Labor and the Greens on the Carbon Tax debate

First, compensation should take the form of direct payments for low and middle income groups, and increases in welfare – including the Aged Pension, Disability Support Pension, Austudy and Newstart. Income tax cuts, by comparison, are a clumsy instrument which would compensate high income groups who do not need the assistance.

Second: Compensation should exclude the top 30%-35% income demographic to provide sufficient scope to increase welfare and significantly improve the final financial position of low and middle income groups and individuals.

Third: In this context - by returning all such revenue gained via a carbon tax taxpayers in the form of cash payments to low and middle income groups, including welfare recipients, Labor could actually expand and consolidate its electoral support base. This could very effectively undercut Abbott’s appeal to ‘battlers’ on ‘cost-of-living’ issues.

Fourth: A carbon tax rate at what Labor considers ‘the upper end’ of the scale (including the Garnaut proposal) could actually provide greater scope to assist low and middle income groups via compensation and effective redistribution. Hence it makes electoral sense in shoring up Labor’s support base.

Fifth:  The only real problem in this scheme of things is that of what happens when the transition to a lower-emissions economy is actually achieved.  The problem being that at this point carbon tax or ETS revenue may 'dry up'.  For the long term, therefore, an alternative funding mechanism will be necessary to compensate low and middle income groups.  Hopefully, though, innovation in the renewable energy sector will also drive down cost structures.  Solar Paint, developed in Australia, looks particularly promising.

As for right-wing commentators such as Miranda Devine who seem to think distributive justice measures via tax comprise some malign ‘social engineering’: do they suppose the same is true in the case of most tax 'reforms' – including the gradual ‘flattening’ of income tax – which historically have redistributed wealth from low and middle income groups to the wealthy? The double-standards are palpable.

This leaves us with the concerns of Bob Brown and the Greens more broadly that emphasis on Company Tax cuts will leave crucial areas of the welfare state and social wage under-funded and exposed. While Labor cannot be seen to be simply ‘dancing to the Greens’ tune’, minority government necessarily involves compromise. And indeed, given their significant electoral support base, the positions of the Greens ought be considered seriously regardless.

As already alluded to – early implementation of a carbon tax could provide ‘breathing room’ for further debate and further reform before the next election.

In 2009 ‘Lateral Economics’ informed the Henry Tax review that ‘axing’ dividend imputation could save the Federal government $20 billion a year.

Dividend imputation is meant to stop so-called ‘double taxation’ of profits: providing credits to shareholders to maintain the full value of dividends. This was supposed to provide an incentive for investment. But the reform – first implemented under Keating Labor – provided a windfall for the most wealthy Australians, with a massive cost to the budget bottom line, and less money for crucial social programs and infrastructure.

Without fully removing the measure, shifting to half dividend imputation – as once suggested by progressive economist John Quiggin - would be a substantial equity measure, and provide over $10 billion/year much of which could be directed to crucial social programs in aged care, mental health and education, and for social housing and infrastructure.

Such reform would mainly hit millionaires who own so much invested wealth in this country: but small investors may resent the change as well. The benefit from social investment would need to be clear before the next Federal election. And using some of the money to further improve the Aged Pension could be a smart move in the context of ‘winning over’ small investors.

Furthermore: to maintain investment in the Australian economy in that context, some of the money could be diverted to a public pension fund. (to be invested locally) Not only could this support ongoing job creation: it could also sustain the Aged Pension in the context of an ageing population.

A compromise between the Greens, independents and Labor – with early implementation of a Carbon Tax, and a trade-off for half-dividend imputation in return for agreement on Company Tax – could be in the interests of Labor’s core constituency. Appealing to the material interests of most voters, it would also consolidate Labor’s electoral support base, while being well in keeping with Labor ideals.