Carbon Tax

[eastwest101]

While I don't support the Carbon tax, apparently the rationale is it will force businesses to change their practices as the incentive to change to clean energy will trump the incentive to pass on the cost to consumers.

I'm not an economist (rather an accountant and lawyer to be!) but I have frequent debates with my mates who are. They never seem to be able to articulate why businesses will not pass on the cost. Heh.

Oh it will force businesses to change their practices alright - as predicted by me on April 14 in this very thread - why are Qantas looking at maybe basing more aircraft and crew in Asia as per the AJ "restructure of QFi announced this week? In particular China joint ventures/alliances/outsourcing or code-shares. Working in multiple juristictions is an excellent form of risk management/mitigation for airlines. As it is for other trade exposed industries.

Consider that maybe along with the state of the world economy, and fuel prices - what are all the other major risks for the airline industry? National and state governments - thats who. The chairman of Rex said as much this week.

 

[drron]

Which you'd expect given it's also the federal government who will be compensating mr and mrs general public.



It will lower carbon usage.

Who wants to pay more when there are cheaper alternatives available, and even when something costs more by itself. When the fuel prices spiked higher petrol usage fell and public transport increased, as just one straightforward example.

And exactly how?
All but the rich will be compensated for the extra cost.The rich are not as price sensitive.
Already Julia has said fuel prices will not rise.
But then she did say there will be no carbon tax.
Also what evidence is there for an increase in public transport usage?
Problem is we have very limited public transport in a big part of Australia.

 

[dfcatch]

Which you'd expect given it's also the federal government who will be compensating mr and mrs general public.



It will lower carbon usage.

Who wants to pay more when there are cheaper alternatives available, and even when something costs more by itself. When the fuel prices spiked higher petrol usage fell and public transport increased, as just one straightforward example.

1/ You assume people live and work in-line with public transport offerings. Public transport is useless unless it takes you from where you are to where you want to go. Oh - btw, trains and trams that run on electricity - boom - increased costs.

2/ Unless you don't purchase any manufactured goods, don't purchase any services from an organisation that uses electricity in their office, don't have electricity at home, don't travel anywhere, don't use or purchase commodities which have traveled from somewhere, don't purchase food or visit a shopping mall or supermarket etc etc etc etc - then yes you're right, you won't have to pay more. You can just live as a caveman out bush somewhere. Your personal carbon emissions have been removed from the planet.

Fact is that you would have to be a caveman to escape the increased costs of living that will result from a carbon tax.

It's a matter of record that I strongly oppose the tax - however - I'm more inclined to accept a legitimate debate about the best way to encourage innovation and technology to reduce emissions. Simply taxing everything that moves and most things that don't - won't make one iota of difference to the planet.

It may however stifle our economic ability to invest in new technology - which - paradoxically means the carbon tax may hurt emission reduction just as much as it "may" assist it.

 

[straitman]

Oh it will force businesses to change their practices alright - as predicted by me on April 14 in this very thread - why are Qantas looking at maybe basing more aircraft and crew in Asia as per the AJ "restructure of QFi announced this week? In particular China joint ventures/alliances/outsourcing or code-shares. Working in multiple juristictions is an excellent form of risk management/mitigation for airlines. As it is for other trade exposed industries.

Consider that maybe along with the state of the world economy, and fuel prices - what are all the other major risks for the airline industry? National and state governments - thats who. The chairman of Rex said as much this week.

We will have to agree to disagree on this.

Until the Gov't actually gives us more than a few whimsical ideas of what the carbon tax might involve we are all in the dark with this. Theory and fact are often very different.

 

[Alanslegal]

I'm not an economist (rather an accountant and lawyer to be!) but I have frequent debates with my mates who are. They never seem to be able to articulate why businesses will not pass on the cost. Heh.

Ok, let's put it this way, when the cost of X goes up some businesses put up their prices to cover the total increase in cost, then some businesses increase some and absorb some, and then other businesses absorb the entire increase cost. It is tooooooo simplistic and convenient (read this Mr. Tony Abbott) to just say that businesses will just pass it all ..... when in reality, there is three possible outcomes when the cost of X, Y or Z goes up.

