Tuesday, 12 July 2011

Labor's leaky leadership

Julia Gillard's new tax is not reform. The Productivity Commission head, Gary Banks, said last February, "The term 'reform' is being employed liberally today by the proponents of almost any policy change, whether it is likely to advance the public interest or not". The dictionary describes reform as "change for the better". He says, to be successful, reform "must achieve its goal and do so without 'collateral damage' or unintended consequences".

This tax will not stop climate change. So it is all pain and no gain. The scheme allows Australian business to buy permits overseas whilst emissions rise in Australia. This is what Gillard calls a "clean energy future". Business will suffer collateral damage, coal mines and associated businesses will be closed, jobs will be lost, Australia is likely to experience power outages, truck drivers will go broke and up to 3 million households will be penalised for their economic success.

Indian and Chinese economic growth will continue relentlessly. China already has 13 nuclear plants, it is currently building 25 more and up to 100 coal plants per annum. Its emissions are already 15 times those of Australia.

In contrast to China's ambitious programme of nation building, the Gillard/Greens government is gambling Australian jobs and living standards on the naive and absurd proposition that Australia's economic martyrdom will persuade others to likewise cut economic growth.

Designing a new tax is nothing new. It is widely accepted that the first thing that is needed to secure reform is an explanation why the change is needed. The need and likely effectiveness of reform is not firmly established. Public support for action on climate change has been falling. Gillard conceded this point before the 2010 election. She first claimed that she would not act on climate change until there was public acceptance of the need and then she promised she would not introduce a carbon tax.

Whether you agree with the proposal or not, it is a reality that many people find the entire argument too complex, ambiguous and uncertain. Accordingly, this package fails the criteria of political sustainability.

One hurdle is to pluck the goose carefully so that it does not quack too loudly. Julia has failed that test already. Another key design feature is to spread the burden so that rates are as low as possible. High rates encourage avoidance, fill the pockets of accountants and are usually unfair because some bear a disproportionate burden. In this case, one aspect of avoidance will be through closing business and taking manufacturing and other activity off shore. Taxes should be imposed on as broad a base as possible to discourage the misallocation of resources and should be transparent and simple to manage.

The measurement of carbon dioxide emissions will not be easy but buying carbon reductions from overseas is a recipe for corruption and waste on a billion dollar scale. And, how many trees are to be lopped for the new tax regulations and how many staff for the administration cost of nearly $400m? None of this will be transparent or simple.

Labor's direct action plan is on a grand socialist scale to be managed by the new $3.2 billion Australian Renewable Energy Agency and a new $10 billion Government bank funded by debt. This bank will soon be undermining those private banks that helped insulate Australia from the GFC. Labor is reverting to government owned banks and government owned telecommunications.

These Green schemes could make the pink batts programme look like a good idea. Renewables will not substitute for the closing down of Victoria's LaTrobe Valley.

If the world is facing the catastrophe that some people believe to be the consequence of climate change then nuclear power should be part of the solution but of course this is not allowed under the Greens power sharing agreement with Labor.

It never occurs to Labor that collecting more tax from the same people just discourages incentive, promotes tax avoidance, and requires more complexity, more bureaucrats, and more voters ready to throw them out of office.

Instead of punishing business, business should be encouraged; instead of more taxes the government should cut waste and instead of reducing population growth we should be encouraging more taxpayers to our country. With a far more pro growth attitude, we might then be able to afford to manage our environment.

As Ronald Reagan once wisely said, government is not the answer, it's the problem. Labor will get a boost from the publicity but if Julia can't turn around the polls for more than a few weeks, she will be in deep trouble.

PS. How does the ABC justify putting to air a TV program, Leaky Boats, condemning the Howard Government's approach to asylum seekers, without mentioning the four years since Labor took office in 2007? Under Labor, the trade was resumed, about 50 people died in a tragedy on Australian shores, the number of children in detention has increased, costs have ballooned, relations with Indonesia have dived and the Malaysian deal to swap people is still being negotiated. So, when can we expect "Labor's Leaky Boats?"

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