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The Carbon Tax Proposed In Australia Economics Essay

Paper Type: Free Essay Subject: Economics
Wordcount: 2229 words Published: 1st Jan 2015

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Australia’s greenhouse gas emissions are comparably low. A carbon tax is an excise tax imposed on polluters for reducing carbon emissions from the earth. This is nothing but price on pollution. It was introduced by the Gillard Government on 1 July 2012.Initially the Australian government fixed at A$23, with unlimited permits being available from the Government for the 2012-2013 financial year. The fixed price will then hike 2.5% a year, until a transition to an emissions trading scheme in 2015-16.Australian carbon tax is uniquely costly. The government also has its plan to reduce Australia’s emissions to 5 percent below 2000 levels by 2020 as the voluntary target in the absence of a coherent international agreement on the level of carbon emission reduction. The tax is likely to have an economy wide impact affecting Australia’s GDP, trade and industrial structure.

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There are many different ways of encouraging the transmission from carbon intensive energy to alternative low emission energy uses. Australia has used the policy of subsidizing low emission energies and new technologies over the last five years. The programs included investing directly to improve wind and solar energy, in geothermal energy from hot dry rocks, in using biomass waste from sugar mills and to extract more hydropower through cloud seeding.

Financial year

Price* ($)







1 July 2015 onwards

set by market

The Government’s proposal triggered strong resistance from Opposition parties and various interest groups. They claim that it cause high unemployment, demise of coal and higher electricity prices. Certainly public opinion about carbon tax is divided. Amid pro and anti-Carbon rallies and demonstrations, a speculation about the effects of the proposed tax varies extensively.


Australia’s carbon pollution levels are very high and the economy is heavily dependent on emissions intensive energy sources. In fact production of carbon pollution individually in Australia is the highest among all developing countries. In such a way Australia is of the top 20 polluting countries in the world, as its carbon pollution put on 1.5 % of global emissions of greenhouse gases.

Against this act, the government of Australia has developed a comprehensive plan for a clean energy future. This plan is essential for the better future of the economy and environment which was believed by the government. The world is warming; a carbon problem from human activities creates serious risk. By reducing this pollution, these hazards can be avoided and minimized.



The government of Australia wants to reduce carbon pollution by implementing carbon with the hope that a price on carbon will create incentives to reduce pollution and invest in clean energy. The government official target is for 5 percent reduction in emissions below 2000 levels by the year 2020. Around 500 of the biggest polluters will be charged every tonnage they produce. Tax will covered around 60 % of Australia’s carbon pollution including stationary energy, business transport, industrial processes, electricity generation and fugitive emissions. The carbon price will be fixed like a tax for the first three years, before moving to an emissions trading scheme in 2015. Initially the carbon tax will be 23AUD per ton and will rise 2.5 percent per annum. From the 1st of July 2015, the carbon tax will be determined by the market. Household usage, Light vehicle commercial transport and off road use by the agriculture, fishing and forest industries are exempted from the carbon tax.

For the first three years of the flexible price period, price ceiling and price floor will be applied. The price ceiling will be set at 20AUD above the expected international price and will hike by 5 percent each year. The price floor will be charged at 15 AUD, hiked 4 percent per annum. AN estimated 71 AUD billion will be collected by the government of Australia in the first six and half years.


The carbon price will increase the cost of living. The government of Australia estimated that the increase of the cost for average household will be 9.90AUD per week. The overall impact on Consumer Price Index, in 2012-13, is expected to be around 0.7 percent because of carbon tax.

To minimize the effect of cost of living the government has declared the assistance package for the household purposes. The government decided to spend 50 percent of its revenue from carbon tax on household. According to the government estimates, average household will receive around 10.10AUD per week as assistance. Particularly low and bourgeois income household and pensioners have been targeted for this assistance. The government assured that nine out of ten household will receive some assistance.

The government also declared to cut income tax by increasing tax free threshold from current AUD 6000 to AUD 18,200 in 2012-13. The tax free will further hike up to 19,000AUD from 2015. The tax cut contingency is possible as the carbon tax will raise the revenue for the Australian government. Thus increase of pensions, allowance and benefits is also included in the government scheme.


The government will provide 9.2 billion AUD over the period to 2014-15 to assist the most emissions-intensive activities in the economies which are exposed to international competition. Hence this assistance is expected will support jobs and competitiveness is those sectors.

To improve energy efficiency in manufacturing industries and support research and development in low pollution technologies, an AUD 1.2 billion clean technology program will be undertaken. For metal forging, foundry industry and food processing AUD 200 million of Clean Technology Program will be allocated. From 2012-13 government will support small scale businesses their instant assets write off threshold will increase from 5000 AUD to 6000 AUD. As a result, the government expects that the capacity for small businesses to invest in new assets and energy efficient equipment will be increased.


