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Gillard's carbon blinkers will hurt business
Alan Kohler, KGB Gillard
Published 8:14 AM, 23 Jun 2011 Last update 11:07 AM, 25 Jun 2011
The KGB interview with Prime Minister Julia Gillard provided as clear a demonstration as anyone needs why her government is unpopular with Australia’s business class, and just about everybody else: all of her political capital, such as it is, is being spent on a carbon tax.
She acknowledged that, in her words, many parts of the non-mining economy are doing it tough, but the only two specific business reforms the PM was able to mention were putting a price on carbon and the $3 billion skills package in the last budget.
The first of those may be necessary but in the short term it’s only going to make life more difficult for businesses, not improve employment and investment, and there is a big lag before the increased training and apprenticeship places, and reforms to vocational education and training schemes actually take effect.
As we pointed out to the prime minister, the non-mining parts of the Australian economy are quite weak at the moment, as the Reserve Bank acknowledged this week. Retail trade has averaged 2.5 per cent growth since the beginning of last year when it normally grows at an average rate of 6 per cent and according to recent data, non-mining investment is actually contracting at the rate of 22 per cent.
We told her that three of us met with a banker recently who came away from a series of meetings with 15 companies over the past few weeks convinced that the rest of the country, apart from the resources sector, is in recession.
The prime minister said she calls this the "patchwork economy": "I certainly do understand that there are industries doing it tough and there are parts of the country doing it tough and the challenge is our economy is in this major period of transition with the resources boom, with the transitions we’re seeing from west to east in global economic weight."
But when asked what reforms the government is implementing to help firms deal with this transition, the prime minister nominated pricing carbon, the skills package, and the reform agenda in infrastructure, including the NBN.
The plan to price carbon is only producing uncertainty and fear at this stage, while the reforms to infrastructure, skills and telecommunications are all very long-term in their effect.
In the meantime, Australian businesses are facing higher interest rates, a higher exchange rate raising the prices of their exports, weak domestic demand and unions that are beginning to throw their weight around.
When asked whether the government is ensuring that the new Fair Work industrial relations system is actually delivering improvements in productivity, the PM said no special measurements were being taken.
The main purpose of the Fair Work Act, of course, was to not be Work Choices, but the question remains whether it is doing anything to turn around the decline in productivity.
As for the centrepiece of this government – the carbon tax – businesses face a long period of uncertainty thanks to the tactical opposition to it from the Coalition, despite the fact that it theoretically proposes the same degree of carbon abatement.
Even when the details of the government’s plan are announced, business people can’t be sure of it until after the next election in 2013, and even then if Tony Abbott becomes prime minister, as seems likely at this stage, he won’t be able easily to repeal the carbon pricing scheme because the Greens will control the Senate.
This is the Labor Party’s fault. By going into the last election having suddenly dropped emissions trading from its policy and specifically ruling out a carbon tax, Julia Gillard is unable to claim a mandate for it.
The result is that Australian companies face years of uncertainty over one of the biggest and most difficult economic reforms in our history at a time of the greatest "transition" in our history caused by the terms of trade and resources investment boom.
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24 Comments
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Tim Bullen wrote:
Gillard's financial and economic skills are limited thus it's no surprise she has little affinity for what makes the business world tick (See Gillard’s carbon blinkers will harm business, June 23).
Burdening the Australian economy with a sizable new tax when many citizens are already under financial pressure makes no sense yet Labor pushes on. To paraphrase Forrest Gump, "stupid is a stupid does".
23 Jun 2011 8:44 AM
Grant Mason wrote:
Yes, agreed there is considerable opportunity cost in political capital and resources being spent on the carbon tax.
Interesting that you raise "productivity" in your article (See Gillard's carbon blinkers will hurt business, June 23). What then would be the productivity enhancement of the carbon tax? As the carbon tax will raise costs of inputs it will reduce productivity. So then should the carbon tax be considered in the same "reform" bucket as the floating of the Australian Dollar, as Gillard has done today?
Sometimes the term "economic reform" implies the spurring of overall business that likely includes reduction of costs. The NBN has productivity encouraging aspects. The carbon tax does not. Alan, please consider proper definition of "reform" and evaluate past Australian economic reforms through the productivity lens.
