Tuesday, 19 July 2011

Carbon tax saga: three more years


The carbon tax saga is only just beginning. So what happens next? And what are the possibilities?

The first and continuing test is; what do the public think of the new tax?

The opinion polls signal attitudes to the package and the standing of the parties. On the eve of the detailed announcement, Labor's primary vote was down to 27 per cent and support for the tax was roughly 30 per cent for and 60 per cent against.


Unless these numbers change fairly soon then Julia cannot last and someone will start counting numbers. If attitudes to the carbon tax are negative but Labor's ratings are up then Julia might hang on for a bit longer.

The GST provides a reasonable comparator for the carbon tax although it differed because it was announced before an election, many countries already had a GST and on average no-one was worse off. John Howard got a jump in the polls when he announced his GST package in August 1998, but they soon dipped and he lost 19 seats at the 1998 election.

The next election is two years away; either side could change their approach. Gillard might have to slash the starting price. Another possibility is if Greece goes broke or the GFC returns then Labor might defer or abandon the carbon tax.

The legislation is to be tabled in late August. Labor cannot afford to be seen to be guillotining the legislation through the Parliament. The legislation will be hundreds of pages with complex provisions so a parliamentary committee has already been half conceded by Gillard.

The Canadians introduced their GST after an election in which they promised income tax cuts but failed to mention that they would introduce a GST to pay for them. The Canadian public was outraged, their parliamentary committee became a travelling platform for the opposition and the government was later forced to make adverse concessions to its package.

Our Joint Committee will need to be established soon because, with hearings required across the country, it is hard to see it taking less than four to five months. The parliamentary debate cannot be concluded until the committee report is tabled so the bill might just get to the Senate before Christmas. The Greens, Rob Oakeshott and Tony Windsor will vote for the legislation regardless.

The only other possibility is a revolt of Labor's backbench. This could happen anytime. To ditch the carbon tax, Labor would have to ditch Gillard.

The most pragmatic politician to replace Gillard would be Simon Crean. His remit would not be to win the election but to salvage a few seats. Anything can happen in politics when MPs become desperate. N.B. Rudd was deposed when he was still ahead in the polls.

So the legislation will become law mid-2012. Gillard is hoping that disruption to business will be minimal and the public will not notice the consumer price index (CPI) increase. The prospect of job losses must keep Labor strategists and union heavies awake at night. It is inevitable that many people, rightly or not, will attribute price increases to the carbon tax. Only time will tell how these impacts play out.

If Labor wins the next election, the carbon tax will be here for many years.

If the Coalition wins, then Abbott will introduce a bill to rescind the carbon tax. If Abbott wins the election by a big enough margin, the extra seats from WA, Queensland and maybe NSW, might just provide enough seats in the Senate for his bill to pass.

More likely is if the Greens and Labor control the Senate, the Greens will not budge. Abbott says if Labor loses the next election, it will be because of the carbon tax so Labor will have to drop the carbon tax. The Liberals let Labor's changes to WorkChoices through the Parliament.

Also likely is a threat from Abbott that if Labor blocks the rescission bill then there will have to be a double dissolution. To achieve a double dissolution, the rescission bill has to go through the House and then be rejected by the Senate; not once but twice with a three month gap between the votes in the Senate. This could take six months or longer because Labor might employ delay tactics. They would lose a double dissolution election and the new Parliament, meeting in Joint Session, would rescind the carbon tax by mid 2014.

The bottom line is that we are likely to face nearly three more years debating the carbon tax. This means lots of uncertainty and unnecessary costs for business.

Abbott and Gillard are both in a titanic struggle which will define their careers so neither can leave the ring. And this means less attention will be given to issues like health and education that are important to good quality government.

The only possible early exit from this mess would be an election this year. That is the good thing about democracy, if the politicians can't decide, let the people vote. And for Julia it would allow her to overcome her self-inflicted burden "under the government I lead there will be no carbon tax".

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