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Australian Currency. Credit: martinhoward/flickr

By Simon Hukin:

Why I Love Tax and You Should Too

A carbon tax has none of the problems associated with other carbon reduction schemes. The carbon tax is an incentive for polluters to clean up their act and to encourage venture capitalists to invest in innovative clean, renewable technologies, by making them more competitive. It is predictable and constant. It doesn’t have all the issues of creating an entirely new market, and it slots nicely into our existing bureaucracy. It’s also much more difficult for big business to distort the process – the tax is based solely on the amount emitted, after all, so there’s no chance for the corporate world to snaffle extra concessions.

It would also be far less detrimental to the interests of consumers. As Harvard Professor of Economics N. Gregory

Professor N. Gregory Mankiw. Credit: US Federal Govt

Mankiw suggests, a tax could be structured in such a way as to return much of the accrued revenue to consumers while still providing a disincentive to purchase emissions intensive goods and services or use more power. Rather than adding to the profits of large corporations, as an emissions trading market entails, the revenue from a carbon tax could (at least until carbon pollution has been eliminated) be used to cut other taxes such as income tax. This is both economically desirable – as a tax of this nature creates far less market distortion than an income tax – and good for the consumer. It only hurts the polluters.

Climate change is an international problem, and requires an international solution. One of the major problems the world faces in terms of reaching an international agreement is the historical reluctance of the US and China to accept any deal which treats them as less than equals. China will not accept fewer carbon permits per person than the United States, nor will it accept the use of a historical baseline. Such a baseline would reward the US for historically being the primary contributor to the problem.

However, if carbon permits were allocated based on population alone the United States would end up buying permits from China. Given the prevailing sentiment of the US electorate it is highly unlikely the Congress would embrace a system which created higher energy prices and transferred a great deal of its national income to the Chinese. It would be seen in the same light as foreign aid, and the controversy which surrounds US foreign aid programs is extensive.

Carbon taxation, on the other hand, is relatively simple to negotiate. All governments require revenue and a carbon tax is an effective means of raising some of that revenue. Money needn’t cross national borders. Each government could keep the revenue from its tax and use it to finance spending or whatever form of tax relief it considered best. Convincing China of the virtues of a carbon tax, however, may prove to be the easy part. The first and more difficult step is to convince Australian voters, and therefore politicians, that “tax” is not a dirty word.

See Parts One & Two of CPRS: A Taxing Question.

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Simon Hukin is a student at the Australian National University, General Secretary of the Western Australian Secondary Students’ Association, peripatetic music teacher and general curmudgeon. He is heavily involved in politics and the union movement.