World's Economy Continues to Struggle it Has Research Paper

  • Length: 6 pages
  • Sources: 22
  • Subject: Economics
  • Type: Research Paper
  • Paper: #45783164

Excerpt from Research Paper :

world's economy continues to struggle it has become fashionable in some political circles to advocate the adoption of a type of tax described as a carbon tax as a method of minimizing spiraling government costs. Use of the word, "carbon," is somewhat misleading. The broad meaning of the carbon tax term is to define a tax that is designed to not only raise revenue but also change the behavior of a society's consumers (Baumol, 1972). The theory is to raise the cost of a good or service through the imposition of a carbon tax in an effort to offset the negative effects that the good and service causes. The most obvious example is the use of a carbon tax to fight the effects of pollution. The manufacturer who builds its plant next to a river and proceeds to dump its polluting by-products into said river would ordinarily not suffer any additional costs for its polluting activity. Carbon tax advocates, however, would impose a tax on the manufacturer in an attempt to offset these polluting effects.

The Government of Australia has taken the carbon tax idea a step further and actually decided to impose a real carbon tax on polluters that emit carbon into the atmosphere (Packham, 2011). The theory behind this new carbon tax is the same as the traditional one but the Australian Government has decided to impose it against the actual use of carbon. Initially, the Government will tax those who release tax into the atmosphere on a per ton basis with the intent of eventually allowing the market place to determine how the costs will be distributed (Australian Energy Exchange). The goal is to have the manufacturers who cause the pollution to bear the costs of cleaning up the environment from such polluting on a proportional basis.

II. Arguments for Carbon Tax

Carbon is one of the most prevalent and dangerous by-products of the manufacturing process (Union of Concerned Scientists, 2010). Ordinarily, the cost of purchasing manufactured goods does not fully incorporate the collateral environmental costs that are involved in the manufacturing process. The costs that are involved include the mining of the iron ore, the electricity used to operate the factory, and the trucks used to transport the goods to market. Each of these steps involves the release of carbon and other pollutants into the atmosphere that is only partially reflected in the cost of the product. The residual costs have been partially ignored and absorbed largely by society in general. The intent of the new Australian carbon tax is to change this scenario. Carbon pollution has become an increasingly more serious problem and the Australian Government has determined that taxing the goods that are more polluting should be taxed at higher level so as to pass on the polluting costs (Goodall, 2008).

The long-term hope is that the imposition of these taxes on carbon intensive goods or manufacturers will cause a shift in the market place toward consumers beginning to purchase goods that are less carbon intensive (Metcalf, 2009). In theory, these goods should be less expensive and, based on traditional economic theory, the manufacturers using carbon intensive methods should begin changing over their manufacturing process to less polluting methods in an effort to remain competitive in the market.

This move by the Australian Government is, arguably, an enlightened move toward demonstrating environmental leadership. Critics have argued that the enactment of this tax will significantly damage the Australian economy but proponents argue that the costs of carbon pollution on the environment will eventually have to be dealt with and that doing so sooner as opposed to later inures to the benefit of everyone.

III. Economic Impact

The carbon tax will impact on the big polluters most heavily but it can be expected that these costs will be passed onto the consumer. This is traditionally how manufacturers recoup their costs and there is no reason to suspect that this will not be done relative to the carbon tax as well. The Australian Government, however, recognizing the impact that the tax may have on the ordinary citizen, has enacted several provisions to help offset these higher prices by raising the tax free threshold (Onselen, 2011). Plus, in the spirit of the traditional style carbon tax, the Government is optimistic that the imposition of the tax may ultimately manipulate the market so that consumers begin making more environmentally sensitive choices.

One of the more popular arguments used against the enactment of the carbon tax was its potential to have an inflationary effect on the Australian economy (Sydney Morning Herald, 2011). Proponents of this argument point out that adding this tax would cause a substantial rise in the price of manufactured goods and that such rise, without a corresponding rise in income, would be inflationary. The Australian Government, however, argues that this rise in costs will be offset by the changes in the tax law. The Australian Government also argues that the overall effect on most Australian citizens will be minimal. Most prices, they argue, such as food will go unchanged (Herald Sun, 2011).

IV. Impact on Tourism

Tourism is an important element of the Australian economy and there is considerable concern that the carbon tax will have a negative impact on this industry (Australian Bureau of Statistics, 2007). Although travel to Australia enjoys widespread popularity, getting to Australia from the areas that participate most heavily in tourism is not always easy. Australia is largely isolated from the rest of the world and getting there requires either a long plane flight or ocean voyage. Needless to say, either transportation choice requires the use of carbon fuels which translates into the imposition of high carbon taxes (Daily Mail, 2011). Ergo, plane tickets and boarding passes involving travel to Australia suddenly become more expensive. In the travel industry where the profit margins are minimal, such increases can be disastrous.

One of the critics of the proposed carbon tax is Daniel Gschwind, CEO of the Queensland Tourism Industry Council, who is reported to have said in relation to the proposed tax: "An industry like ours relies on the international market, and we are becoming even less competitive. Our products and services are going to become more expensive (Jabour, 2011).

Joining the argument against the carbon tax is the Australian Tourism Export Council (ATEC). The ATEC has published their position that the enactment of a carbon tax will result in the closing of thousands of tourism related businesses and that such closings will cause the loss of tens of thousands of jobs. The managing director of the ATEC argues that the tourism industry is already operating at a marginal level and any further increase in tourism costs could be the final blow to many tourism businesses (Rodriquez, Australian carbon tax threatens closure of thousands of businesses, 2011). Representatives of the Australian Government counter these arguments by pointing out that tourism representatives are misleading consumers with their alarmist claims and that the Government's plan has provisions that will protect the financial interests of the consuming public (AAP, 2011).

V. Conclusion

With any new tax it can expected that there will be strong arguments made by both sides of the issue relative to the pros and cons of the tax. This is particularly true in situations involving new taxes that have such far reaching effects. The carbon tax that is being proposed by an Australian Government that is barely holding on to power has stimulated a great deal of discussion. The move by the Government is admirable in theory but may be poorly timed in relation to the present state of the overall Australian economy, in general, and the state of the tourism business, in particular. Few would deny that carbon levels must be lowered for the long-term benefit of Australia and the…

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