions trading scheme is that it's worked," Mr Key said.

"In the time that we've had it in place, all applications for new electricity generation have been in renewables, as opposed to 50/50 coming from thermal energy. Secondly, we've now had a period of afforestation . . . as opposed to a substantial period of deforestation. So those price signals are working in the marketplace.

"Generally speaking, the feedback we're getting from business and the NGO sector is that they are more positive now that the scheme is actually in place, because it gives them surety of investment."

Mr Abbott hit back subtly when welcoming Mr Key to Parliament. While praising him for "dramatically watering down the ETS that you inherited from Labor", he added: "In this country, your sister party will go further and do better. Should we inherit any carbon tax, we won't just reduce it, we will rescind it."

Earlier, Mr Key said his government would rebuild earthquake-shattered Christchurch, even though one in three buildings in the CBD, and more than 10,000 houses, would have to be demolished, leaving New Zealand with a bill equal to 8 to 9 per cent of its GDP.

"It's an enormous cost, but it's also an opportunity," he said. "We are no more earthquake-prone than San Francisco. Christchurch was subject to a one-in-2500-year quake, and most of the modern buildings held up very well."

Mr Key said rebuilding would lift New Zealand's growth rate next year to 5 per cent.

He told Parliament that Australia and New Zealand were "family", and should collaborate even more closely. "We have no better friend and closer ally than Australia. We are stronger for each other."

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Carbon change can be cheaper than we think

TWO conclusions ring out clearly from the Productivity Commission's report on what other countries are doing about climate change. First, the world is moving to tackle climate change, with Australia in the middle of the pack rather than out front. And second, the cheapest way to bring down carbon emissions is by introducing an emissions trading scheme.

Some may be surprised that the commission, Australia's high priest of economic rationalism, should endorse raising costs for business and consumers by putting a price on carbon. I humbly suggest they have misunderstood both economics and the commission.

Economics certainly aims to minimise costs and maximise output. But its horizons are long-term, and universal. Any economics student learns that if the act of production creates costs for others (what economists call externalities), then government should impose taxes to sheet those costs back to the producer.

With rough justice, that is what a carbon tax or emissions trading scheme aims to do. Unless you want to ignore the findings of climate science, there is no clearer example of an externality than companies, mines, consumers or cows pumping their waste gases into the air to heat up the atmosphere, if that will threaten the future livelihoods of millions of future inhabitants of our planet.

The point of a carbon tax or emissions trading scheme is to maximise our long-term welfare - the welfare of future generations, particularly those at risk from rising seawaters (think Bangladesh, or the Pacific islands) or from hotter temperatures and rising evaporation (think farmers in Australia's food bowl, the Murray-Darling Basin).

They work by raising prices. But remember: when the price of emissions rises, it creates the incentive for producers and consumers to change the way they operate, to shift to technologies or ways of life that produce fewer emissions. You face the full impact of the price rise only if you stand still and change nothing. And the purpose of charging for carbon is to drive change.

Take an example that has nothing to do with climate change. The steep rise in world petrol prices (along with traffic congestion and rapid population growth) saw passenger trips on Melbourne public transport jump 36 per cent in four years. People didn't stand still to cop the full brunt of the petrol price rise: many of them dodged it by finding a cheaper way to get to work, to sport, or to a night out.

Or take an example where carbon pricing (or the threat of it) is central. In the past, coal fuelled around 80 per cent of Australia's electricity supply. But in the four years to 2008-09, more than half the growth in power generation came from gas and renewables (mostly wind). And at last count, coal-burning stations make up just 10 per cent of all generating capacity now under construction or committed across Australia.

Gas and wind have taken coal's place, not least in Victoria. Origin's new 550-megawatt (million watt) gas-fired plant is about to come on stream in Mortlake. An hour west, AGL is building Australia's biggest wind farm (420 MW) at Macarthur. The switch from coal is not costless - the commission cites estimates by the Electric Power Research Institute that gas costs roughly 10 per cent more than coal, but wind roughly twice as much - but it will cost us far less than the upgraded transmission system, smart meters and solar subsidies that are now driving up power bills.

The wind stations are being built to comply with the federal government's renewable energy target. The commission estimates that even the best renewable projects will cost us $37 for every tonne of greenhouse gas emissions they save, whereas Europe's emissions trading scheme is doing the job for $20 a tonne in Germany, and $29 in the UK. Its core conclusion is clear: the most efficient path to reduce carbon emissions is to allow the market to find the cheapest ways to bring them down.

