Carbon confusion

Adam Creighton

If you think Australia needs to ‘do something’ about climate change, a carbon trading scheme should be a long way down the ‘to do’ list.

Carbon trading schemes are designed to increase the ‘price on carbon.’ Yet the government maintains a set of policies that actually act to lower the price on carbon.

Before foisting a cumbersome and irreversible carbon trading scheme on us, the government should first remove some of these price depressants.

Fringe benefits tax for company cars is the most egregious example. The more you drive, the more congestion is created and carbon emitted – but the less tax you pay! Tax owed on a company car drops by almost half if driven more 25,000 kms a year, and by almost two-thirds once the odometer ticks over 40,000 kms. Many thousands of cars are driven purely to exceed these thresholds.

The latest national greenhouse accounts noted that carbon emissions from transport have been ‘one of the strongest sources of emissions growth in Australia.’ Indeed, since 1990, emissions from domestic air travel have grown faster than from any other type of transport. Yet aviation fuel continues to be taxed at a special low rate of 3.6 cents a litre, compared to the standard 38 cents for high-energy fuel.

The government forgoes about $2 billion a year maintaining these policies, money that could be used to cut taxes elsewhere.

Then there’s the Fuel Tax Credit (FTC) scheme, which gives tax rebates to businesses that use big trucks or fuel-intensive machinery. The government’s most recent budget notes that ‘expenses under the Fuel Tax Credits Scheme are also expected to increase progressively across the budget and forward years.’ That’s because the scheme has been expanding since it was introduced in 2006. The FTC scheme is set to cost about $6 billion a year by 2013, about $1 billion more than it does now.

These policies are overseen by the same government that now advocates a higher price on carbon.

Finally, the real excise on petrol has been falling by about 3% a year since 2001, when indexation to inflation ceased. The Henry tax review sensibly flagged its reintroduction, but the government ruled it out. It is hard to see how an ever lower petrol tax will help the government reach its carbon abatement goals.

Australia seems poised to have policies that try to raise and lower the price of carbon at the same time.

Only a government devoted to form over substance would tolerate such absurdities, and only a populace so bamboozled by the array and complexity of government interventions would overlook them.

The above is a press release from the Centre for Independent Studies, dated 21 April. Enquiries to Snail mail: PO Box 92, St Leonards, NSW, Australia 1590.

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