Professor
Ross Garnaut’s call to cut income taxes by $5.75 billion for low and middle
income earners is an indirect admission of the ghastly costs of Julia
Gillard’s destructive carbon tax. It is also an admission of Garnaut’s
commitment to the tax that should raise serious questions about his economic
competence.
He
wants what he calls a carbon price to be fixed at $20 to $40 a tonne, after
which there would be a compound increase of 4 per cent a year. (carbon tax or
carbon price: it is a distinction without a difference.) It is estimated that
a tax of $26 would bring in about $11.5 billion in 2012-13. Not only does the
tax raise more revenue for Labor politicians to feed on it also compensates
the victims while raising the level of productivity. And it is able to do all
of this even though, according to Garnaut, “the economic impact” will only be
“moderate”. The only thing it doesn’t do, apparently, is turn stone into
bread.
(What
baffles me is how a professor of economics can seriously claim that a
government can raise real wages for everyone, which is what rising
productivity does, while implementing polices that reduce the size of the
capital stock, which is what Garnaut’s precious carbon tax would do. Even
more baffling is the fact that no one else has point this out.)
But if
the impact of the tax is moderate why would it cause, as Professor willingly
Garnaut admits, a “large scale loss of livelihood as a result of” its
implementation? And how does a tax policy that has such severe economic and
social consequences create a situation where “middle income earners will be
better off directly as a result of these arrangements”? The answer is simple:
their forced sacrifice will save the planet for future generations. And I kid
you not.
Those
who support this economic insanity argue that tax cuts will cushion the
effects of the carbon tax while providing funds for the development of solar
energy and wind power. Now our Professor Garnout is something of a sly dog.
Although he doesn’t mention solar or wind in his update paper he does say that
he favours “short to medium term support for innovation in low-emissions
technologies”. This is code for subsidies for solar energy and wind power,
so-called alternatives he has praised elsewhere.
However,
the insurmountable natural and economic obstacles to these alternatives make
it impossible for them to replace centralised power stations. It’s true that
he has suggested gas as an alternative to coal, but if he were serious he
would never have recommended subsidies for the greens’ phony alternatives. My
suspicions were confirmed by Combet’s statement that “Professor Garnaut’s
paper supports” the Labour Government’s so-called “clean energy future”. One
should never lose sight of the fact that the greens’ intermediate objective
is the destruction of centralised power generation. This is why they oppose
not only coal and nuclear but also gas and hydro. The green alternatives are
so grossly inefficient that a so-called “clean energy future” would result in
famine prices for energy. Unfortunately, both Gillard and Combet are too
stupid to see it.
Many
defenders of the tax appear fixated on compensation as a solution to its
costs. They are deluded and Garnaut’s tax cut proposal is only feeding their
delusion. While recognising that the aim of the tax is to reduce the output
of Co2 (a nutrient and vital part of our existence that Professor Garnaut
deliberately libels as a pollutant) they fail to see that revenue from the
tax must eventually fall. This means that other taxes would have to rise if a
revenue neutral regime was to be maintained.
In
fact, the revenue neutral policy would have to be dropped in favour of
increased government spending because the demand for social services would
explode as the destructive effects of the tax made themselves felt throughout
the economy. Expecting tax cuts or subsidies to compensate for an energy
shortage created by closing down power plants makes as much sense as arguing
that subsidies can cure a famine caused by the destruction of agriculture. In
other words, if the means to produce the energy have been destroyed no amount
of tax cuts can make them magically reappear.
Focusing
on money costs is the approach of an accountant. The real costs are
opportunity costs, the loss of capital and output — not to mention the
draconian drop in the standard of living — that a carbon tax would cause if
allowed to go unchecked*.
Yet critics of the tax persist on drawing attention only to the alleged
dollar costs of the tax. That an accountant would do this is to be expected:
that an economist does it is unforgivable. The result may very well be that
Garnaut and Gillard will be able to persuade enough people that subsidies and
tax cuts will save them from rising energy costs.
The
real costs (opportunity costs) are literally incalculable. According to the
greens the effective way of slashing Co2 is to shut down our coal-fired power
stations. And they are right, something that Garnaut fully understands. It
goes without saying that this policy would literally shut down the economy as
well. But as Bob Brown admits, a “steady state economy”
is central to green thinking. In such an economy there would be no room for
an industrial society or a resources sector for according to Brown pulp
mills, zinc mills, aluminium smelters, mining, logging etc., are all
“dinosaur industries”. Any sensible person would immediately recognise that
closing down these energy intensive industries would kill Australian
manufacturing.
Julia
Gillard is so dense that she really believes that those “welders and steel
workers” whose high-paying jobs she intends to destroy will find better
positions in the building and maintenance of “large-scale solar power
plants.” That power stations are built not to maximise jobs but to generate
electricity at the lowest possible cost is apparently far too simple for her
to grasp. The Spaniards implemented the same policies with disastrous
economic consequences for their country. First and foremost, what raises real
wages for everyone is capital, the material
means of production. The less capital per worker the lower
real wages will be. (The number of firms has absolutely nothing to do with
it.)
It
follows that any policy that raises the labour-capital ratio is a recipe for
falling productivity and hence lower real wages. And that is exactly what
Gillard’s and Combet’s alternative energy policies will do. All those wind
mills and solar plants that she dreams about are not real capital, as anyone
with a sound knowledge of capital theory would know, but malinvestments,
dissipated savings wasted at the expense of future living standards. In plain
English, rather than being net additions to the capital stock all those solar
complexes and wind farms would in fact be net losses. Her views on “retro-fitting
existing buildings” and “hot water systems and solar panels” are equally
absurd.
The sad
fact remains that Gillard, Combet, Garnaut and Brown are still being allowed
to get away with murder.
*Only by applying Austrian capital theory to the carbon
tax can we discern its truly disastrous effects. I should add that my own
analysis assumes that Gillard and Combet are genuinely serious about slashing
Co2 emissions.