Australia's tragedy is that, for purely political reasons, the Coalition has now locked itself into turning its back on the market, and rejecting emissions trading, or the carbon tax that would lead into it. It plans to reduce emissions by paying producers to take ''direct action'' - yet the commission's finding is that direct action is the most costly policy of all.

It focuses on two examples: the incentives for Australians (and overseas households) to put solar panels on their roofs, and laws requiring biofuels such as ethanol to be added to petrol. It estimates that ''excessive'' federal subsidies and state feed-in tariffs mean taxpayers and consumers are paying between $431 and $1043 for every tonne of greenhouse gas emissions saved. It estimates the same cuts could have been achieved by a carbon price of $9 a tonne.

Biofuels were another idea that looked attractive, if you ignore the price tag. The commission estimates the cost in Australia at $532 per tonne of emissions saved by using ethanol, and $186 a tonne from biodiesel. At least that's better than China, where it estimates the biofuels program has actually increased emissions. No doubt you could argue with the numbers, but the conclusion is unavoidable: these schemes deliver very poor value for money.

Tony Abbott should read this report, and think hard about what it is telling him to do if he becomes prime minister. The Coalition needs to find a way back to trusting the market. The task ahead is colossal: both parties have committed to reduce Australia's emissions by 2020 to 5 per cent below 2000 levels, yet to get there would require us to cut emissions by almost 25 per cent in eight years from the current trajectory. Mickey Mouse schemes won't do it.

The bottom line is that change is inevitable, but it can be cheap. For most of us, it means using commonsense around the home: switching off lights not in use, wearing warm clothes in winter and opening up to the breeze in summer, buying energy-efficient cars and appliances, keeping tyres full of air, all that stuff.

Change is what this is about. Embrace it, and it'll cost less than you think.

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Let consumers carry the can on carbon

Labor is losing the carbon tax debate. It is pressing on, hoping that once the tax is in place, the fearmongering will die away, and Australians will accept it reluctantly, as they accepted the GST.

They might. But it is equally likely that the Coalition will keep riding the issue, win the 2013 election, dismantle the tax, and we will end up much worse off than we started.

Is there a better solution? Yes. What matters most - for anyone who wants to see Australia and the world take effective action to stop climate change - is not to press on regardless, but to stop right now and ask if there is a politically more acceptable way to achieve that goal.

And there is an alternative: not perfect, but politically more acceptable, in Australia and in other countries - such as the United States and China - that have been cowed by the same problems and refused to put a price on their carbon.

Labor plans to tax carbon emissions produced in Australia, following the model set by Europe. But its task would be easier if it were to tax carbon emissions on products consumed in Australia, wherever they were produced.

This would make its carbon tax easier to sell here. But more: it would make it easier for any country to put a price on carbon - because this gives them a model that does not disadvantage local producers.

It is global action, not Australian action, that will decide if carbon emissions stop heating the world. Globally, taxing production of carbon emissions has proved too hard for key countries. But if we tax consumption of them instead, it could unlock the door to global action.

Why? Look at what is happening in the debate here.

Labor is losing the debate for many reasons. But a key one is that it has to fight on too many fronts. Most Australians want action on climate change, but don't want it to make them worse off. Their wishes could be met, but only if the money raised by a carbon tax is returned to households by cutting taxes and raising welfare payments - as happened with the GST.

But companies exposed to global competition are also fighting a plan that would tax them but spare their overseas rivals. A carbon tax would threaten key industries that Australia will need once global supply of minerals expands, and prices go back to normal.

The government plans to compensate industries it sees as ''internationally exposed''. But it can't compensate industry and fully compensate households. And last time, its list of industries was arbitrary, leaving out many that would lose from a tax on domestic producers only.

Bluescope Steel, rated in the top third of global steel makers for carbon efficiency, estimates that in year one it faces a tax of up to $39 million, while its Asian competitors go tax-free. A study by PricewaterhouseCoopers for the Federal Chamber of Automotive Industries concludes that the Australian car industry could pay between $30 million and $84 million a year, up to $412 per vehicle.

That shouldn't worry us if all car makers faced the same tax - but they won't. In Labor's model, only Australian car makers would pay the tax. Tell me, what is the benefit of that?

Geoff Carmody sees no sense in it. A respected economist who left Treasury in 1990 to co-found Access Economics, he argues that, rather than follow Europe in taxing producers of carbon emissions, we should set the world an alternative model by taxing consumption of them.

How does that make a difference? Carmody put it very simply in a recent interview on ABC radio's Late Night Live: ''A production tax hits all our exports, and none of our imports. A consumption tax hits all our imports, and none of our exports.''

