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Tuesday, 20 September 2011
Page: 10763

Mr FLETCHER (Bradfield) (11:32): I am pleased to rise to speak on the Clean Energy Bill 2011 and the enormous package of related bills. These are bills that break a promise to the Australian people by imposing a fixed price tax on carbon starting at $23 per tonne starting from 1 July 2012 and rising at 2.5 per cent per annum in real terms. I want to make three key points in relation to these bills. First, they constitute bad faith and bad process. Second, Australia should not be acting in advance of world agreement and that Labor has committed Australia to a poor bargaining position. Third, this is a poorly designed tax and its internal logic is deeply flawed.

Let me turn first to the question of bad faith and bad process. This government has no mandate to bring these bills before the parliament. A change of this magnitude is being imposed without any support having been secured from the Australian people in a general election. That would be troubling enough. But in fact the Prime Minister went to the last election with an explicit commitment that her government would not make this change. We all recall her infamous statement, 'There will be no carbon tax under a government that I lead.' The 2010 election was decided by a very close margin. One might with some confidence have predicted a different result if the Prime Minister had been frank about her government's intention to introduce a carbon tax if elected. Given that this policy was not presented to the people of Australia at the last election, these reforms should not be implemented until a mandate is obtained from the Australian people in either a general election or through a plebiscite.

Labor's position on this issue has moved all over the shop. Who could forget Prime Minister's extraordinary proposal to convene a citizens assembly to consider the pricing of carbon? And who could forget that during the election campaign the Prime Minister spoke of the need to develop 'deep and lasting' community consensus on climate change? Is it really possible that our Prime Minister stated deep and lasting community consensus was a requirement when you see the position that this government is now adopting, seeking to ram through one of the most significant structural changes to Australia's taxation and public policy regime in our history without any community consensus, let alone a deep and lasting one? This is a result of an illegitimate and fragile consensus of a collection of Independents joined with the government.

Let me turn to the second point that I wish to make. Australia should not be acting in the manner in which the Labor government proposes to commit us to act because to do so involves us adopting a very bad bargaining position. The internal logic for the approach that Labor is following makes no sense. Let us start with the proposition that, if it is to be worthwhile, a carbon tax must be about more than just reducing emissions in Australia. The policy objective is a global one: to stabilise and reduce the total worldwide emissions of greenhouse gases. In 2008, around 30,000 million tonnes of carbon dioxide were emitted due to human activity. If the carbon tax achieves its intended result in Australia, it will reduce emissions by 160 million tonnes—a drop in the ocean compared to the global task. Therefore, the only basis on which the carbon tax could make sense is if it were an effective strategy for encouraging global action. Australia is at a bargaining table with nearly 200 other parties and each party faces conflicting incentives. On the one hand, the internal logic of the carbon tax is that each party would benefit from a global reduction in emissions and, consequently, a reduction in the risk of dangerous warming—so runs the internal logic of the policy which is put to us. But, on the other hand, each country faces economic and other costs in acting to reduce emissions at home. Therefore, if a country chooses to incur these costs, it is taking a risk that it might incur them yet secure no benefit because other countries do not keep their side of the deal.

Madam Deputy Speaker Livermore, as you would be aware, this is a well-known type of problem in economics and business strategy and there is a whole body of thinking, game theory, about the right strategies to be used in dealing with these kinds of problems. The classic problem is called the prisoner's dilemma. What we have in this case with climate change is what theorists would call an n-person multiround prisoner's dilemma. As an individual country considers whether or not to incur the costs of reducing carbon emissions in its own economy, it faces a choice. In the jargon of game theory, it can cooperate—that is to say, it can take action to reduce emissions and incur the costs of doing so; or, again to use the jargon, it can defect—in other words, fail to take such action.

The critical point I want to make is that game theory offers some clear lessons for countries approaching this bargaining table. Firstly, it is both pointless and dangerous to unilaterally choose the option which delivers the outcome which is considered optimal overall. You face a substantial risk that other players will defect, in turn leaving you worse off. I would submit that this is precisely what the Labor Party is doing by seeking to impose a tax in Australia, regardless of what the rest of the world does. Secondly, if you are going to cooperate towards achieving what you determine to be the best overall objective, you need to find a way to strike an enforceable bargain.

A key finding of game theory is that in a multiround game you can use your choices to communicate and enforce such a bargain. The standard advice is to cooperate in the first round and keep cooperating in subsequent rounds if the other player does the same. But, if the other player does not cooperate in a given round, the rational course of action is to respond in the next round by defecting yourself. This logic—the logic of considering carefully how we approach a global bargaining table so as to secure the best outcome, having regard to the individual incentives of the players at the table—is the logic that underlines or is consistent with the approach of the coalition's direct action plan. Under our plan, Australia will take action to reduce carbon emissions at significant economic cost—in fact, $3.2 billion of on-budget expenditure over four years.