Let's have an example, we have two competing businesses - let's call them Alpha and Betta - they are now faced with the same increased in cost .... if both increased their cost, then it makes no difference. (however if you're struggling single, couple and family on less than $150K p.a then you get tax assistance). Now if Alpha decided to increase their cost and the Betta didn't (through partial or total absorbtion of increased cost)... then Betta company has a price advantage and theoretically can increase goods/services sold. Ok, fast forward a bit more, and if the Alpha now realises it is losing sales because Betta is selling the same thing for less, then Alpha can quickly reduce their price ..... or they can make their good/service better than what it is (meaning possible r&d, increased cost, time inefficiencies etc) to differentiate that their goods/services is more superior than Betta's. Now assuming both companies have absorbed the cost (or at least some of it) ....... then those on less than $150K p.a now have a (part) tax benefit.

This is just one of the factors that is often forgotten, and it is way too easy to put the sceptic cap on because it takes is half a second to say "businesses will pass on the cost to consumers" ... when it already takes me a few minutes to type a reply.

 

[dfcatch]

Ok, let's put it this way, when the cost of X goes up some businesses put up their prices to cover the total increase in cost, then some businesses increase some and absorb some, and then other businesses absorb the entire increase cost. It is tooooooo simplistic and convenient (read this Mr. Tony Abbott) to just say that businesses will just pass it all ..... when in reality, there is three possible outcomes when the cost of X, Y or Z goes up.

Let's have an example, we have two competing businesses - let's call them Alpha and Betta - they are now faced with the same increased in cost .... if both increased their cost, then it makes no difference. (however if you're struggling single, couple and family on less than $150K p.a then you get tax assistance). Now if Alpha decided to increase their cost and the Betta didn't (through partial or total absorbtion of increased cost)... then Betta company has a price advantage and theoretically can increase goods/services sold. Ok, fast forward a bit more, and if the Alpha now realises it is losing sales because Betta is selling the same thing for less, then Alpha can quickly reduce their price ..... or they can make their good/service better than what it is (meaning possible r&d, increased cost, time inefficiencies etc) to differentiate that their goods/services is more superior than Betta's. Now assuming both companies have absorbed the cost (or at least some of it) ....... then those on less than $150K p.a now have a (part) tax benefit.

This is just one of the factors that is often forgotten, and it is way too easy to put the sceptic cap on because it takes is half a second to say "businesses will pass on the cost to consumers" ... when it already takes me a few minutes to type a reply.

Alan - what you forget in your very good explanation above, is that businesses will be hit by an increase in multiple business inputs. Some may even have all their business inputs subject to the tax.

You are absolutely right when it comes to a single input. But we are talking about multiples, and right across the spectrum of society.

It's also well and good for business A to absorb some cost increases, but that absorption comes at the expense of profits, which flows on to wage increases (or lack thereof), or even layoffs (or a hiring freeze).

All well and good to receive tax compensation, but doesn't help if you don't have a job.

Abbott may be running a big scare campaign, but in this instance, he is correct.

PS. I may stand corrected if the final version of the tax contains more exemptions than inclusions......(which might happen given the government's political pickle).
Either way - it won't help the planet one bit.

 

[drron]

And a business puts it's prices up.Aussies will be compensated or have enough money not to worry.Effect on emissions= nil.
though that business also exports-OS customers not compensated so switch suppliers.Effect=carbon emissions down in Australia,up somewhere else.Plus a company here out of business or downsized so less Aussie jobs.
If a carbon tax is to decrease CO2 emissions there must be a price signal-so there must be pain.You cant have one without the other.Or you cant have your cake and eat it too.The government spokesman are misleading when they say the carbon tax will decrease emissions and ordinary folk wont be worse off.

 

[cove]

Did I hear someone say Garnaut is a bit of a failed economist who has moved his focus to this subject. He is a failure on everything he has tampered with. He needs to be retired.

