Monday, July 11, 2011

When Treasury modelled a minor tax change...

An abundance of black coal will make NSW one of the hardest hit states by the climate change plan, with the state production forecast by Treasury to be 3 per cent lower than it otherwise would have been by 2050.

The calculations show the lightly-mined states of South Australia and Tasmania little affected, losing less than 1 per cent of state output and Victoria only mildly hit, losing 2.5 per cent. Even iron ore and gas rich Western Australia escapes more lightly than NSW, losing 2.75 per cent of state output.

Although large by 2050, the differences between the states are tiny year by year. Officials who worked on the Treasury modelling say the annual impact every state will be close to 0.1 per cent, which is the national impact.

Treasury has made what appears to be a heroic assumption that there will soon be a global carbon price. But it has done no more than assume world leaders will keep to the “less ambitious end” of the pledges they have already made. That assumption itself depresses, the ‘starting point’ for the Treasury’s analysis, but not by much. Treasury says it will take the world 16 months longer to reach the combined income it would had by 2050.

Compared to this slightly depressed world outlook Australia’s outlook will be every-so-slightly more depressed, but not so you would notice on a graph... The Treasury has drawn two lines, with and without carbon pricing, that touch.
“The changes to the Australian economy from pricing carbon are small by historical standards and small compared to the changes we are already seeing in our economy as it adjusts to accommodate the pressures of Mining Boom Mark II,” the document says.

“Gross national income has risen more than 30 per cent over the past seven years. In contrast, pricing carbon will only slightly slow growth in Australian income per person so it is about half a percentage point below where it would have otherwise been in 2020.”

Consumer prices will jump 0.7 per cent in 2012-13, much less than the 2.5 per cent increase that followed the goods and services tax. Treasurer Swan said the Treasury modellers were the most professional in the business, the same people who had correctly forecast the effect of the Coalition’s GST.

Prices will jump again by a further further 0.2 per cent on the transition to a emissions trading system in 2015-16. Combined, the impact on average household spending will amount to $13.40 per week, much of it from a $4.20 increase in the price of electricity. The average food bill will climb $1.10 per week.

Employment will grow by around 1.6 million people by 2020 and a further 4.4 million by 2050 with or without a carbon tax. Although some industries will grow faster than they would have and others slower the changes will be “small compared to the usual churning of employment between firms and industries every year”.

The Treasury forecasts assume a carbon price of $20 per tonne, somewhat lower than the $23 price the government adopted. A separate set of forecasts based on a $30 per tonne price produces similar results.

The forecasts take no account of the economic benefits of reducing global emissions and so can best be thought of as an estimate of the costs.

The net cost to the budget is relatively small - $3.8 billion over four years. Adjustments to the timing of payments ensures the cost to the budget will be just $475 million in 2012-13, the year the government plans to return the budget to surplus.

Published in today's SMH and Age

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