Carbon Taxes? I don't think so.

[mollox]

There seems to be little doubt now that we’re in a serious economic downturn. While it’s not a recession, the implications for Govt Income/Expenditure are quite significant and will require difficult political choices.

This week, Davy Stockbrokers has produced some dramatically revised economic forecasts
- GNP growth: 1% in 2008, 2% in 2009
- New houses: 45k in 2008, 25k in 2009
- Commercial construction: 10% reduction in 2009
- Unemployment: 4.6% in 2007, 6.1% in 2008, 7% in 2009
- Exchequer Deficit: €1.6bn in 2007, €8.3bn in 2008, €10.3bn in 2009
- House Prices: -10% in 2008, -7% in 2009

Net Result:
Reduced tax inflows, particularly as construction/housing market slows dramatically.
Reduced tax inflows and increased benefit outflows as unemployment rises dramatically (+50% in 2 years).

Rising Energy Prices
Driven by global demand/output e.g. oil @ $135 and on a rising curve, Northern Ireland Electricity has announced a 14% price increase for July 2008, and BBC reports a further 15% increase expected later in the autumn (partially driven by weak sterling).
However, we too can expect rising electricity and gas prices, to go with the already rising petrol/diesel prices.
This will all add to inflation - pushing up the costs to households, business and increasing wage demands.

Demand/Expectations:
Expect a winter of discontent from the public sector, who already feel aggrieved that their previous national agreement failed to keep pace with inflation, compounded by the failure of Benchmarking Phase II to deliver anything for most public sector employees (excluding the cabinet).

The insatiable demand from that perennial black hole that is the Health Service is unlikely to abate. A permanent political banana skin.
And the perpetual under investment in the school infrastructure, exacerbated by a rising rather than falling intake in primary schools, will only add to the Govt’s woes.

Carbon Taxes?
Against that background, how likely is it that Biffo will be willing to add to the electorate’s woes by introducing Carbon Taxes, particularly against a background of already rapidly rising fuel/energy prices? With rising domestic bills and industry struggling, how much can the public bear?

But if Biffo does introduce Carbon Taxes, I’ll wager they won’t be “revenue neutral” , as promised by the Greens.
Biffo will see them as a way to reduce the projected Exchequer Deficit (€10.3bn 2009) by adding such carbon tax revenues to the general taxation pot, safe in the knowledge that the Greens will be a political lightning rod for most of the inevitable public backlash.

Green Party reaction?
How will the Greens react to such a(nother) betrayal?

Recent opinion polls show falling support for the Greens, the glás has gone off their early poll ratings in Govt. An early election, with little tangible achieved in Govt but many core policies & principles sacrificed, could be catastrophic for them.

I suspect they’ll swallow hard and perform another policy u-bend (they’re long past u-turns, it’s now flushed straight out of the system) to stay in office at any cost.

An interesting year ahead.

[Rich OC]

If the rest of the figures come to pass it is very difficult to see how the economy would actually grow. 7% unemployment would be a disaster and a huge setback to the country.

If I was religious I'd be praying right now.

[mollox]

The Sunday Business Post today reports that the ESB will be seeking a price increase of at least 15% this autumn. Bord Gais already has a 19% increase proposal with the Energy Regulator.

High Petrol/Diesel prices, likely to continue to rise at the pumps, also reflected in the price of home heating oil.

What public or political appetite exists for a set of new carbon taxes in this year’s budget?

http://www.thepost.ie/post/pages/p/stor ... qqqx=1.asp

With the media reporting gloom & doom, and all commentators reporting that house prices continue to fall, the feel-good factor is rapidly disappearing from the national psyche.

It’s hard to see the Govt making any meaningful move on carbon taxes, particularly as no-one will believe that they are intended to be revenue-neutral, given the large and growing exchequer deficit as other tax revenues fall short of projections.

On the other hand, unless something meaningful is done this year, there’s no hope of achieving the 15% emissions reduction target by 2012, as set out in the Programme for Govt..

