David R. Henderson  

Good News on Australia's Economic Policies

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The Australian Parliament voted yesterday to end the government's tax on carbon. The reporting in the link is pretty good except for this statement: "Australia on Thursday became the first country in the world to abolish a price on carbon." Of course, the government did no such: all fuels containing carbon are still priced. What was abolished was a tax on carbon.

Also yesterday, Australia's trade minister, Andrew Robb, rightly crowed about Australian government's reductions in tariffs over the years, but badly understated the drop. He stated:

We've seen over the last thirty years in Australia that tariffs are down on average 2.7 per cent across the economy.

But 2.7 percent is trivial. If a tariff had been a stiff 30% previously, for example, a 2.7% cut would be only a 0.81 percentage-point cut. Presumably Mr. Robb meant 2.7 percentage points rather than 2.7 percent.

But even that understates the cut, assuming that this study by University of Melbourne professor Peter Lloyd is accurate. Check Table 5 on page 66. Average tariff rates have fallen by many percentage points.

HT: Simon Lester of the Cato Institute.


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Steve J writes:

Is any tax cut good news or is there something about this particular tax cut that makes it good?

David R. Henderson writes:

@Steve J,
Is any tax cut good news?
Good question. Not necessarily, but almost certainly. If you, like me, want a very tiny government, you will want to cut almost all taxes a lot.
or is there something about this particular tax cut that makes it good?
It’s actually two sets of taxes. Taxes on trade, which is what tariffs are, are a bad idea. For the reasons why, I refer you to pretty much any economics textbook that discusses tariffs.
I’m guessing, though, that your question was about the carbon tax. If you read some of my posts on global warming or some of Robert P. Murphy’s Econlib articles on global warming, you’ll see why I think ending the carbon tax was a good idea.

Steve J writes:

Rather than debate global warming what are your thoughts on Pigovian taxes in general? Should we attempt to assign a social cost to products in addition to the market cost?

ThomasH writes:

I thought most libertarians recognized the need to tax negative externalities. You did not provide any information about why the specifics of the Australian tax introduced costs that would outweigh the benefits of making the person who causes a harm pay for it.

Yancey Ward writes:

ThomasH,

Demonstrate the net externalities of carbon. I realize that some are sure it is negative, but not a single person on the planet has actually shown this to be true.

MG writes:

Adding on to @Steve J's question on Pigovian taxes/social costs, I would also like you to comment on how would such taxes work when the social costs they seek to address could vary depending on where the consumption takes place. For example, in the case of Australia, its coal is mostly consumed by the Chinese. Should China be the one calculating the tax and levying it. (And even where the "sin" is Global Warming context, I suspect these costs are different -- and for others sins, a lot different.)

GS writes:

'Demonstrate the net externalities of carbon. I realize that some are sure it is negative, but not a single person on the planet has actually shown this to be true.'

In this day and age, with the scientific consensus as it stands, by saying that you are really are closing your eyes and shouting 'nah nah nah I'm not listening'. We don't know exactly what will happen but to deny there aren't significant atmospheric


I would say a slowly increasing carbon tax, that would likely have to be applied globally with international agreement and take 30-50 years to reach full tilt, then taken from income taxes so as to not increase the overall tax burden is the most sensible option I've ever come across for getting us to drastically reduce carbon emissions through the power of the market. I'd rather a carbon tax than most of an income tax.

The general libertarian cosying up to the vague hope it doesn't matter by buying junk science (there is a lot to be skeptical about in climate science, that's always specific problems with scpecific predictions, not the overall consensus) the impacts of anthropic global warming is the one aspect of modern libertarianism that is utterly immoral.

If you want to say I don't care, say that, but don't pretend it isn't an issue because the effects will not be immediate. There is only so much responsibility for the wider consequences of your actions you can legitimately abnegate


I don't want the world to radically change amd frankly so long as we adopt nuclear power (or thorium nuclear or eventually fusion or whatever) for large amounts of our low carbon power it doesn't have to.


http://nathan-lee.com/blog/wp-content/uploads/2010/01/whatIfGetABetterPlanetForNothing.jpg

Julie Novak writes:

There is also the possibility of Australia's federal mining rent resource tax also being abolished soon, as long as some of the minor parties in the federal parliament stick to their election commitment to ensure the tax is scrapped.

That said, there are significant new government expenditure pressures in sight. The Abbott government plans to introduce a fiscally exorbitant, tax-financed paid parental leave scheme, and there are other proposals, too, such as a federal subsidy regime for disability services. All of these, and other spending promises, will be very expensive, and will add to the structural budget deficit that is already a problem.

So, a minor celebration for abolition of CO2 tax, and possibly the mining tax soon, but fierce political resistance to reducing Australia's governmental expenditures. The battle over smaller government not conclusively won in liberalism's favour, as yet! More to do!

ThomasH writes:

I take it that Mr Ward does not object to a carbon tax per se, he merely differs on the estimate of the size of the externality that drives setting the rate. Estimating the size of the externality is mainly a scientific question to which libertarian principles have no particulate relevance.

But to understand Mr Henderson's glee, you have to assume that HE assumes that his readers assume that the accumulation of CO2 in the atmosphere is harmless.

Tom Davies writes:

On paper, the Abbot government is just as committed to reducing GHG emissions as the previous government.

David do you know that the Abbot government's climate change policy is something called 'direct action' -- buying emissions reductions, and penalising emitters who exceed their current 'baseline'?

Do you think this complicated policy is actually better than a simple carbon tax?

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