Topsy Turvey Taxland

In Topsy Turvy Taxland, the government runs a tax system that encourages bad behaviour and then complains that people and corporations are behaving badly. This is a tax system run by Jabba the Hutt – dysfunctional, dictatorial and counter-productive.

It's a tax system that punishes work, encourages wasteful spending, and is too lazy to bother discouraging bad behaviour like smoking, gambling and polluting.

In contrast, my ideal tax man is Cary Grant – energetic, practical, flexible and intelligent.

Tax reform gives Jabba the Hutt a makeover so he is more like Cary Grant. As you can see from the picture, it's a monumental task that is best achieved in small steps.

Australia's latest tax reform, the Clean Energy Legislation, continues a trend to move taxes away from those that penalise work towards taxes on expenditure. This is Cary Grant's way of encouraging citizens to work hard, save their money and spend wisely.

The previous tax reform in 2000 gave us the Goods and Services Tax (GST) which is a value-added tax of 10% on expenditure. In July this year the Clean Energy Legislation includes a tax of $23 tonne on major greenhouse gases. In 2015, this tax will change into a price that is integrated with world carbon markets.

This structural shift away from taxing income towards taxing expenditure is highly praised.

The Economist says,

Other governments would do well to emulate and improve upon Australia’s efforts to shift the tax burden from hard-earned wages and profits to unearned rents and uncompensated harms.

This New York Times article praises British Columbia's carbon tax.

On Sunday, the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute.

Yoram Bauman and Shi-Ling Hsu

The authors ask, "Why tax good things when you can tax bad things, like emissions?" and they note that this principle is supported by  economists across the political spectrum, from Arthur B. Laffer and N. Gregory Mankiw on the right to Peter Orszag and Joseph E. Stiglitz on the left.

Economic theory suggests that putting a price on pollution reduces emissions more affordably and more effectively than any other measure. It is good policy.

In Topsy Turvey Taxland,Tony Abbott, our Leader of the Opposition, is promising to undo Australia's Clean Energy Legislation and remove the price on greenhouse gases when he gets into power. He'll have to increase income taxes so the government doesn't lose revenue, though of course he's staying mum about that part of his plan.

This will take us back to square one, to Jabba the Hutt as tax man supervising a system that lazes around, doing none of the heavy lifting required to reduce greenhouse gas pollution.

Mainstream climate scientists say that global warming is an urgent problem that should be tackled head on with gusto. "With gusto" means that our tax system can't be lazy. It has to pull its weight.

We need Cary Grant on the job, not Jabba the Hutt lazing around.

Stranded whales

A dead whale on the beach is big and smelly. It is no use to itself and it spoils the beach.  So when whales get stranded on beaches, hundreds of people turn up to help get them back to sea before they die and the beach is a stinking mess.

In a similar way, fossil fuel interests are fighting to prevent their coal, oil and gas assets from becoming stranded assets. Their main tactic is to dig up as much as they can as fast as they can, before the world cottons on and puts strict limits on greenhouse gas emissions.

A report by the Carbon Tracker Initiative reveals the scale of climate risk. To limit the chances of exceeding the UN's agreed warming limit of 2C to 20%, the amount of CO2 that can be emitted between now and 2050 is 565 gigatonnes. But the known fossil fuel reserves declared by energy and mining companies is equivalent to 2,795 gigatonnes of CO2. That means, if the world acts on its climate change pledges, 80% of those reserves can never be burned and are stranded assets.

The IEA has said that if concerted action is not taken as early as 2015, then 45 per cent of the world’s fossil fuel plants would have to close early over time to meet the 2°C scenario.

There is growing risk that money invested in coal mines, oil, tar and gas reserves, and their associated pipelines, train lines, ports and shipping facilities will be closed before their productive life is realised. They will become pipelines and train tracks to nowhere.

Banks and investment funds are beginning to take climate risk into account in judging whether or not to invest in big new fossil fuel infrastructure. Experts warn that the huge reserves of coal, oil and gas held by stock exchange-listed companies are ''sub-prime'' assets.  HSBC says that the declining ceiling of allowed emissions intensity should force more capital into lower carbon technologies.

As the urgency increases, we expect more banks and institutional investors to factor 2°C targets into their financing decisions.

Countries like Canada are strenuously resisting efforts to count the carbon cost of their fossil fuel reserves. Canada is resisting EU initiatives to account for the higher carbon footprint of their tar sands compared with regular oil. They fear that their tar sands will be stranded as uneconomic assets if the true cost was recognised.

In contrast, countries like Ecuador recognise that their oil reserves are valuable if they are NOT tapped. They are  seeking payment for not drilling in the Yasuní National Park which is regarded as one of the most biodiverse places on Earth. They have asked for $3.6 billion, about half the estimated value of the reserves, to leave the oil in the ground and protect the Yasuní.

In effect, Ecuador is trying to prevent healthy whales from beaching. In contrast, the vehement efforts of the Koch brothers and Australia's mining magnates, Gina Rinehart and Clive Palmer, to promote mining at any cost, will serve to drive more whales onto beaches and leave them stranded there.

Australian poet, John Blight (1913-1995), wrote this sonnet in the 1960s. It captures beautifully how hard it is for humans to care about very big subjects, even if they are potentially devastating.

Death of a Whale

When the mouse died, there was a sort of pity;
The tiny, delicate creature made for grief.
Yesterday, instead, the dead whale on the reef
Drew an excited multitude to the jetty.
How must a whale die to wring a tear?
Lugubrious death of a whale; the big
Feast for the gulls and sharks; the tug
Of the tide simulating life still there,
Until the air, polluted, swings this way
Like a door ajar from a slaughterhouse.
Pooh! pooh! spare us, give us the death of a mouse
By its tiny hole; not this in our lovely bay.
-- Sorry, we are, too, when a child dies:
But at the immolation of a race, who cries?