 

[eastwest101]

...example, we have two competing businesses - let's call them Alpha and Betta - they are now faced with the same increased in cost .... if both increased their cost, then it makes no difference. (however if you're struggling single, couple and family on less than $150K p.a then you get tax assistance). Now if Alpha decided to increase their cost and the Betta didn't (through partial or total absorbtion of increased cost)... then Betta company has a price advantage and theoretically can increase goods/services sold. Ok, fast forward a bit more, and if the Alpha now realises it is losing sales because Betta is selling the same thing for less, then Alpha can quickly reduce their price ..... or they can make their good/service better than what it is (meaning possible r&d, increased cost, time inefficiencies etc) to differentiate that their goods/services is more superior than Betta's. Now assuming both companies have absorbed the cost (or at least some of it)

Yes - I can see the point that you are trying to make - but now insert another competitor called Delta. Delta is a business that resides in another juristiction and they are not subject to the increase in costs that Alpha and Betta are. They provide their competing good or service that is not subject to the increased cost and can gain access to the market. Result - both Alpha and Betta both go out of business - despite Alpha's R&D and differentiation and Betta's moderate cost increases and all the employees of Alpha and Betta are on the dole queue, hence less incomes >$150K and more incomes <$30K, because Alpha and Beta are out of business - another company called Echo that manufactured parts or provided a service to Alpha and Betta has to cut its staff by say 20%. Repeat process ad-nauseum. We continually see economic modelling that fails to take into account (or are instructed to not take it into account) the interdependant, competitive and global nature of our modern economies.

Others posters also have a point about eating and having your cake at the same time. If everyone below $150K is compensated then where is the price signal? The income re-distribution puts a public servant and that cost at every stage of the redistribution and encourages tax evasion/minimization counter-measures by the targets of the increased cost (in this case people on incomes >$150K), until all the people at $150K or more find a way to relocate or adjust their incomes to less than $150K. Then the whole house of cards fall down - or compensation is wound back in the future to only help those on say $50K or less.

I don't know why its so hard for politicians to understand that with tax and revenue raising - if you tax 1% of a lot - then its still quite a lot, but if you tax 100% of nothing - its actually less then nothing because you are still spending money and resources to collect nothing!

 

[Kendall Roy]

Did I hear someone say Garnaut is a bit of a failed economist who has moved his focus to this subject. He is a failure on everything he has tampered with. He needs to be retired.

Just an ALP propaganda hack these days. In fact, probably apt that he's working with the ALP given they're a failure also!

I won't get started on Flannery.... wasn't he the bloke who said Brisbane would run out of water by 2007? :shock:

 

[Alanslegal]

Alan - what you forget in your very good explanation above, is that businesses will be hit by an increase in multiple business inputs. Some may even have all their business inputs subject to the tax.

You are absolutely right when it comes to a single input. But we are talking about multiples, and right across the spectrum of society.

Yes - I can see the point that you are trying to make - but now insert another competitor called Delta. Delta is a business that resides in another juristiction and they are not subject to the increase in costs that Alpha and Betta are. They provide their competing good or service that is not subject to the increased cost and can gain access to the market. Result - both Alpha and Betta both go out of business - despite Alpha's R&D and differentiation and Betta's moderate cost increases and all the employees of Alpha and Betta are on the dole queue, hence less incomes >$150K and more incomes <$30K, because Alpha and Beta are out of business - another company called Echo that manufactured parts or provided a service to Alpha and Betta has to cut its staff by say 20%. Repeat process ad-nauseum. We continually see economic modelling that fails to take into account (or are instructed to not take it into account) the interdependant, competitive and global nature of our modern economies.

Look guys, I can see where you are coming from and heading to, but my reply wasn't the be all and end all in terms of the answer to the carbon tax ... it was merely a simple example on how a business may or may not pass the cost to the consumer in response to the (imo mistaken) belief that a business will pass on the cost "regardless" because of an increase in an input. Just because something goes up, does not necessarily means that cost will be passed on and that's my sole point.

Besides I have stated a few times on this thread, why do both sides of politics still even bother with a carbon reduction policy when we as a nation produce literally nothing anyway! As far as we are concerned, we should just consume as much as we want, use as much as we want and not be worried because even if say we doubled our emission output .... it is still double of nothing.

