The introduction of a carbon tax in Australia would have clear implications for economic and environmental sustainability. While in the long-term, the aim of such a tax seeks to promote environmental sustainability for Australia as a whole, in looking at the short-term, there appear clear implications for economic sustainability for a wide variety of businesses and households. One such area of business that seeks to be affected in both the short-term and the long-term in terms of the introduction of a carbon tax is the tourism and hospitality sector of the Australian economic market, which will likely take a major hit in terms of profitability and finance with the passing of the tax at hand.
Australian Carbon Tax
Australia's proposed carbon tax seeks to have many distinct implications for the long-term economic and environmental sustainability of the country as a whole. However, in looking at many different areas of the market as well as the population, many of the short-term implications can be seen in viewing the proposed tax on a more individualized basis rather than in looking at the long-term goals for the tax on the country in its entirety. One such area of business that seeks to be affected in both the short-term and the long-term in terms of the introduction of a carbon tax is the tourism and hospitality sector of the Australian economic market, which is projected to take a massive financial hit upon the passing of such a tax.
Carbon Tax Basis
In order to fully understand the implications that a carbon tax will have on the Australian tourist and hospitality industry, one must first understand the basics of a carbon tax, as well as the specifications of such a tax in terms of its Australian passage.
Authors Hoeller and Wallin, (1991) note that a carbon tax is a form of carbon pricing that impasses an environmental tax that is levied on the carbon content of fuels such as coal, petroleum and natural gas (Hoeller and Wallin, 1991, p. 92).
Largely attributed as a defense mechanism to global warming, carbon taxes in their simplest form are pollution taxes set by the government. Such taxes encourage industries, businesses and individuals to not only reduce their consumption but increase their environmental efficiency, charging high taxes on polluting fuels like coal, natural gas and oil and making alternative energy sources far more cost efficient. Australia has been a pioneer in such environmentally friendly legislation, and has maintained significant headway since 2007 with the proposed passages of emissions caps and carbon taxing.
Most recently, legislators and the Australian Federal Government have announced the proposed implementation of a carbon tax to be initiated in July of 2010. Set to be implemented over a 3-5-year period, the government has already publicly announced that the 500 largest polluters in Australia will be taxed at a rate of $23/tonne of carbon emission which will be effective in July of 2012 (Farr, 2011, p.1). Additionally, on September 13, 2011, Australian Prime Minister, Julia Gillard introduced the long-awaited and highly controversial carbon tax legislation to Parliament (Thompson, 2011, p.1).
Economist Dr. Shane Oliver cites the Australian Treasury's assertion that the carbon tax will boost prices by 0.7% in 2012-13 and by another 0.2% in 2015 (Oliver, 2011, p.2). This figure is due in part to higher household energy prices -- which will rise by about 9-10% - with the remainder coming from the pass through of higher business costs. Oliver further notes that in looking at the short-term, growth impact can be problematic as there are several economic influences that can be deemed problematic.
First, Oliver notes that the government's clean energy plan raises less in revenue than is spent as compensation and assistance, which could lead to the argument that it will be slightly stimulative to the economy, likely providing a kick to growth in the June quarter 2012 (Oliver, 2011, p.3). However, he goes on to note that the impact that the carbon tax will have on business and consumer confidence is a massive unknown, as both confidence levels have been measured as "soft" in looking at the government's announcement of this tax.
In viewing businesses, under which the tourism and hospitality industry would fall, there remains a massive uncertainty about the carbon price over the next few years in regard to the transition to an emissions trading scheme in 2015 that will create serious uncertainty regarding the price (Oliver, 2011, p.3). With the passing of the tax, along with its acceptance into Australian culture and business practice, the possibility that carbon tax prices could steadily rise from the initial $23/tonne to near $60 a tonne in 2015, leaves the door open to scrutiny as to how high these price levels will continue to rise. As such high prices could devastate noncompliant businesses, the bottom line in terms of pricing factors, remains one that both economists and business owners are still searching for.
Effect on Tourism and Hospitality
As mentioned, earlier, the implementation of such a carbon tax has become a highly controversial topic among the Australian public, with rallies and demonstrations being held throughout the country by opposing pro-tax and anti-tax supporters. Such anti-tax lobbyists have been largely found in the Australian tourism and hospitality industry.
According to the Australian Tourism Export Council, the enforcement of Australia's carbon tax could see thousands of tourism-related businesses close, eliminating tens of thousands of jobs and impacting the economy significantly, which is a projection that has not gone unnoticed by Australian business owners and employees (Rodriguez, 2011, p.1). Though the government asserts business owners that their businesses will not be at risk, the numbers may prove otherwise. The cost of electricity, for example is set to skyrocket by 30% by 2013, due in part to the Australian government's renewable energy scheme which accounts for 11% of the increase according to reports by the government's chief energy advisor (Rodriquez, 2011, p.1). Further, the costs to fund the Renewable Engergy Target, which provides substantial subsidies for rooftop solar schemes and large-scale renewable energy products, will explode by 360% by 2013, as utilities attempt to meet the renewable sourcing target rates of 20% by 2010 (Rodriguez, 2011, p.1). These price hikes, along with the price hikes associated with the carbon tax will leave business owners drowning in a wake of rising prices, many of which cannot be kept up with currently with a significant decline in domestic tourism.
In viewing these facts in the short-term, it becomes clear that even the slightest increase in expenditure in an already suffering market will lead to nothing but disaster in the long-run, should businesses in the tourism and hospitality market even be able to survive that long. In viewing this industry in terms of the economic repercussions of the carbon tax implementation, it is clear that the long-term for this market falls within the projections set forth by the government, while the short-term revolves around a more day by day rationale, which businesses in this industry have been forced to deal with since the aforementioned decline in domestic tourism and the strengthening AUS dollar (Rodriguez, 2011, p.1).
Many employees of the tourism industry note that at a time when tourism operators are facing the challenges of a high AUS dollar, the carbon tax is doing nothing but making matters worse for an already struggling industry. As carbon tax would apply to domestic airline flights, but not to international flights, a new premium is being added to destinations within Australia. Federal Forest MP, Nola Marino notes,
"tourists will pay the carbon tax if they fly from the eastern states to Perth to get to Busselton or Margaret River, but they won't pay carbon taxes if they fly overseas to destinations like Bali although common sense tells you that you'll burn more fuel and generate more emissions flying to Bali than you will coming to the South West" (Trade Newswire, 2011, p.1).
Domestic travel and tourism is not the only area likely to suffer from the carbon tax, but international tourism as well. With expenditures being hiked to never-before-seen heights, businesses that cater to tourists within the hospitality industry will be forced to increase prices. The question remains to be answered as to whether tourists will be willing to pay such heightened prices. The Australian Tourism Export Council has further warned that the carbon ax will make Australia even more unaffordable for tourists to spend vacation which can prove debilitating to the industry and therefore the Australian economy (Gupta, 2011, p.1).
In the wake of short-term economic problems that will lead to closures and financial distress in the long-term, the Australian government has promised to help small businesses find ways to minimize their energy use, but the reality remains that many businesses don't have the financial capacity to make the switch to more energy-efficient systems (Perth Now, 2011, p.1).
Carbon Taxes and Economic Theory
In assessing the impact of the carbon tax on the tourism and hospitality…