Garnaut paints Abbott plan into corner

Ross Garnaut may be primarily an economist but yesterday he proved he's rather adept at that other inexact science, politics.

If Julia Gillard adopts the design Professor Garnaut put forward for household compensation from the proceeds of the carbon tax, it will leave most people wondering what all the fuss has been about.

That's because while the cost of living will rise by just over one per cent, the great majority of households will be better off - or at least no worse off - than without a carbon tax.

Though this will not stop Tony Abbott warning of doom and gloom - just like the Labor Party did when John Howard proposed the GST - the over-compensation of many households will give the Gillard Government significant political cover.

The idea behind pricing carbon is not to smash household budgets with higher prices but to embed an economic motivation inside the activities of the nation's biggest polluters to reduce emissions.

Assuring mums and dads they will not be hurt will see the Government more than halfway to selling a reform which is terribly difficult to explain, let alone sell.

It is very likely the Government will adopt a strategy similar to the one proposed by Professor Garnaut.

This means that, assuming Labor wins the support of the Greens and gets the carbon tax passed, Mr Abbott will be presented with a conundrum.

Going to the next election promising to dump the carbon tax will also require him to dump the tax cuts and welfare increases that are funded out of the revenue.

The alternative - keeping the $6 billion-a-year tax cuts and welfare changes - would be prohibitively expensive.

Some in the Opposition are already figuring the carbon tax will be legislated this year and are privately wondering how the coalition can reposition itself elegantly.

They know too that without a majority in the Senate, the carbon tax cannot be brought unstuck any time soon, regardless of whether the Opposition wins the next election, due in late 2013.

And if the carbon tax ends up being largely unnoticed by households when implemented, as Professor Garnaut thinks possible, the Opposition would be on a hiding to nothing to even contemplate abolishing it.