In practical terms, that means there is no need for any compensation of industry: none at all. All of them would be facing the same taxes as their overseas competitors. The whole issue of unfair burdens on business would disappear, and all the revenue from carbon tax could be divided between compensating households and investing in renewable energy.

There are two problems with the Carmody model. First, any estimate of the carbon content of an imported product will inevitably be arbitrary, approximate and bureaucratic.

How much carbon is there in a frying pan from China, a ream of paper from Indonesia, a car from Korea, or a machine tool from Germany? Australia would be the first mover on this form of carbon tax, so we would have to work it all out, for every product. That would take time and money, to deliver rough justice.

Second, it gives no advantage to more carbon-efficient producers. There's no incentive for producers to reduce carbon use, because for simplicity, all frying pans and paper reams would be taxed the same. In the long term, when the whole world uses carbon pricing, the Carmody model should give way to emissions trading or a global carbon tax.

But it makes a global carbon deal more likely. The governments of the US, China, Russia, Japan and the rest have put off carbon pricing because they fear it would disadvantage local producers. If Australia, one of the largest emitters of greenhouse gases, adopts a model that is politically acceptable, it would open an easier path for them.

Three years ago, I thought the flaws in the Carmody model outweighed its strengths. Now, with key countries hanging back from carbon action, no global deal likely, and the high dollar forcing Australian industries to the wall, it seems to me the best option.

It could give us a carbon tax that works - and the world, a way to break the impasse.

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Political values redefined

IT'S 70 years since Australians have voted in a hung parliament. It's unusual for us, but normal for most Western democracies. Their experience shows it doesn't necessarily lead to weak government. If there is discipline and realism among the partners, it can lead to reforms with a wider base of support than any one party can muster. We had it here in Victoria just a decade ago: in Steve Bracks's first term, a minority Labor government governed with the support of three independents, and did so well they were re-elected with the biggest majority since the 1960s.

New Zealand has had minority governments since 1996, yet it has delivered tighter fiscal policy than we had here. In Germany, the last Social Democrat-Greens coalition under Gerhard Schroeder and Joschka Fischer pushed through pension reforms that were far tougher politically than anything we have seen in Australia since the GST.

Making minority government work is one challenge facing whoever emerges with 76 secure votes in the 150-member house. Two other challenges are to manage the widening political divide across Australia, and for all four parties in the new house to redefine what they stand for and whether we are now moving to a three-party system, or even a four-party one.

In Victoria, South Australia, Tasmania and the ACT, the government was re-elected emphatically. After preferences, 55 per cent of Victorians voted for Labor its highest two-party vote in the 25 elections from 1949. So did 53.5 per cent of South Australians, the highest Labor vote there since 1969. And so did 60.9 per cent of Tasmanians, also the highest since records began.

But in Queensland and Western Australia, people voted equally decisively for a change of government. In both states, after preferences, 55 per cent voted for a Coalition government. Only NSW was evenly divided: 49.6 per cent voted for Labor, 50.4 per cent for the Coalition.

The regional divide itself is nothing new. In Victoria, Labor has won the two-party vote at 10 of the past 12 federal elections. In Tasmania, it has now won seven straight. And the nation's capital has only once voted Liberal: in 1975, after witnessing three years of the Whitlam government.

Conversely, Queensland has voted for Labor just three times in the past 25 federal elections; and WA just four times three of them when WA native Bob Hawke was its leader. No other states lean so consistently to one side of politics.

Labor has had far worse elections in both states. In 1975, the anti-Whitlam rout left it with just one seat in each of them. But the divide between the south-eastern states and the resource states has never been greater.

It's not about emissions trading: an Age/Nielsen poll last month found overwhelming support in both Queensland and WA for Labor's scheme. The mining tax is obviously a factor: yet the Labor seats in the other big coal mining area, the Hunter region, recorded almost the smallest swings in NSW.

Unpopular and incompetent state governments clearly hurt Labor in Queensland and NSW, especially in Sydney, where the impact was magnified by the rabidly anti-Labor views of the talkback radio hosts and the Murdoch tabloids. (And conversely, the lack of any anti-Labor swing in Victoria suggests the Brumby government is heading for re-election on November 27.)

But the election outcome also challenges all four parties to redefine what they stand for. Labor began life as the party of the working class, then gradually morphed into an alliance between the unions and middle class progressives, yet has now morphed again into a party of careerist managers camped in the political middle ground, between the Greens on the left and the Liberals on the right.

One of the turning points in this election was Labor's decision in April to drop the emissions trading scheme, one of the two most important promises behind its 2007 victory.

