Tuesday 23 August 2011

Queensland's growth to be checked by Carbon Tax

Carbon tax would hit Queensland hardest, affecting jobs and growth, modelling says

THE Gillard government's carbon tax will hit Queensland the hardest, costing an estimated 21,000 in forecasted new jobs and slashing state growth by 2.76 per cent to 2020, according to economic modelling commissioned by the Bligh Government

The Deloitte Access Economics report, tabled today in the Queensland Parliament, warns that Queensland is the most vulnerable to the tax estimated to cut state growth by 0.57 per cent more than the rest of the country over the decade -- because of its dependence on the high-emitting resources sector.

Treasurer Andrew Fraser released the Deloittes report, as well as separate modelling from Queensland Treasury which predicts a smaller impact over the next decade of just 0.4 per cent to growth and almost half the job losses of 12,000 in 2019-20.

Both reports have estimated falls in projected new jobs. But both reports warn that the economic burden of the Gillard Government's carbon tax will steadily increase with the windown of financial assistance to high-emitting industries.

In 2050, Queensland growth will be 4.11 percent lower under a carbon tax, according to Deloittes, with Queensland Treasury estimating it will be 3.5 percent compared to the predicted cut to Australia's GDP of 2.5 per cent in this year. Depite the reports' findings, Mr Fraser told parliament that the modelling showed the Queensland economy will continue to grow with the "significant economic reform" of a carbon tax.

"Despite the hysterical scaremongering, the economy will grow, and grow strongly with a carbon price," Mr Fraser said. By 2019-20 the modelling I table today, which replicates the Australian Treasury modelling, shows that our economy will grow by 41per cent with a carbon price," he said,. "On this analysis Queensland will grow more quickly than the nation, and generate higher jobs growth and investment through the next decade, with a carbon price in place."

Mr Fraser said the report's differing findings w ere reflective of varying modelling assumptions, but made the same conclusions that Queensland would continue to grow.
"As both reports note, any modelling exercise is greatly influenced by the assumptions incorporated into the model," he said.

"In that regard different scenarios which assume lower technological change, lagged labour market change, different commodity prices and different exchange rates can materially alter the outcomes. "DAE (Deloittes) shows a higher shorter term impact to 2020, while forecasting a stronger growth than the Treasury model to 2050.

"The reports both note that the effect on Queensland is amplified by 2049-50 as the abatement task increases as the projected carbon price rises in the international market. "
The Deloittes report said a fall in investment in the short term is predicted to become the biggest economic drag from the tax with a decline in the comparative advantage of miners in Queensland.

"The main reason for a relatively higher impact on Queensland compared with the Australiawide result is related to a relatively high reduction in investment in the short term (to 2020)," Deloittes said in its report.

"Under the reference case, Queensland (together with Western Australia) is projected to grow faster than the national average, with much of this growth based on investment in mining and minerals processing which become less competitive under a carbon price (despite some EITE assistance).

"While this effect moderates over time, the reduction in the productive base of Queensland in the early years has greater long term effects for the State."

The Deloittes report failed to include in its modelling the Gillard Government's proposed assistance to the iron, steel and coal industries, as well as the $10 billion Clean Energy Finance Corporation.

"These elements were not included because it is unclear, at this stage, what the detail of the initiatives will be," the report said.

The Deloittes report contrasts with Queensland Treasury modelling, also released today, which estimates a significantly lower cut to growth in the state of just 0.4 per cent compared to Deloittes' 2.76 per cent to 2019-20.

Employment is also predicted to grow at the same rate of two percent-a-year, with or without the carbon tax, with an extra 474,000 jobs created in the next decade. In both reports, the modelling shows the impact growing after the first decade of the tax, with Deloittes predicting growth will be cut by 4.11 per cent out to 2050 compared to what it would be without a carbon tax.

The Treasury modelling forecasts growth will be 3.5 per cent lower in 2049-50, with "industry and regional impacts also increase" over the next few decades. In its report, Treasury conceded it had based its modelling, using assumptions of quicker changes to industry technology and the labour market to the carbon tax.

"While Deloitte Access Economics modelling estimates a greater impact from adjustment in the short-term, higher growth for Queensland is forecast under the Deloitte Access Economics model in the longer term (compared to the Queensland Treasury modelling)," the Treasury report said.

"Over the longer term, Queensland Treasury projects GSP (Gross State Product) will grow by an average of 2.8 per cent per year to 2049-50 with carbon pricing, while Deloitte Access Economics projects GSP growth of 2.9 per cent per year for the same period."

Mr Fraser said the reports showed a lower impact on state-owned electricity generators from the carbon tax, with the net book loss to the state of $640 million compared to initial estimates of $1.7 billion.

In the past few weeks, the Gillard Government has rejected the Bligh Government's demands for compensation to cover the book loss. Mr Fraser said the carbon tax would also hit the budget's bottom line. "The net impact on the Queensland Budget of $251 million in 2012-13 rises to $360 million in 2015-16 using similar assumptions to Western Australia and New South Wales," he said.

"The impacts on the Budget relate predominantly to lost revenue from the Gencos in the ownership of government. "This is an issue we are continuing to prosecute with the federal government. The rise in expenses is forecast at up to 0.4 per cent by 2015-16."


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