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Carbon tax and Sydney Uni economics, both slugs on the economy

Michael Harris,  Senior Fellow in the School of Economics at University of Sydney, has the impossible job of defending the monstrously ineffective carbon tax against the pointless-but-efficient “Direct Action” program. The carbon tax cost $15b, and cut emissions by 12 million tonnes. The Direct Action plan cost $660m, and is projected to save 47 million tonnes.

Having no numbers remotely on his side, Harris goes quantum semantic. Watch the leap. A tax is not a cost, only a transfer. That makes your tax bill so much easier to pay:

There is also a difference between costs to the economy, and transfers within it. The amount of revenue raised through any tax is not a cost; it is simply a transfer from one “pocket” to “another”. The money has not been destroyed, and it remains available to be spent on something.

Now it seems to me that if I buy a beer, it’s a transfer from one “pocket” to another pocket and if that money is destroyed in the process, that would be the end of the bottle shop. The world of economics rather depends on that money not being vaporised and being available for the shop owner to spend. Adam Smith and all.

But is the real problem just which pocket the money ends up in? It would seem that as long as it’s not given to the pocket that earned it, that’s OK.

It has distributional consequences, obviously, as the “pocket” where that money sits has changed, but total spending power within the economy remains undiminished. (Moreover, Australians received compensation via the tax system after the carbon tax was introduced.)

So why do we have private business at all? If the government owned the lot, nothing would cost anything. Everyone could buy everything, and be compensated for it! (All hail the USSA. Is this the best “economics” from Sydney Uni? “Experts” would be in control of everything… central planning is optimal, Comrade.)

By contrast, the cost of a tax is what the economy – not an individual person or business enterprise – has lost as a result of the existence of the tax. Lower labour supply, fewer goods and services produced – these are the things we would typically count when assessing the burden imposed on an economy from any tax instrument. Hunt hasn’t provided credible estimates of these kinds of impacts.

Do the numbers — $15 billion dollars was redirected away from where it would otherwise have gone in the free economy. Even Harris admits most businesses can’t reduce carbon emissions for less than $23/ton, so they couldn’t do anything “useful”, and most of that $15billion achieved nothing carbon-wise. It was just an extra cost. Somebody paid. Across the economy, thousands of businesses faced smaller margins or passed the costs on to consumers. Those who took smaller margins made less profit, or employed less people or invested less in upgrades. Those who passed on the costs, lost customers, lost sales to foreigners or just sold slightly less product. Either that or the customers who paid more had to make do with less  — no weekend in Noosa — and a job was destroyed somewhere else.

Have cake, eat cake, make bridge with cake

Magic pie economics:

First, ongoing revenue from the carbon tax can be used to fund, for example, public infrastructure investments, or to allow cuts to other more economically harmful taxes.

Takes a government-funded brain to come up with these arguments. More money taken from productive useful Australians is good. But if the government has to pay money to people who do things it says it wants, that’s bad…

The cost of payments under Direct Action, by contrast, have to be funded by taxes elsewhere, or borrowed funds

Progressive normal tax, “bad”; carbon tax “good”.

The cost of compensation

Pretend for a minute that somehow the government managed to “compensate” the economy — instead of doing something useful, thousands of Australians were calculating the money-go-round because all that money needed to be accounted for, redistributed, taxed and set free again. The productivity gain here is what? — That our weather was meant to get nicer, or someone in China was meant to invent a better solar panel.

The marvel is that this is Sydney Uni economics and The Conversation editors liked it.


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