Offset ETS revenue with tax cuts, says Turnbull

“We should take the opportunity with the revenues from the emissions trading scheme to address both inefficient taxes as well as inefficiencies and inequities in our income tax system,” says Federal Shadow Treasurer Malcolm Turnbull. Turnbull says Australia’s ETS will result in the transfer of many billions of dollars from business and households to Government.

He says that the sums flowing from the ETS are going to be much greater than the combination of investments in research and development in low emissions technologies and energy efficiency incentives for households and businesses. Turnbull says that if Labor’s ETS only covers two thirds of all emissions, an auction price of $25 per tonne would raise $10 billion per annum in the early years. “In 2010 this would almost offset the revenue that will be foregone as a result of the income tax cuts,” he adds.

“A lot has been said about assisting low income households who will be hard hit by higher energy and fuel costs,” says Turnbull. “Reducing tax, including high Effective Marginal Tax Rates, on low income households should be a key priority.”

According to Turnbull, the objective should be: compensating tax and welfare measures must ensure that low income or pensioner households are not overall worse off by reason of the introduction of the ETS.

The ETS also offers an opportunity to phase out a number of very inefficient state government taxes, according to Turnbull.

“There is always a strong case for replacing relatively inefficient taxes with relatively efficient taxes. And with Government raising new carbon revenues the total tax take should be kept constant, or reduced,” he says.

“We must use this transition to a low carbon future as an opportunity to make our economy even stronger still, so that the costs we impose on carbon will be more than matched by the dividends from a more productive and prosperous future for all Australians,” Turnbull says.

Turnbull has engaged economist Henry Ergas to assist the Opposition in a full review of Australia’s federal, state and local taxation system.

Professor Ross Garnaut, who last week released a discussion paper on the design of Australia’s ETS, says proposals for a cut in the company tax rate to 25 per cent are worth considering, according to The Australian Financial Review.

“That is certainly something I would like to talk through,” says Garnaut, and “think about”, according to AFR.

Garnaut warns that “tight fiscal and monetary policy will be needed to ensure the start of emissions trading in two years does not lead to an inflation breakout”.