Australia's carbon tax impact on the tourism and hospitality sector

Australian Carbon Tax

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

Introduction

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).

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 industry as well as looking at its proposed economic implications in both the short- and long-term, one can see that the government's goal is essentially long-term economic progression and environmental sustainability for future generations. However, there are certain economic theories that come into play in setting up the basis for success that it seems many legislators have overlooked in the process of pushing the proposed bill forward.

The Economist notes, that in the "neat world of economic theory, carbon reduction makes sense until the marginal cost of cutting carbon emissions is equal to the marginal benefit of cutting carbon emissions" (Economist, 2007, p.1). However, in the context of real world implementation, politicians are at an impasse in terms of previous legislation successes to structure upon. The article notes, that if a carbon tax is set too low, too much carbon will be emitted, but since the environmental effect of greenhouse gases builds up over time, a temporary excess will make little difference to the overall path of global warming (Economist, 2007, p1). This fact is one that many business owners and employees note in making their case against the carbon tax.

As morose as it may seem, the concept of global warming in the long-run is one that many individuals deem to be inescapable. Thus, the imparting of unprecedented high taxes within the market is one that causes uproar for businesses that have never had to deal with such issues.

Conclusion

As seen, the passage of a carbon tax within Australia will have a significant effect on the tourism and hospitality industry in both the short and the long-term. While individual households will be given nearly $1.5 billion in cash handouts before the carbon tax is passed, businesses are struggling to find their aid (Packham, 2011, p.1). The tourism and hospitality industry has seen nothing but uncertainty and dismal outlooks since the onset of tax legislation, and the question remains to be answered: will dismal outlooks turn into dismal realities for an industry that has long been a staple in the Australian economic market?