Abbott faces stiff challenge in fighting carbon tax
With one month to go before the carbon tax starts, Tony Abbott's effort to repeal it is about to get harder.
Following the GST's implementation, then treasurer Peter Costello ridiculed Labor's rhetoric of GST-based impending disaster.
Come July 1, Abbott is likely to face similar efforts to ridicule his claims of the carbon tax's impact.
Because polling shows Abbott winning on a platform of repealing the scheme after the next election, businesses hard hit by the carbon tax are likely to wear the short-term pain.
The real impact will be a slow burn affecting industries making long-term decisions about future investment viability.
Last week's announcement by Norsk Hydro to close its Kurri Kurri aluminium smelter is a clear example. The carbon tax was one of several factors that contributed to the plant's closure, as well as the high dollar, rising metal prices and collapsing global prices for aluminum.
But unlike the other contributing factors the carbon tax impact is exclusively the consequence of government policy.
There was a lot of criticism that the plant was energy inefficient, undermining its competitiveness. But the company could have recapitalised in its investment if it foresaw a profitable future. It chose not to. In the long run, the smelter was faced with a perpetually increasing electricity bill, which is a key input into its cost structure.
Kurri Kurri's situation will now be replicated all across the country. Businesses that are dependent on cheap energy will experience declining profitability and decisions to recapitalise won't be taken. Greenfield investments also will never be made if they are exposed to the cost of a carbon tax that's designed to annually increase. For a country that has always been an investment capital importer, the impact will be felt on job creation across the medium and long term. All of the carbon tax's pain won't be felt at midnight between June 30 and July 1, but it will be felt eventually.
By comparison, the "new economy" of Greens leader Christine Milne will be built off the back of the carbon tax, which acts as a subsidy for lower-emissions industries.
But it won't be good for the economy. "Green" companies will use more investment capital to produce less, undermining economic growth. That was the experience of Spain and its carbon-based regulation that led to every "green job" in the economy coming at a cost of two jobs elsewhere.
This leads to the second challenge facing Abbott: opposition from rent-seeking beneficiaries.
The carbon tax acts as an internal economic tariff to protect the interests of low-carbon investments at the expense of the rest of the economy.
Like traditional protectionism, the carbon tax will create a constituency of rent-seekers who will fight to protect their interests. Abbott will face a backlash from renewable energy companies claiming that repealing the tax will result in lost investment and jobs. Technically they'll be right that their business will be harmed. But it will require them to ignore that disproportionately more investment and jobs would flow if the scheme were scrapped.
At least in the bad old days of tariffs, heavily protected manufacturers arguing for tariffs were identified as rent-seekers. Recent media coverage suggests carbon tax-dependent industries aren't receiving that treatment.
The Sydney Morning Herald's Peter Hartcher recently reported that one of the world's largest investors in lower-carbon technologies, General Electric, considered Australia "the new China". Uncritically, Hartcher quoted GE's Australian chief executive Steve Sargent, praising the carbon tax: "We have to look at these things through a positive lens, not a negative lens . . . it's driving investment in renewables." He'd know. The company he leads is one of the main commercial beneficiaries.
Not that Hartcher is alone. Following a March interview with GE's vice-chairman John Rice, the ABC reported him applauding the Australian government "for having the courage to go through with (the) carbon tax".
According to Rice, the carbon tax is "gutsy". But nowhere in the article did it highlight that GE would gain a considerable commercial advantage from the scheme, mentioning only in passing that it manufactured wind turbines. It's like asking Holden how it feels about receiving its recent $275 million taxpayer subsidy from the government.
To his credit, in the original interview ABC finance presenter Alan Kohler identified GE's vested interest, but it was cut in subsequent coverage.
GE is not alone. In April last year, corporates that stood to commercially benefit from a carbon scheme signed a joint letter supporting the tax. Signatories included Alstom, which sells public transport rolling stock to governments; Better Place, which wants to commercially establish an electric car network; and Pitt & Sherry, which sells environmental consulting services.
In March last year Westpac's Gail Kelly argued on ABC's 7.30 that "as quickly as we can get to an actual (emissions) trading scheme (away from the carbon tax) would be best". That the ETS would give Westpac a new financial instrument to trade wasn't mentioned.
The carbon tax is a reminder of the perils of allowing big business and big government to collude because they advance their interests at the expense of taxpayers and consumers. Uncritical analysis of the commercial interests of corporates bodes poorly for Abbott continuing to highlight the damage of the carbon tax that will be felt across the long term just as the number of rent-seeking beneficiaries capable of funding a pushback to protect their interests will be growing.