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Beware a revenue blowout: McKibbin

06 March 2013

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Professor Warwick McKibbin is an ANU Public Policy Fellow at Crawford School. Professor McKibbin was a member of the Board of the Reserve Bank of Australia from 2001- 2011. He teaches Modelling the World Economy: techniques and policy implications (IDEC8127).

Badly-designed taxes and huge election commitments without guaranteed revenue streams to pay for them run the risk of blowing a multi-billion dollar hole in the national economy, according to a leading economist.

Public Policy Fellow Professor Warwick McKibbin of Crawford School told ABC’s The Business show that the carbon tax alone is likely to bring significantly less revenue than Treasury’s $29 a tonne forecast when permit trading begins in 2015.

“European permits [are] currently trading around $5 or $6 a tonne, so we’re going to probably – if you take that as the best guess of the future price – leave a hole of about 80 per cent. That’s a $6 billion revenue hole in 2015 / 2016.

“That’s a very large loss of revenue for no gain whatsoever. Except not only have you lost the revenue, but you’ve destroyed the principles of the scheme, which is to encourage people to use less carbon,” said McKibbin.

He added that although many of the election commitments made by both sides of politics are so-far unfunded, forward estimates highlight the possible scale of the financial shortfall.

“We’re probably looking at a hole $10 to $20 to $30 billion, at least. The problem, though, isn’t that there’s a hole there. The problem is that policies are being decided with an unknown and an uncertain revenue stream.

“If you have highly volatile revenue and you’ve precommitted a very clear spending program, then you really expose the budget to enormous risk, and that’s what’s happened with the mining tax and that’s what’s going to happen with the carbon tax, and that’s bad policy.”

He added that this financial shortfall will be a problem regardless of who wins the upcoming general election and the policies they put in place. 

“If Labor was to win, or the Opposition to win, they both face approximately the same revenue from those two taxes.

“There needs to be a review of [the] outlay of programs. The revenue needs to be examined closely and a better alignment between the volatility of revenue sources and the volatility of outlays needs to be explored because that’s where uncertainties cause enormous economic losses and you get a bad outcome in the Australian or world economy.”

You can watch the full interview here:

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