Gillard deserves credit for the giant carbon and NBN reforms: Kohler

At least we can’t accuse this Labor Government of being automatons focused entirely on spin, unwilling to produce true reforms like those of the Hawke Government in 1980s.

Julia Gillard is attempting two of the riskiest, most challenging reforms ever undertaken in this country: the National Broadband Network and taxing carbon emissions.

Forget for a moment whether you think either of these things is worth doing; they will unarguably produce profound changes in the structure of the Australian economy and they have stamped Gillard as a courageous and reforming Prime Minister.

So they’re big and hairy, but are they good?

John Howard’s obdurate refusal to do something about Australia’s reliance on coal-fired electricity after the writing was put on the wall at Kyoto in 1997 has meant that we are now facing a national emergency.

The failure to agree at Copenhagen in 2009 has been replaced by a new purpose as a result of last year’s meeting in Cancun. Australia’s commitment of a 5% reduction in emissions by 2020 is now the least we can do, but it is rapidly becoming a monumental task.

To leave it any longer would be to simply give up. Politically that was not an option and since legislation needs to be passed this year, an announcement needed to be made now. So far, so good.

The greenhouse gas emissions permit scheme to be introduced next year with the government setting price rather than a market, will tax about 1,000 companies more than $10 billion per annum, depending on the price.

Some industries, such as aluminium smelting, cement production and steel making, will pay hundreds of millions in tax, which they will need to pass on in their prices. These businesses will need to be more or less fully compensated through free permits, otherwise lower priced imports will put them out of business, especially with the Australian dollar at parity.

The nation’s biggest emitting industry, coal-fired electricity generation, is supposed to be put out of business. The main purpose of a carbon tax is to raise the price of coal-fired electricity to the point where it can be replaced by natural gas, so there’s no point providing compensation that will keep the price.

Coal-based electricity generators will be demanding compensation for their loss of equity, as they were when the Rudd Government announced its CPRS. The same will go for Julia Gillard’s tax.

There won’t be enough cash to go around, so there will be losers. If Tony Abbott doesn’t turn himself into a whirling dervish, he should be able to exploit this at the next election.

The NBN has two main political purposes: to reconstruct Telstra and to subsidise regional broadband. The structural separation of Telstra to be achieved by the NBN legislation and the deal with the company was part revenge and part exasperated reformism.

As for the operation itself, the growth in online video should mean it makes money and is not a commercial disaster, although Optus chief Paul O’Sullivan wants extra checks and balances on its pricing, which is fair enough.

The NBN and carbon pricing are both practical economic reforms, like financial deregulation, tariff cuts, enterprise bargaining and the GST.

Two big reforms per decade is probably the best we can hope for, and the most we can deal with.

This article first appeared on Business Spectator.