Carbon vote installs another policy pillar

NOW we know: the sky will fall in on the economy in July when the carbon tax takes effect. Or not. The Senate's passing of the legislation yesterday was predictably greeted as ruinous by the Coalition. In July, Opposition Leader Tony Abbott declared that "such political future as I have got rests entirely on beating this tax, so that's the whole purpose of what's left of my political life". Life just got more difficult: he must deal with its actual effect, as opposed to wild claims, long before the next election is due.

As with the national broadband project, which Mr Abbott also vowed to destroy, Julia Gillard is advancing her policy agenda despite leading a minority government. The mining tax is before Parliament and likely to pass, too. And as Kim "Rollback" Beazley learnt, once a policy is up and working, as the GST was by 2001, scare tactics are less effective.

Record investment is at odds with dire warnings about the impacts of the carbon and mining taxes. The Deloitte Access Economics Investment Monitor reports the value of definite projects jumped by 51.3 per cent to $406.8 billion in the year to September. Possible projects rose 31.8 per cent to $256.9 billion. From 2004 to 2010, gross mining profits rose 246 per cent. If salaries grew as fast, teachers to take a topical example would earn an average of $187,000, not $73,000. Of course, they would pay proportionately more tax. Miners have not.

When companies and investors do their sums, the taxes add a "very small" cost, as Treasury secretary Martin Parkinson said in Senate estimates last month. The investment difficulty now is Mr Abbott's "blood pledge" to scrap carbon pricing without offering compensation for the credits companies buy. That would be a legal minefield and revives the uncertainty that stalled investment in power generation, for instance, and drove up prices. Many critics of the carbon tax still doubt climate change, when even leading US sceptic Richard Muller recently concluded: "Global warming is real." His two-year data review was funded by interests that hoped to disprove the climate science. Instead, the work confirmed it.

The government's new taxes enable it to fund income and business tax cuts, pension increases and a rise in compulsory super to 12 per cent. The Coalition would scrap the taxes but claims it can deliver Labor's tax cuts and superannuation rises and fund a costly "direct action" emissions program. This is a sorry sort of magic pudding budgeting from the Coalition, which took pride in being fiscally responsible when in office.

The government at least aspires to take a long view of development. High-speed broadband is an investment in a digital world where speed and interconnection are huge competitive advantages. The mining tax taps into an unprecedented resources boom to invest in diversified development so the economy still prospers when booms end or resources dwindle. The carbon tax looks ahead to the times and technologies that come after fossil fuels. The compensatory near-tripling of the tax-free threshold also eliminates effective marginal tax rates that stop low-income earners from meeting the demand for labour. An ageing population and proportionally smaller workforce justify lifting superannuation rates to contain pension costs.

It was the Coalition's Peter Costello who, as treasurer, first highlighted demographic pressures on future budgets. And it was prime minister John Howard who, before the 2007 election, committed to carbon pricing and trading regardless of what Australia's competitors did. As he said: "Being among the first movers on carbon trading in this region will bring new opportunities and we intend to grasp them." Julia Gillard has seized the baton of change. Tony Abbott has succeeded as Opposition Leader by opposing her at every turn. But with Labor's main policy pillars taking shape barely a year after the election, the Coalition's policy foundations are badly in need of renovation.