--Clyde Russell is a Reuters columnist. The views expressed are
By Clyde Russell
LAUNCESTON, Australia, July 21 Australian
lawmakers have voted to dump a tax that was arguably working and
keep one that is demonstrably failing in yet another example of
petty politics trumping sensible policy.
The conservative government of Prime Minister Tony Abbott
finally managed last week to pass legislation through both
houses of parliament that ended the carbon tax and the floating
emissions scheme it was to morph into from July 2015.
However, his ruling Liberal Party failed to convince enough
senators to scrap the Mineral Resource Rent Tax (MRRT), which
taxes the so-called super profits of major iron ore and coal
Getting rid of both taxes was the centrepiece of Abbott's
successful election campaign last year, which saw him defeat the
Labor Party, which had introduced both imposts during its six
years in government.
The problem for Abbott is that while he has a comfortable
majority in the lower House of Representatives, he doesn't
control the upper house Senate and has to negotiate with minor
parties and independents, assuming the main opposition Labor and
Greens oppose his legislation.
This situation has resulted in maverick mining billionaire
Clive Palmer, who sits in the lower house, and three senators
from his eponymous Palmer United Party, largely being able to
determine which pieces of government legislation are approved.
Palmer initially blocked the repeal of the carbon tax,
holding out for guarantees that the savings would be passed on
He was also instrumental in the failure of legislation to
end the MRRT, deciding that he would only support the bill if
the welfare payments that were supposed to be funded by the tax
were kept and not scrapped as well.
This decision showed the inconsistent nature of Palmer,
given that he had previously indicated that he supported ending
the MRRT, which wasn't surprising given his money is largely
made from mining.
But he is also trying to be something of a populist
conservative, and the scrapping of welfare measures, such as a
schoolkids bonus, didn't suit his attempts to court wider
What Australia has ended up with, for the time being at
least, is the demise of a tax that worked and the retention of
one that didn't.
The carbon tax would have raised around A$8 billion ($7.5
billion) in the current 2014-15 fiscal year, revenue that is now
lost to the Treasury.
However, the MRRT has proved a revenue disaster, falling
hopelessly short of the A$22.5 billion it was expected to raise
over four years when it was introduced in 2011.
It brought in about A$200 million in the 2012-13 tax year,
and the pre-election budget update in August last year estimated
it would raise A$6 billion over the next four years.
However, even this lower amount seems optimistic, given the
tax is only triggered when miners are making strong profits,
something not currently happening and given the outlook for
lower coal and iron ore prices, something unlikely to happen any
The government now faces the situation where it is
collecting a tax where the compliance costs almost outweigh the
revenue raised, while it still has to fork out an estimated net
A$13 billion through 2017-18 in welfare payments that were
supposed to be covered by the MRRT.
It's possible that the MRRT will be scrapped as the
government is likely to continue to try and convince Palmer's
and other senators to back its plans.
However, it also seems likely that the government will have
to compromise on the associated welfare payments, denting its
hopes to return the federal budget to surplus.
OVERLY OPTIMISTIC GLOBAL HOPES
In a further blow to Abbott's efforts to re-balance the
government's budget after six years of Labor deficits, the
scrapping of the carbon tax wasn't accompanied by the end of
some of the associated bureaucratic entities, such as the Clean
Energy Finance Corp and the Climate Change Authority.
But more than the hit to revenue from ending the carbon tax
was the fact that it appeared to be working insofar as
Australia's emissions declined 2 percent in the year to June
2013 compared to the year to March 2013.
However, the argument from the Abbott government was that
the tax was still a failure as the modest reduction in emissions
came at too high a price, with retail electricity costs rising
80 percent over the past five years, a factor in Australia's
loss of international competitiveness.
There is also the signal sent by Australia's decision to
scrap its carbon tax and the eventual move to emissions trading.
While some commentary has said the decision makes it harder
for a global emissions system to develop, it's possible that the
Australian move merely highlights that hopes for a coordinated
worldwide scheme to lower carbon pollution were overly
What Australia has shown is that domestic politics is likely
to trump global concerns about climate change caused by the
burning of fossil fuels.
(Editing by Muralikumar Anantharaman)