Under this plan, we will reduce carbon emissions in 2020 to the same target as Labor has adopted—the five per cent reduction on the year 2000 or approximately 530 million tonnes. As the member for Goldstein has recently pointed out, at that point we can then determine the way forward. He had this to say:

If there is still no global agreement by 2020 Australia will have remained competitive while reducing emissions by five per cent; avoided tens-of-billions-of-tax, yet still be in a good position to assess the way forward from there.

I would argue that our policy can be thought of as pursuing a rational strategy in a multiround game—to cooperate if others cooperate but not to bind ourselves unilaterally to acting unless we can be satisfied that others are also so acting. Some, of course, say we should act regardless of what the rest of the world does, and that essentially is the strategy underpinning the Labor Party's and the Greens' carbon tax. The insights of game theory suggest it is a poor strategy and a naive way to approach the global bargaining table.

Let me turn to my third point. The tax that the House is considering this morning is a badly designed one, even by reference to the principles laid down by the so-called Multi-Party Climate Change Committee. Indeed, it is a bad tax by an even more fundamental criterion—the basic tax policy criterion of certainty. We still do not know which companies are going to pay the tax. Which are the 500 companies that will be legally liable to pay this tax? All we keep hearing is the continued rhetoric of 'the 500 biggest polluters'. On a very basic level, certainty in tax policy is an absolute requirement, and this government has failed to provide that certainty.

Let me now refer to the 11 principles which supposedly guided the Multi-Party Climate Change Committee, including economic efficiency, budget neutrality, the competitiveness of Australian industries, energy security and investment security. This package fails to achieve many of these principles. Let us consider investment certainty, for example. The caps to apply after 2015 have not been set but will be set in the future not by legislation but by regulation. There is no certainty as to what ultimately will be Australia's emissions reduction target for 2020 if the five per cent level is changed and there is uncertainty about the level of the carbon price once the fixed price phase ends. The level of uncertainty which this in turn creates for business will negatively impact on business decisions and investment and will harm the economy and growth to the detriment of all Australians. We were also told that one of the guiding principles was budget neutrality. That principle is also being violated by the tax which is embodied in the package of legislation the House of Representatives is considering today. The policy scheme will result in a deficit exceeding $3 billion over the forward estimates period. What of the criterion of international competitiveness? On this front there is the critical issue of which sectors qualify as trade exposed. The Minerals Council in its submission made the point that only 60 per cent of Australian firms are classified as trade exposed. Those which are not so classified face very significant adverse consequences for their international competitiveness. We are also told that one of the principles which applied in designing this scheme was energy security. Once again this package manifestly fails to live up to that principle. There is some $5.5 billion in compensation to be paid, but almost all of that will go to private-sector generators in Victoria and South Australia and almost none will go to the publicly owned generators in New South Wales, Queensland and Western Australia. This inconsistency of treatment is unfair to the owners of generators in New South Wales, Queensland and Western Australia and would be unfair to them regardless of their ownership. Because, as it happens, they are government owned, it is also unfair to the taxpayers who are their underlying owners and it is, in turn, unfair to their customers, who are likely to be subject to higher electricity prices.

Let me conclude with a fundamental and overarching criticism of the policy design in this scheme—yet another of the inherent logical inconsistencies in what the House is considering. The underlying theory behind a carbon pricing mechanism, such as the one contained in this package of bills, is to increase the relative price of carbon-intensive goods and services—that is, a carbon tax is meant, as we are told frequently, to unleash the price signal by increasing the price of goods with a high proportion of carbon relative to goods with a lower proportion of carbon. In this context it is very puzzling that the Prime Minister has threatened businesses with fines from the Australian Competition and Consumer Commission should they increase prices in response to higher cost inputs due to the carbon tax and has stated that an increase of more than 0.7 of a per cent would be gouging. This undermines the fundamental objective of the scheme: if the tax is meant to provide a price signal then prices should surely be permitted to increase to at least cover the increase in input costs that the product incurs as a result of the carbon tax.

This is a package of bills that should never have been brought before this parliament. A specific promise that there would be no carbon tax was given by the current Prime Minister during the 2010 election campaign. That is to say the fixed price component of this scheme would not be introduced. So this is a policy for which there is no mandate. As I have sought to argue this morning, in addition to that fundamental problem there are some very serious internal logical inconsistencies in this scheme.