The proposed carbon tax in Australia: impacts on income distribution, employment and competitiveness

Abstract

The proposed carbon tax in Australia, which is scheduled to be implemented from 1 July 2012, has become a controversial issue to the policy makers and people regarding its potential effects on the economy and society. Therefore, this paper analyses the various effects of the carbon tax with particular attention on Australian income distribution, employment and international competitiveness. The carbon tax will increase the inequality between the poor and the rich, as the poor will be adversely affected because of increased price of almost all essential items even in the presence of the government support program; regional disparity is also likely to increase. Employment will be reduced especially in coal, mining, steel, automotive and other manufacturing industries which will cause the shrinkage of GDP. The international competitiveness of Australian industries will also be reduced, as these industries will suffer because of higher production cost compared to foreign competitors. Some policy options such as reduction of VAT, a tax free allowance for essential use of energy, a lower carbon tax rate, border tax adjustments, permanent financial support to the poor may be considered to reduce the regressive effects.