The Carbon Tax debate has made the popularity of the Labor government sink to a new low. Australians fear that it will have a negative impact on the economy (jobs) and will reduce their income. Lower income earners are most concerned, because they fear that the tax will put the heaviest burden on them.
The principle of pollution taxes is just. The capacity of the earth to process pollution and waste is a limited natural resource, and every human being has a birthright to an equal share of this resource. For a long time we have been polluting and wasting far beyond this natural capacity, causing damage for which we will eventually pay an economic price. It is only fair that those who take more than their fair share (the biggest polluters) are penalised; while those that pollute less should be rewarded. In theory, this is a socially responsible scheme of resource distribution, because richer people generally pollute more than poorer people. For those who pollute no more and no less than their fair share, nothing changes. But this is only true if we take both sides in to account (the penalty as well as the reward).
We support a tax on carbon emissions, but only under the following two conditions:
1. The extra revenue collected by government must be fully used to reduce income taxes, in the first place taxes on the lowest incomes. The government's proposal should be clear on how the extra revenue will be spent, which is not the case. It should be proposing a tax shift , not a tax increase. This way we should not fear for general economic shrinkage, because the increase in tax on some activities will be compensated by an equal decrease in tax on other activities, making room for new opportunities. We also do not have to worry about any social damage, because the lowest incomes - who are the smallest polluters - will get net benefit out of this. It is a misconception that the government should invest revenue from pollution taxes directly in to green energy, If the carbon tax proposal was tied to an income tax reduction scheme, it would get much more support from the people. Investment in to green technology will follow automatically, if we give more incentives to innovation and less to destruction.
2. Along with a carbon tax shift, there should also be a land value tax shift, simultaneously. Carbon emissions are closely linked to the economics of land and location. Urban sprawl, caused by land speculation, increases car usage. Heavy taxes on labour and capital wipe out the local economy, and land monopoly gives way to giant corporations who decide what we must consume and distribute products over long distances. A land value tax will benefit the poor, the middle class and the small, local businesses, and will stimulate a more efficient use of natural resources. Without a land value tax, any improvement in the quality of our ecosystem will only raise land values and benefit land owners.
If these two guidelines were followed, tax reform could lead to exactly those incentives we need to improve green energy technologies and build a healthy, clean economy. That is a truly free market solution.