Tax yourself rich, CPRS edition (part 2)

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Hey hey, it is carbon Sunday…

So we are going to have a carbon tax. The pitch is that it won’t cost that much. I think that is going to be a bad pitch – as commenters frequently note, things are a bit tight at the minute. Fuel prices are high, and monetary policy is tight. It may be an economic truth that it is not a massive deal, but it is a political truth that if folks have someone to blame for tough times that they will blame them.

This stuff about green jobs is total tosh. The CPRS is a tax on an externality. The economic idea is that we have too much money GDP and not enough green GDP. Taxing carbon is aimed at reducing money GDP and increasing green GDP. That is a permanent change to the structure of the economy.

The full analysis hasn’t been published, however my guess is that this means a permanent decrease in our growth rate. My guess is that this means real GDP per capita will grow around 10bps per year more slowly than it would have otherwise.

If you are earning 70k per year now, you can expect that to grow around 1.2%y/y in real terms over your life. So say a 50yr working life, you can expect to clear 127k when you retire (in 50yrs time). If the growth rate is only 10bps per year lower, that means you retire with an income that is about 5% lower (121k).

Will it cost jobs? Well, the models economists use assume full employment – it is the real wage that adjusts. In the real world, it probably means a period of lower employment while we wait for real wages to drift down a bit.

Is it worth it? Perhaps it is worth purchasing insurance, however global emissions are the issue, and what Australia does won’t change the global outcome. My guess is that nothing substantial will happen globally, and that this is just going to become a massive boondoggle – a structure for taking money off some folks and giving money to special interests.

We would be better off saving up to pay for the cost of adjustment.