23 Jun 2011 9:00 AM
Mark Freakley wrote:
Alan, an emissions trading scheme wasn't dropped from the government's policy going into the election (See Gillard's carbon blinkers will hurt business, June 23).
Instead, it was trashed by an Opposition that reneged on its commitment to an ETS under Turnbull's leadership. The uncertainty is being caused by an Opposition that, as you put it, opposes for tactical reasons. Governing in a democracy depends on people of goodwill acting for reasons that transcend mere winning for victory's sake.
Just compare Australia with how things get done in China, under a command economy, and you could be forgiven for thinking that democracy is our problem. It isn't, the problem is a political process that is being hollowed-out by the primacy of self-interest, negativity and petty-mindedness.
One final point, the easy path is always to blame governments for the woes of business. So, with regards to the productivity problem, how about turning your sights away from government for once and recognise that it isn't first and foremost a problem for business to solve. Of course, turning around the slide in business productivity is unlikely to happen anytime soon particularly when it is such a busy participant in the blame-someone-else culture, aided and abetted by comments such as yours.
Alan, how about asking the hard questions about business rather than sinking the comfortable slipper into government? For instance, why is it that big businesses in Western Australia can have a $23 billion blow-out in the cost of projects without any hard questions being asked about the competencies of those responsible? Government get crucified when their projects run over budget by orders of magnitude far less than what we see among resource companies. But the blowtorch is hardly ever applied to the bellies of those in business.
23 Jun 2011 10:25 AM
Roger Knight wrote:
This prime minister has a 'lack of action' level and 'financial knowledge/understanding' level, very similar to that of Germany's Angela Merkel, who is just about to cause a huge and at the same time an ignominious European financial collapse through similar inaction and lack of political guts and decision making (See Gillard's carbon blinkers will hurt business, June 23).
So what will the outcome be here?
Well, we already we have an unnecessary government debt level caused by an out of touch Treasurer and Prime Minister in naive panic which now leaves the country sitting in a lumpy sea of quite considerable and significant debt with no oars or rudder. Nothing much if anything of substance to show for it and certainly nothing that might induce sustained productivity of any kind.
The treasurer and Gillard are looking to China for the oars and rudder according to what they themselves keep spruiking.
What happens if China actually does stop spending money, as is predicted by the most astute and regionally aware of economists and not least KGB's own superb commentary? China's leaders are not bound by the constraints of needing to pander to the electorate and fear of being unelected. China can simply stop buying whenever it desires and for how long it decides.
The people's complaints in China are as substantial as the wind and you can not grasp the wind as we all were taught from birth. The forces that are in China are a force unto themselves.
23 Jun 2011 11:05 AM
Bernard Walsh wrote:
Alan, you said "The plan to price carbon is only producing uncertainty and fear at this stage" (See Gillard's carbon blinkers will hurt business, June 23). And who is responsible for that uncertainty and fear? Perhaps Mr "Great Big New Tax" Abbott, and his promises to repeal and carbon pricing legislation should he win government?
Any rational assessment of climate science paints a picture that action is needed, urgently, to reduce carbon emissions. It may already be too late to avoid hundreds of billions of dollars of losses due to sea level rise alone. Agricultural productivity is expected to drop by 20-30 per cent over the next few decades, due to increasingly erratic rainfall. Do we expect governments to do nothing about a problem, just because we don't expect it to have large effects in the next election/budget/profit-reporting cycle?
23 Jun 2011 11:35 AM
Mark Knight wrote:
Alan, why do you say "The first of those (a price on carbon) may be necessary" when the more apt comment would be "the first of those may be necessary provided it does not do irremediable harm to the Australian economy, provided Australia's trading competitors do likewise, and provided that there is a legitimate goal that can be accurately described and measured"? (See Gillard's carbon blinkers will hurt business, June 23.)
23 Jun 2011 12:00 PM
Danny White wrote:
The carbon tax may well increase burden on business, just as the GST did (See Gillard's carbon blinkers will hurt business, June 23).
However it is not in place yet, and the patchwork economy is the result of a reallocation of resources to where they are being demanded, and that has been occurring over the last 12 months or so.
My understanding is that this is classical economic theory in action. Now people who resent government interference seem to want the government "to do something".
It gets very confusing following these prognostications, the government it seems is like Homer Simpson's beer, the cause and solution to all life's problems.