Lenore Taylor in The Sydney Morning Herald revealed that the decision was pushed by then deputy prime minister Julia Gillard, Treasurer Wayne Swan, NSW Right leader Mark Arbib and ALP national secretary Karl Bitar. Finance Minister and MP for Melbourne Lindsay Tanner strongly opposed it. Kevin Rudd finally gave way. Cabinet learnt of the decision only after it was reported in the SMH.

Labor's leaders today are pragmatists, with no principles too precious to trade off for power. The Greens are a party of principles without pragmatism as shown by the way they have lifted their target for cutting Australia's emissions in 2020 from 20 per cent, to 30 per cent, and now 40 per cent. But they have the balance of power in the Senate now, and a member in the house; if Labor continues along its path, he could be followed by more.

Germany's Greens began as idealists, but then the realists won out over the fundamentalists and it became a party of pragmatic idealists. Will Australia's Greens do the same? Or will Labor decide to rebuild its base and reoccupy the progressive ground? The first seems to me more likely.

The Liberals and Nationals also have issues to face. This is the worst the Coalition has polled in the three south-east states since the 1940s. Scare campaigns don't work so well here, and the Coalition's policy was largely a four-pack of scare campaigns. Where was the progressive liberalism of its past?

And with Nationals rebel Tony Crook elected in WA promising to vote independently of the Coalition, the Nationals must ask themselves again: what is the point of having a National Party, if the Liberal Party decides what it does?

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A failure of leadership

LAST week, pollster Gary Morgan pulled out some old polls like, really old. In 1952, when the postwar immigration program was starting to transform Australia from an Anglo-Irish nation into a very diverse one, his dad, Roy Morgan, found 52 per cent of Australians wanted the immigration intake reduced while only 43 per cent wanted to maintain or increase it.

Did prime minister Robert Menzies change the policy to satisfy its opponents? No, he kept immigration rolling, and gradually Australians got used to it. By 1959, the Morgan poll found supporters outnumbered opponents 59-34 and, by 1969, 64-26.

Why didnt Menzies buckle? Because the Labor opposition supported the policy, which it had initiated in 1947. My father used to send the results to both Menzies and Arthur Calwell (then Labors deputy leader), Gary Morgan recalls. They were at one on this, so there was no political issue.

Fast forward to July 2010. The latest Morgan poll finds 58 per cent of Australians support the official immigration program of 170,000 or want it higher, while just 40 per cent want it lower. Yet our political leaders are doing backflips to appease them.

Why? Because Tony Abbott, after repeatedly supporting high immigration, swung his party behind a scare campaign against its own former policies. It is a failure of leadership. And its a classic demonstration of our inability to produce a bipartisan policy when it is needed.

Another, still more important, was our failure to agree on a policy to reduce carbon emissions as cheaply as possible. That means putting a price on them a carbon tax or an emissions trading scheme so business and households factor it into their investments and purchases to minimise their costs.

Instead, the latest in our dumbing down of policy is Julia Gillards plan to take $394 million out of programs to develop solar energy or carbon capture and storage so she can give $2000 each to people trading in pre-1995 cars for more fuel-efficient new ones. This, she says, will cut emissions by 1 million tonnes and save buyers $344 million in fuel costs.

Two points of basic arithmetic. First, $394 million spent to save $344 million? Thats $50 million wasted. Second, as prominent economist Warwick McKibbin points out, the scheme will cost us $394 per tonne of emissions saved. Weve been talking about carbon prices of $20 or $30 a tonne. A solar power plant or carbon capture and storage scheme would cost a fraction of this price.

Which is more dopey: this scheme or the citizens assembly Gillard proposes to debate what to do about climate change? Mmm, hard call.

I am one of millions of Australians angry that no political party at this election is offering a climate change policy that would reduce carbon emissions as quickly as possible, as cheaply as possible.

Abbott rules out ever having a carbon price, instead proposing a mix of expensive gimmicks which the Climate Institute estimates will fall far short of meeting the bipartisan target to reduce emissions to 5 per cent below 2000 levels by 2020.

Gillard says we should have a carbon price, but only when there is community consensus for it (that is, no political pain).

The Greens want to reduce emissions to 40 per cent below 1990 levels by 2020 that is, almost halving our emissions in the next 10 years. How could we do that? Wed have to shut down nearly all our power stations, find hundreds of billions of dollars to invest immediately to build energy-efficient but far more expensive ones, which would put energy-dependent industries out of business. Thats not a serious policy.

