Happy Financial New Year 2012-13!
A lot of new legislation came into operation on 1 July 2012, and it will be interesting to see how it all washes out at the end of the year. If you are a wage earner paid weekly or fortnightly, you might already have noticed a slight change in your take-home pay as a result of the increase of the tax-free threshold to $18,200 and slight changes in some of the tax brackets.
Impact of a Carbon Price on the Australian Economy
The UNE School of Business, Economics and Public Policy released a paper last year, The Impact of a Carbon Tax on the Australian Economy: Results from a CGE Model (Siriwardana, Meng & McNeill), using a model different from the Commonwealth Treasury's to predict the impacts of a carbon pricing scheme on the Australian economy.
What they found by using their model, which includes details of tax policies, energy uses and emissions, was that in the short run:
- Australia's real GDP may decline by 0.68%
- Consumer prices may rise by 0.75%
- Average household prices may rise by $13.18 per week, with electricity comprising $6.64 of this rise (as opposed to Treasury modelling of $9.90 rise, with electricity comprising $3.30 of this rise)
- The price of electricity may increase by about 26%, but that
- Energy consumption may decline 2.65%, and
- Australia may stand to make a substantial cut in its CO2 emissions; perhaps a 12% reduction in its first year of operation
The main macroeconomic effects of a $23/tonne price on carbon in Australia using their model are summarised below:
Variable | Percentage change |
Consumer Price Index (CPI) | 0.75 |
Price of electricity | 26.10 |
Nominal wage rate | 0.75 |
Real wage rate | 0.00 |
Real exchange rate | -0.75 |
Price of exports | 0.32 |
Price of imports | 0.00 |
Terms of trade | 0.32 |
Gross Domestic Product (GDP) | -0.68 |
Real household consumption | -0.14 |
Volume of exports | -3.00 |
Volume of imports | 0.11 |
BOT contribution to GDP (real) | -0.56 |
Aggregate employment | -0.98 |
The authors conclude that their calculations show an environmentally valuable reduction of CO2 emissions through a carbon pricing scheme is achievable without major disruptions to the economy. What they call attention to, however, is the impact on low-income households. What remains to be done is to incorporate that effect of compensations to low-income households into their model.
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