Combine clever politics, economics and simple practicality

Comments on Dennis Shanahan “Experts undermine government's climate policy”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/experts-undermine-governments-climate-policy/story-e6frgd0x-1226027668840

The government should adopt an easy yet effective strategy on the carbon tax, but that strategy is not what Garnaut has recommended to use the carbon tax for tax reform.

Rather, the government should return the carbon tax revenue to the residents on an equal per capita basis.

Such a strategy would make it clear that the carbon tax is purely a carbon pricing mechanism, because the government would not grab the revenue from taxpayers as it is revenue neutral, as well as it is based on the user pay principle - if you buy more carbon products you have to pay for them, but it is your money and you can decide on what to spend.

It will also have the feature of not to disadvantage the poor and needy, because they are highly likely to get more money from such a simple distribution of the carbon tax revenue than they actually spend on carbon products, without actually purporting it as income redistribution!

While Garnaut's linking of tax reforms with such a carbon tax attempts to make it easier politically to sell the carbon tax, what it will actually do is to make the carbon tax more difficult to sell by introducing more uncertainties to the minds of most people due to the inherent complexity of any tax reforms and income redistribution.

The level of the tax could be based on what Garnaut recommended with a simple formula, but reviewed periodically, say every 2-3 years, to ensure it achieves Australia’s international obligation on emissions reduction.

If combined also with a simple trade neutral measure, such a carbon tax will be the best way to reduce emissions reduction in Australia.

And the public would embrace it without too much difficulty.

That would be really clever politics and economics too.