In breaking news, the Prime Minister Kevin Rudd has announced the reintroduction of the death penalty and the abolition of the GST.
Just kidding. OK, start again: Prime Minister Kevin Rudd has announced the abolition of the carbon tax and a ban on boat-bound reffos. Please come by plane or attend a citizenship ceremony in Papua New Guinea. Job done; next subject.
The plan, such as it is, is to hold the string together and try stop these things unraveling until after the election. They certainly will unravel, it’s just a question of when.
Australian politics has become rather like the movie called “Seeking a Friend for the End of the World”, starring Steve Carrell, in which an asteroid is due to wipe out all life on earth in three weeks time. Once that is confirmed and announced, everyone does and says whatever they like: nothing matters any more. After the election… I mean asteroid… everyone is dead, so in the meantime anything goes.
Sending all boat people to PNG to start their new life will turn into a hopeless debacle when the existing citizens of that country either riot sufficiently to force their Government to renege on the deal, or make life more miserable for asylum seekers than it is in Afghanistan, Sri Lanka or Iran, and journalists with cameras travel to PNG to poke around.
Also, boats will no doubt start making the quicker and safer voyage across Torres Strait instead of the Indian Ocean.
The emissions trading scheme, as elegant as it is, won’t work. As Grant King pointed out in my interview on Inside Business yesterday, if the price of carbon emissions is $6 a tonne, as it is in Europe now, then all new base-load power generation will be coal-fired.
Even at $20 a tonne, he says, coal is more economic than other non-polluting fuels. The carbon price needs to be $40 a tonne to make a difference.
The basic problem is that for a “market mechanism” to actually reduce greenhouse gas emissions, the cost of existing fossil fuel based power needs to rise. Any market requires a price.
This is fine as long as both sides of politics go along with it. As soon as the Coalition switched to promising to do the same thing with no price – even though it was patently untrue, as the price would just shift to taxes instead – the politics of it became both simple and difficult: cost or no cost.
Meanwhile the $3.8 billion in compensation to families for the now non-existent burden of the carbon tax will be retained, because families should be compensated for all non-existent burdens, no matter how small. And as Climate Spectator editor, Tristan Edis has pointed out, household electricity consumption has already fallen by an amount that fully offsets the effect of the carbon price.
To pay for the removal of this twice-over non-existent burden on families, the fringe benefits tax regime on cars will be changed to remove the fringe benefit. This saves $1.8 billion over the forward estimates (four years).
Cars are truly a magic pudding for Treasury. On May 10th, 2011, the then Treasurer, Wayne Swan, introduced the current car FBT regime, saying it would save $953.9 million over the forward estimates.
He said then that the sliding scale of car fringe benefit calculation would henceforth be replaced by simply taking one-fifth of the cost of the car as the tax, regardless of distance travelled, which would increase the tax concession for vehicles driven less than 15,000km, maintain it for those travelling between 15,000km and 25,000km, and decrease it for those traveling more than 25,000km.
So introducing a flat rate of FBT and then removing it again has improved the budget bottom line by a total of $2,753.9 million over the forward estimates, or $688.5 million a year, in a matter of 26 months. Obviously it should be changed more often, which would wipe out the budget deficit entirely.
Seriously, the flat rate calculation introduced in 2011 meant that anyone who didn’t buy a car through the company was an idiot. As you would expect, the non-idiot portion of the population has been growing steadily, along with the share price of salary packing firm, Macmillan Shakespeare. One in three cars bought are now salary packaged (or rather, were) and the non-idiot population would probably have risen towards 100 per cent over time.
Whether income tax can be avoided by getting your employer to take out a novated lease on your car is now an election issue. The ALP says that only business use should be tax deductible; the Coalition is in favour of the Wayne Swan method of tax avoidance. If you just go out and buy a car, and claim business use on your tax return, says Tony Abbott, then more fool you.
My colleague Robert Gottliebsen suggests making the Wayne Swan rules apply only to locally made cars, which has a certain appeal. The Australian automotive industry would thus become a tax avoidance industry instead of a government supplicant industry.
How about this for another suggestion: compensation for the carbon tax be removed at the same time as the thing being compensated for, and make it so that all tax deductions are legitimate business expenses. This would improve the budget bottom line by at least $5.6 billion. Job done, next subject.