23 Jun 2011 12:53 PM
Michael James wrote:
The key issue is not a carbon tax, or some form of productivity boost, or any other policy the Government may have in their minds to implement. (See Gillard’s damaging carbon blinkers, June 23).
The key issue is that the Government cannot sell anything to this electorate in the current climate.
The public has switched off, meaning that they will fail to get buy in from key support groups, who can't be bothered supporting an initiative that the Government themselves cannot sell to voters.
This Government are such inept salespeople, including the Spruiker in Chief, that they couldn't sell cold beer in Darwin in the middle of summer.
Hence little of anything of policy substance will occur in the life of this Parliament.
23 Jun 2011 1:11 PM
Graham Plowman wrote:
The key point is that Gillard doesn't have a mandate for a carbon tax. She went to the last election stating 'there will be no carbon tax under a government I lead' as did Swan 'no, it's just hysterical scaremongering by the opposition' (See Gillard's carbon blinkers will hurt business, June 23).
Gillard achieved government on a platform of NO carbon tax. She is now trying to do the exact opposite. She lied to the electorate.
And to those who say Howard lied over GST, no he didn't. He did change his mind, but he made GST the subject of an election. People had an opportunity to vote on it and he was elected on a GST platform. No-one has had an opportunity to vote on what must be the most significant economic and structural change since Federation.
There is only one way to resolve this arguement and that is to have an election. Any politician who is activively standing in the way of democracy by voting against a plebiscite or election should be named and shamed.
23 Jun 2011 2:04 PM
Matt Kelso wrote:
Let's face it, reform has never easy for any government (See Gillard's carbon blinkers will hurt business, June 23). Just look at the GST reforms, as a small business person I hated doing the quarterly reporting, but we got over it. But with any government worth there salt, there is a need to have courage of their convictions and longer-term vision, it is all to easy to do nothing.
The Gillard government should be commended, if climate change is real I believe most think it is. Now we can no longer take the risk, of not taking strong action.
I would prefer to put my trust in a vast majority of scientists , and it is critical we do something soon, as a matter of some urgency, than to believe an opposition party whose only real believe is short-term opportunism on this issue. Business needs an indicator on carbon to induce change in their thinking. Prof. Garnaut is right, please let's move forward together.
23 Jun 2011 2:14 PM
Grant Mason wrote:
Alan, there has not been any focus on what has "changed" over the past year for Gillard to move from opposing the carbon tax to supporting the tax. (See Gillard’s damaging carbon blinkers, June 23).
Circumstances have changed, yet the argument may be that these changes support the case for delaying rather than enacting: (1) New Chinese 5 year plan starting in 2011: no reductions in absolute CO2 levels - only reducing carbon intensity in "new" units of GDP , (2) Canada, Japan, and Russia saying they will not sign up to a new Kyoto after the current one expires, (3) US Congressional Elections in November 2010 going against the Democrats making any binding climate moves more remote, (4) revelations and acknowledgement that the Australian Carbon Tax will not do anything to lower global temperatures.
23 Jun 2011 2:17 PM
Ross Delaney wrote:
If we offshore all our industry by being early implementers of a global carbon tax we won't have the industrial capacity to build the warships to go and collect the taxes from the dissenting foreign regimes which in turn will be required to redistribute to all the little people with services industry jobs that live those optimally energy efficient existences in all those little environmentally sound high rise concrete boxes. (See Gillard’s damaging carbon blinkers, June 23).
If the US wants out of global carbon trading (like they already want out of EU territorial jurisdiction airline carbon taxes) who is going to coerce them or forcefully collect the dues?
And even if you think our few little warships would make a difference in imposing our will on the world don't count on the tax receipts being there during a commodity bust in order to subsidise Austal for all the lost ferry export competitiveness that now has its primary market switched from private foreign buyers to Australian military shipbuilding.
Stern and Garnault have a naive little redistribution plan. The last time we had one of those in the 19th century it led to all hell breaking loose.
23 Jun 2011 2:40 PM
Philip Bracks wrote:
I am personally appalled at the level of scare mongering going on with regard to the proposed carbon tax. (See Gillard’s damaging carbon blinkers, June 23). In Australia Tony Abbott must take responsibility for this. His spruiking has even silenced Mal;colm Turnbull, the only intelligent Liberal member of parliament.
