The Gillard government is considering Ross Garnaut’s plan to use $6 billion a year from the new carbon tax to pay for sweeping personal tax cuts and welfare reforms to compensate low- and middle-income earners.
Professor Garnaut has said half the revenue from a carbon price starting at about $25 a tonne could be used to implement tax cuts along the lines of the mothballed recommendations from the former Treasury secretary Ken Henry.
The Climate Change Minister, Greg Combet, said he would ”take on board” the idea of linking the carbon tax with Dr Henry’s ambitious dream for a simple two-tier tax scale, as recommended by Professor Garnaut in his updated report on climate change, made public yesterday. The report will be considered by the multi-party climate change committee when it meets today.
The Coalition has promised to repeal the carbon tax, but the Opposition Leader, Tony Abbott, has backed Dr Henry’s recommendations on personal tax cuts.
Professor Garnaut proposed a carbon tax of $20 to $30 a tonne, rising at 4 per cent a year before moving to a market-determined price in 2015.
He conceded trade-exposed industries such as aluminium, steel and cement should get almost as much compensation as offered under the carbon pollution reduction scheme for the first three years - 90 per cent free permits for the most trade-exposed and 60 per cent for a second tier of industries - a softer stance than in his original report.
But he said the free permits should then be wound back to exactly reflect an industry’s international disadvantage, with compensation levels determined by an independent authority, which would be better equipped to deal with industry ”try-ons”.
Given the promise by the Prime Minister, Julia Gillard, the tax would not send jobs overseas, the wind-back is unlikely to be supported by Labor but could appeal to the Greens, who argued CPRS compensation was too generous.
Professor Garnaut advocated welfare recipients and very low-income earners be compensated through help with energy efficiency, but the government is more likely to opt for direct increases in family and welfare payments, which is how most compensation was delivered under the CPRS.
He also recommended the price impact on petrol be delayed by a one-off cut to petrol excise, paid for by abolishing a fringe benefit tax break on company cars - a move long advocated by the Greens.
Professor Garnaut insisted a market price was the cheapest and most efficient way to reduce emissions and criticised the Coalition’s Direct Action plan, which he said would impose higher costs on families and was like the former Yugoslavia’s variant of communist central planning, using a competitive approach in a few limited areas but for the most part still central government control.
Mr Abbott said his argument was with the government, not Professor Garnaut, and the report had confirmed the carbon tax starting price assumed by the Coalition.
The Climate Institute said the annual increase in a carbon tax had to be far higher than the 4 per cent proposed by Professor Garnaut, more like 10 per cent, to give a sufficient signal to investors.
The Australian Industry Group said companies needed the full level of compensation offered under the final CPRS and industries such as food processing and plastics needed to be included in the compensation scheme.
