Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Treasurer's Economic Note
A few months ago, I spent a long weekend in Cairns where I spoke to dozens of tourist operators, small business owners and local residents. It was a pretty vivid reminder of the direct connection between the economy and the environment. Hundreds of thousands of people visit the Great Barrier Reef each year, generating more than $5 billion for the economy and employing tens of thousands of people in the tourism industry. But the wonders of the Reef and the jobs and other economic benefits it brings to our nation are at risk for our children, our grandchildren and the generations to come. Rising ocean temperatures and ocean acidity have led to up to nine bleaching events of large sections of the Reef in the past three decades. These had never been recorded previously.
The Science is Clear
The world is warming and high levels of carbon pollution are a risk to not only our environment, but also to our economy. A conversation I had five years ago with British economist Nicholas Stern helped convince me of this fact. As shadow treasurer, drawing up alternative economic policies, I went to the UK where I met with Professor Stern who was about to hand his ground-breaking climate change report to the UK Government. The evidence was clear to me then – and it is clear to me now – that we have a narrow window of opportunity to act, and that the costs of doing nothing far outweigh the costs of building the low-pollution economy of tomorrow. Delaying action will only lead to higher eventual costs for households, businesses and industries. It's not a choice between the economy and the environment, between jobs and carbon pollution. In fact, it's becoming increasingly clear that in the years to come, no first-rate economy can be anything other than a clean-energy economy. The failure to act is the real risk to Australian industries and Australian jobs.
The Way Forward
The comprehensive plan announced by the Government today to move to a clean-energy future will:
- substantially cut pollution;
- unleash innovation and investment worth billions of dollars in renewable energy;
- transform our energy sector away from high-polluting sources like brown coal; and
- store millions of tonnes of carbon through better land and waste management.
Central to this plan is putting a price on carbon pollution. This is a fundamental economic reform that will help maintain our living standards and future competitiveness as the world moves to tackle climate change. It will drive structural change in the economy, moving production towards less emission-intensive industries.
Help for Households
The carbon price will apply to around 500 of Australia's largest polluters. They will need a permit for every tonne of carbon pollution they produce and the cost of that permit is the carbon price. Some businesses will pass on the carbon price, leading to modest rises in prices. Many prices, particularly food, will hardly be affected. The average grocery bill for a household will go up about 80 cents a week. And as we've said, the carbon price will not directly apply to the price of fuel that households pay at the petrol pump. The average electricity bill will rise by about $3.30 a week, and average gas bill by around $1.50 a week. In 2012-13, this is expected to increase the cost of living by 0.7 per cent. To put that in perspective, that's less than a third of the effect on prices that the introduction of the GST and related changes to the tax system had. And it's less than a quarter of the effect of the average annual inflation rate over the past decade. So price rises due to putting a price on carbon pollution will be modest. And on top of that, the Government will ensure those Australians that need help the most will get the assistance they need.
On average, households will see cost increases of $9.90 per week, while the average assistance will be $10.10 per week. Almost 6 million households will be assisted to meet their entire average price impact. Over 4 million households will be better off with a buffer of at least 20 per cent over their average price impact. Households that improve their energy efficiency – like turning off appliances at the wall or switching from incandescent to fluorescent light bulbs – can pocket the additional assistance they receive. In doing so, they're able to do their bit to help the environment and also their family budget. Because households that do use less energy will still get to keep all of their tax cuts and payment increases, the carbon price will still provide them with a financial incentive to do their bit for the environment.
Tax Cuts with Tax Reform
Household assistance will be delivered through increases in pensions, allowances and family payments, and also through personal income tax cuts. What's particularly pleasing is that these tax cuts continue the Government's strong record of tax reform. The changes will deliver a simpler, more transparent personal tax system, as identified in last year's tax review. From 1 July 2012, every taxpayer earning up to $80,000 a year will receive a tax cut, with most getting at least $300 annually. A second round of tax cuts will apply from 1 July 2015, increasing this annual saving for most taxpayers earning below $80,000 a year to at least $380. These reforms will increase the tax‑free threshold from $6,000 to $18,200 from 1 July 2012, and to $19,400 from 1 July 2015. Significantly, they will free over 1 million Australians from having to lodge a tax return. Regular wage earners with incomes below the new tax-free threshold will not have any tax withheld from their wages by employers, which will mean higher take-home pay and better incentives to work. The changes will particularly benefit part‑time workers and workers on low incomes, ensuring that they pay less tax.
Strong Growth, Low Pollution
The extensive modelling released today shows Australia's economy will continue to grow strongly at the same time as we cut carbon pollution. Average income per person under a carbon price is forecast to rise by about 16 per cent by 2020 to be around $9,000 higher in today's dollars. By 2050, the increase is expected to be more than $30,000 in today's dollars, and employment is projected to increase by 1.6 million jobs by the end of the decade. The modelling also shows that pricing pollution will have a small effect on the economy compared with other structural changes that are already underway, such as the pressures of mining boom mark II and the ageing of the population. What's important to remember when looking at the modelling is that it only looks at the impacts of taking action. It doesn't measure the benefits of tackling climate change such as avoiding irreversible damage to key parts of our environment, like the Murray Darling food-bowl, which would have massive economic consequences for our country.
A Critical Reform
So all the details are finally out there. While it would be a good thing for our country if the scare campaigns and exaggerated claims came to an end, I'm not holding my breath. There are plenty of well-funded, vested interests out there trying to prevent this important reform. I'd encourage you to take a good look at the facts rather than rely on some of the distorted commentary you're likely to hear or read in the weeks and months ahead. All the documents detailing the Government's policy for a clean-energy future are up on the web for you to read. The science tells us that we need to address dangerous climate change, and the economics shows clearly that a carbon price is the most effective way to act. This is a critical reform for our economy, for our environment and for our country. A price on carbon is the next step forward on Australia's economic reform road.
Deputy Prime Minister and Treasurer of Australia
Sunday 10 July 2011