The emission trading scheme will be a disaster for business: Gottliebsen

Finally the full horror of Kevin Rudd’s carbon trading legislation for business is starting to dawn on at least some Liberal Party politicians. In the National Party Barnaby Joyce was way ahead of them. The more I look at the legislation the more I realise that this is one of the greatest transfers of wealth from business to consumers ever attempted in Australia.

It hits hard power utilities from Japan China, and India who have invested in Australian power generation so the word is now spreading among the Asian community that Australia is not a safe place to invest in utilities. But the fallout will be much bigger than that. Over the period from 2011 to 2020 the government expects to raise a staggering $114 billion from industry based on a carbon price of above $20 a tonne.

Where will that money go? John Howard retained office via the so called ‘Howard battlers’. Rudd learned from Howard so that’s where the money goes.

About $54 billion, or just under half, goes to lower and middle income people. Around 90 per cent of all low income households – or some 2.6 million households – will receive assistance equal to around 120 per cent of the overall cost increases they face.

Around 50 per cent of middle income households – about 1.7 million – will be fully compensated for overall cost increases flowing from the carbon trading legislation. And it gets better. Once the scheme starts, assistance will continue in perpetuity because these assistance payments are indexed to CPI and upfront assistance will automatically increase in line with the increasing carbon price as it affects household cost.

The balance of the amount raised goes back to various industries, but there is a huge gap which is raising alarm bells among industry types who until Turnbull caved in did not believe this would happen. For Rudd the whole exercise is brilliant and the legislation’s have been crafted to make sure the ALP stays in power for a decade. Rudd has reduced the opposition to a rabble for the 2010 election and when the 2013 election arrives the Howard battlers will be basking in the income redistribution.

But it gets better for Rudd. Given that power generating giants like Tokyo Electric GRM, China Light and Power, and Mitsui, have been targeted they will not be rushing to build low-carbon power stations in Australia. This will maintain the Canberra’s income generation and the handouts.

Apart from the few who have gained exemption, all industry will be slugged and those that cannot pass on the cost of permits in prices to consumers will see their profits reduced. Exporters who can’t pass on the cost will be hard hit, but so will local producers who will be put at a disadvantage to imports which don’t incur the cost of permits.

Normally groups like the Business Council of Australia would be up in arms, but there remains a lot of scope to help various companies and industries so the BCA and even some of the worst affected companies are not speaking out.

In particular the BCA believes it is best to stay inside the tent and achieve their objectives that way. As a result there has been no informed debate about this legislation. All the commentary has concentrated on the woes of Malcolm Turnbull and not the issues.

This article first appeared on Business Spectator.