From the Australia Institute:
Monday, July 02, 2012
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14 comments:
So how does a tax that leave us better off make us change our behaviour?
If people don't feel any pain, why would that do anything differently?
And don't tell me its because the big polluters pay the tax because they will all pass the extra tax straight on to consumers.
I can't believe we will all be better off. We'll all pay in the end.
By changing relative prices.
For example
If I doubled the price of eggs, adding a extra $10 to your notional weekly shopping bill and at the same time put an extra $10 into your bank account you probably wouldn't spend it all on eggs. You would spend some on something else or save it, cutting your consumption of eggs.
This doesn't negate the fact that it is an additional tax, nor the fact that many Australian households cannot afford mobile phones or alcohol and tobacco now. Costs will be passed onto consumers - that's a given. What is also a given is that many single-income households will be in deep trouble before too long (or should I say, deeper trouble?). Self-funded retirees, for example, get what? A one-off $250 taxed payment that is supposed to offset their increased costs. I predict this won't even cover the increased costs of one year.
Correction. The payment to self-funded retirees is ongoing.
"Self-funded retirees who hold Commonwealth Seniors Health Cards will receive assistance under the carbon pricing plan.
This will be worth $338 for singles and $255 for each member of an eligible couple. It will help offset all of their expected cost of living increases under a carbon price.
Tax cuts will also benefit self-funded retirees. This means that a single person over the age of 65 with a taxable income of $35,000 will receive tax cuts worth $502 a year from 1 July 2012.
The Medicare levy low-income threshold will also increase, providing self-funded retirees with another $160 a year.
@Anonymous, above: Your "logic" is interesting.
Regarding alcohol and tobacco etc. - I don't know who you could possibly be referring to. I don't know ANYONE (with possible exception of a couple of elderly relatives) who doesn't have a mobile phone. However I know plenty of people who "can't afford" to eat, yet somehow find money for alcohol, tobacco, gambling...
Those suffering genuine financial hardship do need help, but that's a separate issue.
Guess what? Sometimes change is uncomfortable. Sorry to say, but you don't have the right to not be uncomfortable.
Changes to costs can drive changes to behaviour even when consumers are being compensated.
While some businesses will simply pass on the cost, almost all of them will consider their energy bills and also look for opportunities for savings. There are some businesses that are long overdue, and will find significant savings, well in advance of any extra costs.
Certainly businesses that have energy as a large portion of their ongoing costs will start or continue to look for ways to save energy. A new models of equipment are released, there are generally improvements to energy consumption and as a result there are often opportunities for businesses to reduce their consumption.
In addition to the carbon tax, there are quite a lot of grants and info resources being made available to help businesses do this.
So while it can appear that there is little point to the tax when the compensation for consumers appears to cancel it out, you need to consider the effects at different points along the supply chain.
O/T, but Peter - are you going to cover Turnbull's new position on the NBN? The Libs are going to keep it. I'd be interested in reading your take on this.
I am not sure the Libs have a new position (although it has been reported that way).
They were never going to dig it up.
Peter,
Can you explain the logic of this tax to me, please?
If businesses which can pass on the tax via price increases, then what is the virtue in undertaking a tax designed to change behaviour that does not work?
What about trade-exposed sectors who have been adjusting behaviour because of the FX impact? If the carbon tax impact is minimal, then how does this tax change behaviour in these companies if FX rates are incapable of making such an adjustment?
Also, would you agree with me that it is dangerous to assume modelling assumptions as reality rather than approximations of reality?
Glad to help faust,
You asked:
1. If businesses can pass on the tax via price increases, what is the virtue in undertaking a tax designed to change behaviour
As the price of the product goes up people will buy less of it, meaning less of it will be made, or meaning the business will find a way of making it that doesn't push up the price as much (perhaps by producing fewer emissions).
2. What about trade-exposed sectors who have been adjusting behaviour because of the FX impact? If the carbon tax impact is minimal, then how does this tax change behaviour in these companies if FX rates are incapable of making such an adjustment?
I am not quite sure what you are getting at. But if you are saying the high dollar has had little impact on Australia's trade-exposed sectors, many would disagree.
3. Also, would you agree with me that it is dangerous to assume modelling assumptions as reality rather than approximations of reality?
Models are necessarily simplified. Otherwise they wouldn't be models. Modelling assumptions are neither reality nor an approximation of reality. They are the assumptions fed into the model. Models should be judged on their success at forecasting, not their realism.
What about industries and products where the cost of carbon can be externalised i.e. products sourced from overseas.
In this case none pays for carbon emitted. Things like electrical goods and cars are a very good examples of how the price of carbon will be not be payed because the producers of these goods aren't involved in paying for carbon.
So the basic premise of the tax/trading scheme is undermined, because the cost can be externalised.
Bottom line australian producers that face competition will be placed at a disadvantage because their competitors don't pay they price.
Don't get me wrong I think T abbott is full of it. I just think a tax or trading scheme where costs can be externalised does not solve the problem that the original scheme was set up to do.
If costs can be externalised the scheme won't work. Products like electrical goods, cars and machinary are classic examples. If the places were we source these products don't pay a price then the whole point of the tax / trading scheme is undermined.
This means that countries that don't price carbon will have an advantage over australia if the are direct competitors.
The problem in Oz at the moment is that its not about reducing carbon output. Its about implementing a tax for a tax sake.
Peter,
Thanks for responding.
Regarding the first point: if people are compensated or overcompensated then wouldn't they not adjust their behaviour?
Regarding the second point: trade exposed industries have adjusted as best as possible to the higher AUD and therefore how would a carbon tax change behaviour that a high AUD could not change?
Thanks,
Faust
Dear Faust,
You ask:
1. "if people are compensated or overcompensated then wouldn't they not adjust their behaviour?"
The answer is they almost certainly would change their behaviour, even if fully or overcompensated.
Earlier I used the example of eggs.
If I doubled the price of eggs, adding a extra $10 to your notional weekly shopping bill and at the same time put an extra $10 into your bank account you probably wouldn't spend it all on eggs. You would spend some of the extra income on something else or save it, cutting your consumption of eggs.
When something goes up in price (relative to everything else) we usually buy less of it (and perhaps more of everything else) even if our income has increased.
2. "Regarding the second point: trade exposed industries have adjusted as best as possible to the higher AUD and therefore how would a carbon tax change behaviour that a high AUD could not change?"
Ignore for a minute the design feature of this carbon tax that gives some trade-exposed polluting industries free permits negating any effect..
If the carbon tax pushes up the cost of polluting for import-competing industries it will provide them with a financial incentive to cut pollution. If they cannot cut pollution it will make them (even) less competitive. If they are barely competitive having cut costs as far as they can, and they can't cut them further by cutting pollution, it will force them out of business.
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