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PM needs to deal with credibility problem
The West Australian Picture: Michael Wilson / The West Australian.

Julia Gillard doesn’t seem to grasp that she is the one with a credibility problem over the carbon tax.

The Prime Minister spent a fair bit of her time in Perth this week telling us that Tony Abbott wouldn’t be as good as his “pledge in blood” to scrap the tax.

Someone who broke her word over the carbon tax now wants us to believe her when she says that another political leader can’t be believed on the same promise: “There will be no carbon tax under a government that I lead.”

There must be a word for that. Audacity? Gall?

Sure enough, the Opposition Leader Mr Abbott has had his problems with “the gospel truth” — and maybe we need to get this pledge written down — but he will have much more to gain by living up to his promise than Ms Gillard had to lose by breaking hers.

For a start, he will have the support of about 70 per cent of the Australian public. And he won’t have to drop his pants for the Greens to form a government.

Mr Abbott faces difficulties in getting his rescinding legislation through the Parliament, where the Greens will almost certainly maintain the balance of power after the next half-Senate election.

And that may take a further double-dissolution election to correct, which would come with the added benefit of getting the Greens out of the way of other important legislation.

But the argument Ms Gillard has most regularly advanced on the rescission issue is that doing away with the carbon tax means Mr Abbott would have to claw back the generous tax breaks she has showered on most Australians as part of the income distribution scheme that masquerades as carbon pollution reduction.

To neutralise that line, Mr Abbott has promised to keep the tax cuts while arguing that people won’t need them — and the handouts — if they are not paying the higher prices the carbon tax imposes.

If Ms Gillard can rely on the Australian Consumer and Competition Commission to stop prices being pushed up by the tax, surely Mr Abbott can rely on it to ensure they fall once it is dead and buried.

But her argument about how Mr Abbott would fund the cuts without the carbon tax revenue opens up a gaping hole in the Gillard Government’s scheme.
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Within three years, the $23-a-tonne carbon tax is due to morph into an emissions trading scheme which has a floor price set under the legislation at $15.

At the moment, that floor price is well above the international price on carbon. The Government is negotiating with various interested groups amid speculation that it will be lower when the ETS begins to allow Australian carbon credits to be traded internationally.

And here’s the rub for the Government. At $15 a tonne, the ETS raises about a third less revenue than the tax at $23 a tonne — less than half if it reflected the current international price of around $9.80.

If the estimates of the carbon tax raising $30 billion in the period up to the ETS are right, this revenue would be cut by around $10 billion with the scheme operating at a floor price of $15 a tonne.

But that original $30 billion funds the industry compensation, the domestic tax cuts and handouts and the Clean Energy Finance Corporation.

So if it begins to operate on much lower revenues, something has to give. Either there are cuts to the funded programs and compensation handouts – or another source of revenue has to be found.

I raised this proposition with Ms Gillard on radio yesterday. From her highly defensive reaction it was obvious that she had not been put on the spot over this glaring issue before.

At first she waffled and said it was all covered in the Budget papers, which isn’t true because no one knows what the international carbon price will be in three years — or the floor price, given the current negotiations.

The Prime Minister finally fessed up about where the extra money would come from: “It will be supported by the Government’s Budget.

“You will see the Government’s Budget before you go and vote next year, every figure checked by Treasury, study it at your leisure.”

In other words, taxpayers would pick up any shortfall in revenues when carbon pricing moves from a fixed price to a floating one.

The carbon tax is a weird concept because if it works, it puts itself out of business. But taxpayers could end up subsidising an internationally impotent ETS that fails to cut emissions, but just works as a money-go-round.