The Claim. The (lack of) Research. The IPA.

Posted on August 12, 2011 · Posted in Blog

In last Friday’s Australian newspaper, there was a full-page ad on p5 from the Institute of Public Affairs.  It was sparsely laid out, with only a few lines of text.  The main ones are:

 

The Claim:

“Treasury modelling estimates that under a carbon price average incomes will grow strongly”

(‘What a carbon price means for you’ page 7, Australian Government publication sent to every household this week)

The Research:

The government’s own forecasts show Australians will lose at least $1.4 trillion in national income by 2050 because of the carbon tax.

(‘Australia’s low-pollution future’, Department of Treasury, July 2011; Henry Ergas, ‘Climate policy a burning issue’, The Australian, 10 June 2011)

At first this suggests that these statements are contradictory, but with a little more thought, perhaps they’re both true and perhaps neither are surprising.  The government’s statement is based on the idea that as the economy grows average incomes will grow.  A carbon price is one of many factors that influence the economy, the negative impacts of which will not outweigh the other positive factors.

The second statement is based on the idea that national income – of which household income and consumption is only one part – will grow over the next 40 years, but will grow at a different rate with a carbon price.  The present value of the sum of the difference between those growth rates over 40 years is a big number and Henry Ergas has worked it out to be $1.4 trillion.

Of course the present value of Australia’s GDP over 40 years is an even bigger number.  If we assume GDP of $1.2 trillion, growth of 3% and a discount rate of 2.65% (see Garnaut p19), we find that the present value of Australia’s GDP over 40 years is $50.0084922 trillion.  In fact in year 40, our GDP is $3.80043 trillion, so it will take a couple of months to recoup any impact of a carbon tax.

As the ad says, this is the government’s modelling.  This isn’t “The Research”.  It isn’t research at all, it’s just multiplying over 40 years and blurring the difference between national income and household income.  Now where can I get the cash to explain this in a full-page ad?