 

[dfcatch]

Look guys, I can see where you are coming from and heading to, but my reply wasn't the be all and end all in terms of the answer to the carbon tax ... it was merely a simple example on how a business may or may not pass the cost to the consumer in response to the (imo mistaken) belief that a business will pass on the cost "regardless" because of an increase in an input. Just because something goes up, does not necessarily means that cost will be passed on and that's my sole point.

Besides I have stated a few times on this thread, why do both sides of politics still even bother with a carbon reduction policy when we as a nation produce literally nothing anyway! As far as we are concerned, we should just consume as much as we want, use as much as we want and not be worried because even if say we doubled our emission output .... it is still double of nothing.

Touché Alan

 

[eastwest101]

Look guys, I can see where you are coming from and heading to, but my reply wasn't the be all and end all in terms of the answer to the carbon tax ... it was merely a simple example on how a business may or may not pass the cost to the consumer in response to the (imo mistaken) belief that a business will pass on the cost "regardless" because of an increase in an input. Just because something goes up, does not necessarily means that cost will be passed on and that's my sole point.

Besides I have stated a few times on this thread....

I take your point Alanslegal - I think we could all agree that there may not be a be-all and end-all answer about the carbon dioxide tax! But if a business has an increase in business cost inputs then there seem two possibilities.

1. Competative environment = asymmetric cost increases, business now uncompetative so prices go down or stay static so business and bottom line take a hit to maintain market share and shareholders take the hit (eg: "price taking" commodity businesses)

or 2. Administrative or external increase in input costs that are inescapable for all competitors = solution may be change juristiction or otherwise all businesses (including your competitors) all put up their prices (eg: fuel levies, departure tax etc)

I think the point I was trying to make is that aviation is a partially de-regulated, capital intensive, price-taking business, but prone to political interference. But it is a worlwide one and I think thats where the interesting developments will be in the future, hence the "Qantasia" rumours....


If others are interested in the US airline's (and possibly the rest or the world) history of unprofitability - there is a really good article by Matthew Philips on the freakonomics web site here:

Freakonomics » Why Do Airlines Always Lose Money? Hint: It’s Not Due to Taxes or Fuel Costs

I don't agree with absolutely everything in there but its a very interesting read, and makes some good points.

 

[Alanslegal]

Touché Alan

；）（need ten characterssss）

 

[odysseus]

And a business puts it's prices up.

Maybe, maybe not as said above. Ultimately it's increasing the cost of a less desirable option, with the aim of substitution of more desirable options.

Aussies will be compensated or have enough money not to worry. Effect on emissions= nil.

Since when? Why would people make a fuss about an increase in costs if they don't care about an increase in costs?

Any time there's an increase in costs, people look for cheaper options. Even looking at a local example, for those who used to fly first class (the "enough money not to worry" camp), many still switched to business class, or still go for bargains, even with competing airlines when available.

As for the "compensated" camp, it's not a subsidy, but an adjustment on the income side. Just because someone pays you more allowance for something doesn't mean you won't care about the costs when they're not tied together. If you can cut back your costs by reducing or switching to an alternative you're better off. Everyone will reduce/switch (yes, I'm parodying the absolutism of your response.)

 

[dfcatch]

Maybe, maybe not as said above. Ultimately it's increasing the cost of a less desirable option, with the aim of substitution of more desirable options.



Since when? Why would people make a fuss about an increase in costs if they don't care about an increase in costs?

Any time there's an increase in costs, people look for cheaper options. Even looking at a local example, for those who used to fly first class (the "enough money not to worry" camp), many still switched to business class, or still go for bargains, even with competing airlines when available.

As for the "compensated" camp, it's not a subsidy, but an adjustment on the income side. Just because someone pays you more allowance for something doesn't mean you won't care about the costs when they're not tied together. If you can cut back your costs by reducing or switching to an alternative you're better off. Everyone will reduce/switch (yes, I'm parodying the absolutism of your response.)

I'm sorry.... What will I switch?
What alternative can I / will I choose?

My electricity will go up, regardless of which provider I choose.

My goods and services will go up, regardless of which business I choose.

Although I may be able to avoid it by flying non-Australian airlines, and buying goods over the Internet from overseas.

