Carbon tax changing the policy climate

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In financial management courses you learn that businesses should invest in projects when the net present value is greater than zero. In the real world most companies are capital constrained so you can only invest in the best.

It’s no different in politics, governments only have so much political capital. Minority governments even less.

Wayne Swan’s announcement of a tax forum highlights the problem. We need to discuss federal-state financial relations and the way the GST might be used to remove some of the more inefficient state taxes. But the government has ruled out any discussion of the GST, the main tool we could use to reduce other taxes.

The fact is the government can’t open a new tax battle while the carbon tax is taking all the oxygen. This is the hidden cost of the carbon tax.

Not only will it do nothing to change the climate it is also crowding out a discussion of controversial but important policy debates.