If nothing else, I will be happy to see Australia phase out its polluting pracitces and replace them with clean industrial procedures for the sake of having clean air for my grandchildren. Now just let the government get on with it please.
23 Jun 2011 2:54 PM
Richard Negus wrote:
In response to Mark Freakley point of the KGB scrutinising the Gov't and letting business get away with $23 bn in cost over-runs....the issue is that Gov't are spending taxpayers money and should be publicly scrutinised (as the opposition do ), big business is answerable to its shareholders and it is the shareholders that scrutinise their directors. (See Gillard’s damaging carbon blinkers, June 23).
Alan and his crew are doing a great job in scrutinising the Gov't and I hope they keep it up
23 Jun 2011 3:07 PM
Shelagh Shackleton wrote:
If Julia Gillard kills the goose that lays the golden eggs ,i.e the Australian mining industry ,with her Carbon tax and E.T.S ,history will judge her harshly. (See Gillard’s damaging carbon blinkers, June 23). Rusal and Vale now believe that putting money into mines in Africa is less chancy than investing in Australia ,due to the fact that a Carbon tax and E.T.S ,are liable to bankrupt the sector.Of course Julia has the best of intentions.She wishes to redistribute Australia's wealth from the rich to the poor.Although these Robin Hood policies are politically popular ,economically they are disasterous.No doubt Julia is moved by compasion and pity ,for the refugees who flood into Australia in ever greater numbers.More and more rescources need to be spent on providing for these homeless, destitute wanders.They need free accomodation ,free schooling for the younger children ,places at university for the older children and free health-care.Further many refugees need to send money back to their country of origin,(on a monthly basis)in order to support extended family still living there.For this reason each adult refugee is entitled to $40 000 in welfare payments per year plus an initial settling in allowance of $80 000 per adult and$40 000 per child.This can only be provided by increasing the amount of taxes the Australian population pays.The Carbon tax and E.T.S are politically popular ways to increase the tax-take.Naturally therefore it is entirely logical that Julia would see them as a god-sent solution to the problem of providing for the refugees.Whilst I cannot argue that it is a tempting idea,it is nonetheless a dangerous one.The economy will be wrecked ,unemployment will rise ,G.D.P will fall.The tax-take will therefore drop ,whilst the welfare bill will continue to rise.Back to the drawing board you go Julia.
23 Jun 2011 3:08 PM
Phil Shivnen wrote:
Let's remove the politics of the AGW debate and look at what the left intends; tax the big polluters (hmmm OK) and redistribute the tax received. (See Gillard’s damaging carbon blinkers, June 23).
The elephant in the room is the redistribution of income and more importantly, no proactive moves to reduce 'carbon pollution' on earth.
The big polluters will oncharge the imposition.....but where are the realistic investments in a low carbon future ? Zip, zero, nuddah.
Really, ask yourself if you are that concerned? Concerned enough to forego some luxuries.
I'm afraid the elephant has an upset tummy and may let go on the government.
Is it a real action to lower pollution and find other ways to power industry, or is it just Garnaut's socialist ideals ?
If the ALP introduces the tax, incurs more costs to manage it and there is no significant move to lower real pollution, then I would consider Garnault and Gillard fraudulent.
If they can make significant headway in the next 2 years; great !
23 Jun 2011 3:46 PM
Doug Green wrote:
Is what Shekagh Shachleton writes correct? Refugees get $40,000 a year,$80,000 each adult, $40,000 each child plus free schooling for the young ones, free university for older ones and free accomodation. (See Gillard's carbon blinkers will hurt business, June 23).Please tell me where the next boat is, I want to claim to be a refugee like them. No wonder they keep on coming. And what a marvellous solution Labor has found; send 800 away (but keep on paying for them) and take 4000 back. Is this 4000 going to get the same deal as the others? What did we work, invest our money,and pay taxes for?
23 Jun 2011 4:20 PM
Philip Uebergang wrote:
Alan please stop referring to the carbon dioxide taxation policy as a 'reform' (See Gillard’s carbon blinkers will harm business, June 23). That word infers that there is an inherent economic problem that needs to be addressed. Clearly the carbon dioxide tax addresses no such thing.
