Gerard Jackson has published his third article critiquing the Centre for Independent Studies monograph, Exploring a Carbon Tax for Australia, written by John Humphreys.
Article #1: Why is the Centre for Independent Studies supporting the destructive carbon tax? (25th of February 2008)
Article #2: Why a carbon tax would hit living standards (3rd of March 2008)
Article #3: Carbon taxes versus living standards (10th of March 2008)
As he makes clear across each of his articles, Gerard (“Gerry”) Jackson’s perspective and analytic methodology is explicitly that of the Austrian School of economics. Even more narrowly, it is primarily the application of Austrian Capital Theory.
From Article #1:
What matters is the impact of the tax on capital. (I use the term capital in the Austrian sense of the word … )
From Article #2:
All I have done is to apply “Austrian” capital theory to the proposed carbon tax.
From Article #3:
… Austrian analysis focuses on the impact the tax would have on the country’s capital structure.
There are a number of ways in which this very narrow and distinctive approach is useful when applied to understanding the fundamental nature of taxing Carbon and the effects of taxing Carbon – whether through a direct Carbon Tax or through Carbon Trading or by any other variant.
This is especially so in the case of John Humphreys’ paper which argues, among other things …
- That the negative economic effects of imposing a Carbon Tax can be offset or largely neutralised by using the revenue gathered to reduce income taxes and/or raise the taxable threshold.
- [This point has been removed as it was shown to be an incorrect understanding of John Humphreys’ position and argument. See comments, below for clarification.]
- That a Carbon Tax, by being more broad-based, could be used to replace the existing highly biased Fuel Tax regime and thereby deliver a more equitable and less destructive economic outcome.
- That a Carbon Tax would lead to the development of energy producing and/or energy efficient technologies which do not emit as much Carbon as current fossil-fuel-based methods. And that it would do so without negatively affecting the country’s standard of living.
The value of the Austrian approach is that it is able to identify the fundamental and profound difference between a Carbon Tax and the other types of taxes mentioned, above.
As Gerard Jackson states in Article #3:
… a carbon tax is a direct tax on capital and hence Australia’s capital structure and the process of capital accumulation
If it could be shown that this is in fact the case, then its harmful effects could not be offset by reductions in those other types of taxes.
Those other types of taxes might (at least in the very short term) mean more spending money in the consumer’s pocket. However, the Carbon Tax would mean lower productive capacity.
Using reductio ad absurdum, Gerard Jackson notes:
Imagine a situation in which a government proposed to levy a 100 per cent profits tax on business while ‘offsetting’ it with an equivalent cut in taxes on consumer goods and incomes. Does anyone really think that these tax cuts would prevent an economic collapse?
The aim of John Humphreys’ policy monograph for the CIS is to demonstrate that a Carbon Tax would be less harmful to the country than Emissions Trading. That it would be “more efficient, effective, simple, flexible and transparent”. He does indeed present many good arguments on that front.
However, he goes well beyond merely identifying the “lesser of the evils” in this paper (and in subsequent responses to Gerard Jackson’s critiques) when he concludes that by applying income tax reductions as offsets and/or by using the Carbon Tax to replace current Fuel Taxes that the harm caused by a Carbon Tax can be more or less neutralised.
I believe this is incorrect.
Gerard Jackson’s articles are a highly valuable and important contribution to better understanding the Carbon Tax issue. Furthermore, his analytic methods can be applied to Carbon regulation in general.
Australia owes this man a great deal.
Thank you Gerry.
Note added on Wed March 12, 2008.
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