Three things emerged from qanda last night.
The first was that Malcolm Turnbull is out of control, and thinks he can undermine Tony Abbott at will. So there’s some fun in store.
The other two are closely related. One is that, whatever Bill Shorten learned in his MBA at the Melbourne Business School, it didn’t equip him with basic economic intuition. The other is that, despite the lessons of Rudd’s failed greenhouse legislation, the Government still hasn’t has figured out how to explain the concept of carbon pricing to the electorate.
An audience member had the inspired idea of posing the John Hewson question: What will the carbon tax do to the price of a birthday cake?
Shorten’s answer, to paraphrase only slightly, was: waffle, waffle waffle; waffle waffle, waffle. It might have been that he wanted to avoid a truthful answer, but one couldn’t rule out the possibility that, like Hewson, he simply couldn’t figure it out on the spot.
Turnbull couldn’t resist coming to his aid, pointing out that the price would go up. That’s what taxes on productive inputs do, after all. An easy point for Turnbull (if not for the Abbott cause).
However, what matters is the impact of the tax not on nominal prices, but on relative prices, real income, and behaviour.
Shorten managed to find a second opportunity to try and answer the question. This time he succeeded in mentioning compensation, which goes to the real income issue. But instead of explaining the principle in a systematic fashion, he got himself into a knot babbling about how the package was going to be ‘calibrated’. This created an opening for Piers Ackerman to interrupt and spray his tear gas around the room, and destroy any remaining hope that the basic logic would be laid out for us.
Ackerman demanded to know whether a cost-benefit analysis had been done, ‘inasmuch as the carbon tax isn’t going to reduce the temperature of the planet by any degrees whatsoever’. Had he chosen to, Turnbull could easily have pointed out: that, by Ackerman’s premise, there wouldn’t be any benefit at all; that mitigating climate change is indeed the intended benefit of the tax (provided other countries impose one as well); and that this benefit is enormous but impossible to quantify. However, Turnbull had done enough carbon-price advocacy by this stage, and was content to enjoy the free pass from Ackeman, reminding everyone that this is a government that doesn’t bother to do cost-benefit analysis for anything. More points for Turnbull.
Here’s an answer that Shorten might have given:
In money terms the cake will be dearer. But the revenue will be refunded to you via an income tax cut, so your disposable income in money terms will increase too. What matters is the purchasing power of your income. Will your take-home pay buy more cakes than before, or less? It depends on the cake. If you buy cakes produced by energy-efficient and clean-energy technologies, you will be better off than before, because you won’t be paying for much carbon. If you buy cakes produced by energy-intensive and fossil fuel technologies, you’ll be worse off because you’ll be buying more carbon. This is a scheme that rewards planet-friendly choices just as much as it penalises harmful choices.
It takes about 34 seconds to say that. If people don’t understand it the first time they’ll get it eventually.
There are qualifications. Yes, depending on whether our trading partners implement something similar, the tax could handicap exporters and import-competing firms if the scheme is designed badly. Yes, a tax on carbon emissions could reduce average real incomes by a little, with the magnitude depending on the degree of substitutabilty in consumption and in production technologies. But the cost in terms of forgone production and income ihas been repeatedly estimated to be only a small fraction of one percent of GDP; and at the same time, those substitutabilities will increase over time due to technological innovation spurred by the relative profitability of energy-efficient and clean-energy techniques. And no, we can’t promise that unilateral action by tiny Australia will make any difference to global warming. But progress is being made.
All of these qualifications can be explained as well — maybe even in a one-minute TV propoganda piece. And I suppose it will be, eventually, barring a dissolution of Parliament in the next few months. But if an Assistant Treasurer — supposedly a risng star and future leader — can’t seem to grasp the basic idea, let alone articulate it convincingly on a panel program where long-windedness is tolerated, well, that’s a worry. What is it with this government and explaining things?