24 Jun 2011 11:43 AM
Trevor Ridgway wrote:
A carbon tax, like death, is a great leveller! (See Gillard's carbon blinkers will hurt business, June 23.) Economically, with a carbon tax we will all be equal and in the same situation... equally broke! I can understand the concept and the desirability of equality but not being a socialist I fail to see the benefits of being equally broke, when with a little imagination we could create a better outcome, perhaps by being equally wealthy!?
Taxes disadvantage and destroy enterprise. They don't have any effect on the atmospheric composition in any way! If you want environmental improvement then the first rule is: generate enough money to be able to afford the luxury of it! A tax will only reduce our living standard and reduce our ability to protect and improve our environment.
Just look at any third world country and you will see that the first thing to suffer is the local environment. So if you are genuinely serious about 'saving the environment' then say (and vote ) no to any further taxation. Don't be misled ! No CO2 molecules will be removed or 'not-produced' by imposition of taxation.
25 Jun 2011 2:33 AM
George Handley wrote:
Julia Gillard's National Curriculum is counter-productive to the skills package at a basic level. Even state Labor governments rejected it (See Gillard's carbon blinkers will hurt business, June 23).
25 Jun 2011 9:16 AM
Anton Porzig wrote:
The Greens/Gillard government who from July 1 will control both houses of parliament will have a carbobn tax introduced, no matter what business or Tony Abbott do (See Gillard's carbon blinkers will hurt business, June 23). Don't blame Abbott's opposition to the tax as a 'problem' as he is keeping his election promise to oppose it.
25 Jun 2011 12:01 PM
Rob Agius wrote:
My observation is that when the Labor Party talks about "reform" it mean one of two things – either something that you have hundreds of millions of dollars at mostly without scrutiny or it something to tax. The other point I wish to make is that when Gillard gets interviewed these days or makes a speech count how many times she says "I understand" (See Gillard's carbon blinkers will hurt business, June 23).
She does not and will never while she is anti small business and the aspirational upward moving voters who sole purpose in life is to give to their families. Why does she say such things? Well I remember an episode of two and a half men when the Charlie Sheen character explained it all. He said that all he knows is that when there is a problem he has to confront or a girl he wants to seduce all he has to say is "I understand" and it makes the person happy or very easily to seduce. Applying that use of the phrase to Gillard she is just being patronising or just doing what Charlie does to a gullible voter with out them knowing.
26 Jun 2011 7:31 AM
Peter Follett wrote:
These are familiar circumstances (See Gillard’s carbon blinkers will harm business, June 23).
Tony Abbott has represented the seat of Warringah since the 1994 by-election. After winning the 1996 Australian federal election John Howard slashed spending on Education, Health and Social Welfare blaming a budget deficit left by the previous government. When it was pointed out that he had promised not to cut spending on these areas as part of his election platform and that he had lied, he claimed that these were "non-core promises". Where was Abbott's outrage at Howard and his demand that Howard call a fresh election?
27 Jun 2011 1:49 AM
Alvin Stone wrote:
Australia's patchwork economy and the carbon tax are totally unrelated (See Gillard's carbon blinkers will hurt business, June 23). As regards the patchwork economy, I can't imagine how much worse the situation would have been if the ALP had not gone in hard during the global financial crisis. The failure of the super profits mining tax to go through in its original form was always going to contribute even further to a two-speed economy.
What we are seeing is the result of Australia becoming a quarry for others rather than developing value added industries seen in our declining manufacturing sector and lack of investment in new industries like the renewable industry. Australia has consistently remained blinkered when it comes to looking to the long term as seen by opposition to the NBN and the complete circus that has surrounded every high speed rail proposal in the past.
As far as the carbon tax goes, it makes much more sense to enter a price on carbon early on because the shock of a sudden change that will be demanded internationally in the future will have a much heavier impact on Australian business. What we know of the current form of the tax allows that impact to be gradual and factored in to the bottom line. The only issue here is the politically gamesmanship of the Coalition led by Abbott. Quite clearly Coalition policies are about gaining power and not what is good for the Australian economy. One look at the pamphlet carbon policy of the Opposition highlights that fact.
I often feel that some of the questions here around carbon policy actually relate to unspoken questions around the science and that this is just a further effort to muddy the message around a necessary response to climate change.
27 Jun 2011 10:09 AM
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