You see why we need bipartisan policies? The Garnaut report should have gone to all party leaders, who could then have thrashed out a policy they would all own, which would last for decades, and give investors the certainty to invest their money in low-emission technologies.

Back to immigration. The Howard government was the author of the high-immigration policy that Howards heirs are now campaigning against. It saw that Australia would need a lot more skilled workers, and that it was cheaper to attract migrants with the skills than to train Australians in the numbers needed. So it made three profound changes.

First, after an initial cut to the official migration program, it steadily lifted it from 67,100 to 158,630 in a decade. Second, in 2001 it made a momentous change by allowing foreign students with skills to stay here permanently if they could line up a job after graduating. And third, it introduced section 457 visas to allow businesses to bring in overseas workers in areas of skills shortages.

These were sensible moves, and won broad support. The only controversy was over rorting of section 457 visas by unscrupulous employers. But a crisis was building. Net overseas immigration which includes the movements of temporary workers and students, as well as permanent settlers, New Zealanders and Australians rose to 306,000 in the year to March 2009.

That number was swollen by rorts of student and section 457 visas, by a net 30,000 Australian workers returning home, and by a red-hot labour market.

Since then, Immigration Minister Chris Evans has ended the visa rorts, and there are fewer jobs for foreign workers to fill. Net arrivals so far this year are down 31 per cent.

Its not the immigration program thats out of control. Its Abbotts inability to distinguish between opposition and opportunism.

Immigration is one of Australias great success stories. Its a bipartisan success story. Why cant we keep it that way?

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ETS axing put budget in the black - scrapped scheme kept lid on costs

THE Rudd government would have broken its self-imposed cap on spending growth without the money it saved by scrapping its emissions trading scheme, the budget papers reveal.

Amid a patchwork of conflicting budget figures, definition changes, and the deliberate withholding of data, an Age analysis found that scrapping the ETS made the difference in the Rudd government meeting its spending cap.

The budget papers show that in 2012-13, even on the smaller of two very different sets of budget numbers, the emissions trading scheme would have added $7.1 billion to spending.

That would have lifted real spending growth in that year on the accruals measure in which all detailed budget information is given from 2 per cent to 2.9 per cent.

As the central pillar of its strategy to return the budget to balance as soon as possible, the government last year pledged to temporarily restrain growth in future outlays to 2 per cent in real terms.

But with spending on age pensions alone set to rise $3 billion in 2012-13, hospitals spending $2.1 billion, GST payments $2 billion, and infrastructure works by $1.7 billion, the government was clearly on track to blow that cap without big spending cuts.

The ETS eventually became that spending cut. When the government included the ETS in future budget estimates last year, its spending measure included the cost of free permits for electricity producers and what it called "emission-intensive trade-exposed industries". Its budget update last November said ETS spending in 2012-13 would be $11.8 billion.

A similar number was implied in a release on budget day by the Department of Climate Change and Energy Efficiency. It put the five-year saving in spending from scrapping the ETS at $30.6 billion.

But budget paper two, issued the same day, showed the saving in precisely the same period as just $18.3 billion. Sources say the difference was because it was decided that the cost of free permits by then, almost $5 billion a year should not be counted as spending.

Access Economics director Chris Richardson told a business luncheon yesterday that while the ETS was not scrapped for budgetary reasons, its abolition aided the budget.

"If they didn't get rid of the ETS, their spending would have bust the 2 per cent cap," Mr Richardson told the luncheon. "And if the ETS comes back, some spending needs to be junked to remain within its cap."

The government yesterday declined to respond. But officials noted that this year's budget papers defined the spending cap as applying to cash spending, rather than the accruals measure.

But the budget papers do not spell out the year-by-year cash savings from scrapping the ETS. Finance Minister Lindsay Tanner refused repeated requests from The Age this week to make the figures public.

Meanwhile, Tony Abbott's proposal to cut public service numbers through a two-year hiring freeze has outraged bureaucrats, who say staff reductions would affect essential services.

In his response to the budget, Mr Abbott this week said the coalition would save $4 billion by not replacing 12,000 public servants who retired or resigned. The Community and Public Sector Union's Nadine Flood said "every time someone leaves the public sector, their work stops getting done". And Andrew Podger, a former public service commissioner, warned the proposal would leave a staffing gap that would last up to a decade.


REAL GROWTH IN BUDGET SPENDING

WITH ETS WITHOUT ETS

2010-11 0.5% 0.5%

2011-12 0.3% 1.1%

2012-13 2.0% 2.9%

2013-14 1.9% 1.9%

BUDGET PAPERS

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