 

[drron]

Maybe, maybe not as said above. Ultimately it's increasing the cost of a less desirable option, with the aim of substitution of more desirable options.



Since when? Why would people make a fuss about an increase in costs if they don't care about an increase in costs?

Any time there's an increase in costs, people look for cheaper options. Even looking at a local example, for those who used to fly first class (the "enough money not to worry" camp), many still switched to business class, or still go for bargains, even with competing airlines when available.

As for the "compensated" camp, it's not a subsidy, but an adjustment on the income side. Just because someone pays you more allowance for something doesn't mean you won't care about the costs when they're not tied together. If you can cut back your costs by reducing or switching to an alternative you're better off. Everyone will reduce/switch (yes, I'm parodying the absolutism of your response.)

Seems you are misinterpreting my response.Though I probably should have put an if after the first and.
However I do know many people who will still fly F or J even with fare increases,or drive a Porsche,merc etc despite the price having risen markedly.
On top of that the fuel price only a few years ago was <$1 a litre,now~$1.40.i haven't noticed any lessening of cars on the road or even a decrease in the number of large 4WDs-particularly dropping off the kids at school.
You really do have to have a large price signal to be effective-anyone saying that ordinary australians wont be affected is at the very least being misleading.
But then I suppose you believe Julia wasn't being deliberately misleading when she said there will be no carbon tax.Just imagine the furore at that comment if it had been said by John Howard-and quite rightly.

 

[Sprucegoose]

not trying to domineer here but i work for a mining company that pays the airfares for myself and my collegues, question is do they get stung twice?

Probably, knowing the current and temporary government.

 

[ethernet]

One thing not being talked about is how the costs and imposts are calculated. Not sure if MAP will be in the top 50, but they sure have some 'options' not to be plucked with energy taxes.

Treasury has a 'model' and like any 'model' inputs and assumptions are loaded into it. Somebody should be questioning very much these fiddled inputs, because the project is stacked with 'true believers' who made damn sure state govt electricity/water hikes and other numbers were set around 'CPI'.

High Risk Assumptions
The Brown coal generators have modeled that at $80 ton they still unlikely to switch to gas. If Gas prices rise more, and a GFC Mk2 arrives and financing becomes difficult, $90-$100 ton will not make them shift. At these levels, jobs and the Australian economy, and disgruntled voters will send a clear message. If at 4 times the initial announcement price, failure is still imminent.

Alternatives
China is wheeling Thorium and cost effective nuclear reactors out. This means increased availability of the right sort of nuclear oxides. Radioisotope thermoelectric generator - Wikipedia, the free encyclopedia
As the Airports have been sold off and free of state interference, its going to make good financial sense to build Australia's first nuclear augmented heat-exchanger at Sydney Airport /MAP where the greenies will have no say in the matter.

 

[odysseus]

However I do know many people who will still fly F or J even with fare increases,or drive a Porsche,merc etc despite the price having risen markedly.
On top of that the fuel price only a few years ago was <$1 a litre,now~$1.40.i haven't noticed any lessening of cars on the road or even a decrease in the number of large 4WDs-particularly dropping off the kids at school.
You really do have to have a large price signal to be effective-anyone saying that ordinary australians wont be affected is at the very least being misleading.
But then I suppose you believe Julia wasn't being deliberately misleading when she said there will be no carbon tax.Just imagine the furore at that comment if it had been said by John Howard-and quite rightly.

There certainly are people who would continue to use as much as before for whatever reason. Nobody's expecting it to go from 100% to 0%. Like cigarettes, as prices go up, consumption falls, but it's not an immediate, total thing. The aim is to encourage alternatives, as well as reduction.

As for the price signal, there's a coughulative effect. A couple of rate rises and nobody's leaving the housing market. Another one though and people start screaming. In electricity itself, we've had a number of energy price increases driven by an increase in demand, air conditioners and tvs being a major energy hit (but it's not showing any signs of stopping anyone buying them). However, add an additional rise and people may start to think, just as they have with others.

Certainly with the fuel rises, the car sales stats both showed a significant fall in the higher gas guzzlers e.g. 4WDs, plus also a substantial increase in public transport usage. Those figures were mostly reversed when petrol fell back down in price.