A Carbon Tax May be Smarter than Increasing the GST

This post argues that a carbon tax may be a smarter way of increasing revenue than changes to the GST.  This would be particularly true if we are talking about replacing Labor’s  complex carbon tax collection system with a KISS driven approach that collects the tax close to where the fossil carbon comes out of the ground or across our borders.  This post is about revenue.  Helping to save the planet is just a very desirable bonus.

The table below from  ABC Just in suggests that a carbon tax would add only $1.07 to the average weekly individual household expenditure for every billion dollars raised Vs $2.15 for removing GST exemptions or $2.75 from raising the GST to 12.5%.
Before we get too carried away it would be good to know  a bit more about why the figures are different. (See questions after the table.)  However, even if it turns out that the carbon tax and GST have about the same impact, it makes sense to choose the carbon tax instead of the GST because helping to drive down greenhouse gases would come as a very desirable bonus.
The other thing to understand is that there are much lower cost ways of collecting the tax than the one used by Gillard.  The logical, lowest cost place to collect is close to where the fossil carbon comes out of the ground or across our borders.  For example, in the case of coal mines the sampling plants and weightometers required to give the information needed to calculate the tax are already in place.    Things like fugitive emissions should probably  be ignored for the sake of Keeping It Simple Stupid (KISS)
In the case of imports, we should also resist the the urging of the complicators and limit the tax to bulk shipments of things like oil,  cement, steel etc. plus tonnages of things like cars using rough estimates of tonnes CO2 per tonne car.
In retrospect, the Greens and Labor stuffed up when they tried to deny the carbon tax was a tax.  They would have been smarter to argue that the tax was needed  (or better than an existing tax) and that helping to reduce emissions would be a bonus.
When reading this keep in mind that, up till now, I have been consistently against carbon taxes.
Carbon price at $23 per tonne Carbon price at $27-$29 per tonne GST at 10 per cent without exemptions GST at 12.5 per cent with current exemptions
Estimated annual gross revenue $8.5 billion $10.58 billion $14.2 billion (on top of revenue from existing GST in 2015/16) $14.26 billion (on top of revenue from existing GST in 2015/16)
Estimated average impact on household expenditure ($ per week) $9.10 $10.68-$11.47 $38.70 $30.60
Questions GST:
  1. Are gross revenues calculated after cost of collecting the extra GST?
  2. What would the GST figures look like if they allowed for carbon tax style compensation for the effect on lower income earners?
  3. What would the GST figures look like if the tax applied to exports as well as imports?  (Adding exports to what the GST applies to  would have little effect on household expenditure apart from the effects of the lowering of the $Aus in response to the GST applying to exports.)
Questions Carbon Tax:
  1. Are gross revenues calculated after cost of collecting the carbon tax?
  2. Was it assumed that no compensation to lower income earners would be needed because Abbott did not take away the the compensation introduced along with the original carbon tax?
  3. Does the carbon tax apply to exports?
  4. What exceptions were included in the carbon tax proposal?


3 thoughts on “A Carbon Tax May be Smarter than Increasing the GST”

  1. I would point out that tax reform is not necessarily carbon tax Vs GST. There is also scope for more progressive tax changes such as increasing the higher income tax rates, getting rid of tax deductions, special deals for trusts etc. What really counts is what reforms do to the overall tax, charges and welfare system.
    In the case of the carbon tax the potential revenue is limited because if it gets too high the sources of tax generating greenhouse emissions will fall rapidly. Brilliant for the planet but not so good for tax revenue.

  2. Clearly the ideal for a carbon tax is for the revenue to be zero.

    I think if Labor brings in a carbon tax they’ll have to also compensate poorer households all over again. So as a revenue raiser it will be correspondingly less, and probably only worth a few billion pa.

    The GST is being seen as a cure-all but the sums available after decent compensation will not be large enough to fix the deficit, give a 4% cut to company tax, pay for Gonski, hospitals and the rest.

    Labor was talking about its plans for super which will yield $14 billion over 10 years, which is also small change.

    Tens of billions pa are needed. For each one per cent of GDP we pay each year we get $15 billion.

    There are hard choices to be made and it’s time for the pollies to be square with us.

  3. It is time for the pollies to lead an adult conversation.
    Step one is working out what the reform has to achieve.
    -Net Revenue up by $Xbillion?
    – People at the bottom of the pile better off after welfare changes?
    -Simpler and lower cost?

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