People’s command over economic largely drives their economic wellbeing. Individuals must have some income and reserves of wealth to access too many of the goods and services consumed in everyday life. However, the distribution of income always remains an issue in political economy. Should a government redistribute income? If yes, to what extent? These are normative questions, and each person’s answer will depend on individual’s values. To make a fair judgment in answering these questions people must have a proper understanding about the existing income distribution in the country. The phrase “income distribution” is a statistical concept, and it arises from people’s decision about work, leisure, saving, and investment as they interact through markets and are affected by the tax system. The government takes money from the rich in the form of tax, fees and levies, distributes the income and supports the poor or less wealthy people with different welfare arrangements.

Selected income distribution indicators, equalized disposable household income









% share of total income

Received by persons with

low income (a)








% share of total income

received by persons with

middle income (b)








% share of total income

received by persons with

high income (c)








Gini coefficient








(a) Persons in the second and third income deciles.

(b) Persons in the middle income quintile.

(c) Persons in the highest income quintile.

Source: ABS Household Income and Income Distribution, Australia, 2007-08 (6523.0)


The introduction of an Australian carbon price has been controversial. Over 2000 people gathered and marched against introduction of carbon tax in Hyde Park in Sydney. Some carried banners and baseball bats marched and chanted “NO CARBON TAX” and “ELECTION NOW”. Despite of traffic chaos, the marched uniformly and many vehicles such as buses, taxes and trucks honked with their horns and supported the protestors.

The crowd is of all ages from young to several octogenarians. Small business vehicles adorned with sign and banners protesting against the government.

Economic society of Australia conducted a survey, 60% economists thought the carbon tax proposal sound economic policy, whereas 25% disagreed. Number of public protests both in support and against carbon tax had conducted many rallies this include the no carbon tax climate Sceptics rallies and say yes demonstrations. Steel, coal and other alike industries will have only one option move overseas where production can remain competitive with other world economies. This means job losses, increased cost of living and a deficit in the Federal budget.


Carbon taxes have many advantages to protect from global warming

Their costs are predictable.

Carbon taxes revenues will be used for the development of solar power applications throughout the country

It paves way to introduction of a more ecofriendly approach to energy. Many other forms of energy such as solar energy can be used instead of fossil fuel which in turn helps us preserve the fossil fuels for the future generations.

It encourages firms to develop more efficient stuffs. This might encourage people to walk or cycle to work places. This might help to reduce health problems such as heart attacks etc.

It is more feasible to generate electricity from green sources (solar power). Thus develop more green sources.

There are projects in the pipeline at the CSIRO which could see a breakthrough in producing very efficient solar panels technology & much cheaper.

Increasing the ability of people to have a high standard of living will enable them to spend more in turn benefitting the retail industry.

The carbon tax implementation also benefits the climate change strategy as a part of which we can take care of the constantly change weather conditions that have an adverse effects on environment in the future.


Production may shift to no or low carbon tax countries like China, India.

Although most businesses don’t pay carbon tax it has an indirect effect through the good and services such as fuel, electricity, business travel freight etc.

Higher taxes may encourage companies to hide the real carbon emissions so they can pay less tax.

The coal mines are also carbon tax payable as a result of which the electricity charges have gone up. This in turn is an effect on many small businesses and on household.

The two major industries in Australia are mining and refineries and the introduction of carbon tax has cost a lot to people working in these industries as they have of threat of losing their jobs as a part of cost cutting to meet the increased burden by the introduction of carbon tax.

Steel, coal and other alike industries will have only one option move overseas where production can remain competitive with other world economies. This means job losses, increased cost of living and a deficit in the Federal budget.


The introduction of carbon taxes has affected various sectors. The workers of various mining and oil refineries who lost their jobs due to cost cutting by the businesses must provide alternative source of living by the Australian government.

Carbon tax on various retailers and export businesses must not be implemented to develop government’s economy. Implementation of carbon tax on export business may affect the revenue for a country.

Use of alternative sources like solar energy, wind energy and tidal energy should be used instead of fossil fuels like coal and natural gases which are renewable source and don’t harm the nature. This power consumes no fuel and emits no air pollution, unlike fossil fuel power sources.


Carbon tax is more environmentally protective and economically efficient to reduce greenhouse gases, but things cannot always be solved with money. It’s every citizen has lawful right to protect nature and preserve it for future generation. So government must create some awareness programs about the greenhouse gases and save the country.


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