Could this be the [rather heavy] straw that breaks the Green camel’s back?

[rockyracoon]

It seems like our government hasn't seen a tax it didn't like. Are there no indirect methods of introducing carbon taxes that will appear to be driven by market forces? Off the top of my head, I can think of an increase in parking fees generating alot of indirect tax revenues. To the initiated, the must be loads of imaginative ways to introduce new taxes.

[AndrewM]

This thread is odd. Instead of debating the merits of the carbon levy as it is proposed in the Programme for Government, you're are debating the merits of a carbon levy as it is imagined in your mind. It will be revenue neutral or it wont happen at all, end of.

If we're going to make things up, can I debate the merits of our nuclear cold fusion proposal? Or our big foot rehousing policy?

It's la la land in Mollox's mind

[mollox]

This thread is odd. Instead of debating the merits of the carbon levy as it is proposed in the Programme for Government, you're are debating the merits of a carbon levy as it is imagined in your mind. It will be revenue neutral or it wont happen at all, end of.

If we're going to make things up, can I debate the merits of our nuclear cold fusion proposal? Or our big foot rehousing policy?

It's la la land in Mollox's mind

I'm not attempting to debate the merits,imagined or otherwise, of a carbon levy.

Rather I am posing the question, which arises from the emerging economic and political reality, that it may well be impossible to introduce such a carbon levy, at least in the way envisaged by the Greens.

a) If a carbon levy is introduced, against a background of rising electricity, gas and fuel prices, it risks a serious backlash from (i) a public faced with rising domestic bills and woefully inadequate public transport alternatives to the car and (ii) business/industry at a time of rising costs and unemployment. It will, optically at least, be a brave political move. Are FF ready to take that chance?
b) If no carbon levy is introduced, then there's no possibility of meeting the 15% emissions reduction target. Full stop.
c) If the carbon levy is introduced but used to, at least partially, bolster the central taxation fund, this will be a major betrayal of Green principles.

All of the above scenarios carry serious political risk.
It's entirely reasonable, indeed appropriate, to speculate that 2008 could be a very interesting year in the political marriage of Fianna Fail & Fianna Glas.

[Irish Liberty Forum]

I think change.ie is supposed to be changing our minds about the urgency of measures like this. Public opinion is being moulded to reduce the political risk involved.

[AndrewM]

The Greens have called for borrowing, not increased tax cuts (see Boyle's recent comments), Cowen is calling for cutbacks and the PDs are entirely against tax increases. So were the carbon levy to be revenue raising, exactly which party would support it?

Since it is revenue neutral, there will be tax cuts elsewhere. So slashing VAT, or PRSI or even income tax would have major impact on prices, thereby offsetting the cost impact of the carbon levy. To boot, the carbon levy would disproportionately impact those with larger houses, larger cars and those who take more flights (i.e. wealthier people) whereas cuts to VAT (a regressive tax) would help assist lower income families. An environmental and progressive tax!

It was reading the SBP today though and was aghast to find that the interurban motorway programme in the NDP is being prioritised. An economic slowdown, caused partly by high oil prices, is not going to affect the spending on construction of infrastructure that would only increase our consumption of oil? Certainly our lesson from this economic slowdown is that we need to end our investment in roads. Whatever the chances of a revenue neutral carbon levy, I am decidedly less confident that the latter will occur.

[wombat]

Certainly our lesson from this economic slowdown is that we need to end our investment in roads. Whatever the chances of a revenue neutral carbon levy, I am decidedly less confident that the latter will occur.

Luckily for the rest of us, the Greens may be in govt. but FF are in power.

[mollox]

The Greens have called for borrowing, not increased tax cuts (see Boyle's recent comments), Cowen is calling for cutbacks and the PDs are entirely against tax increases. So were the carbon levy to be revenue raising, exactly which party would support it?

Fianna Fail.
Why?
Because it will allow them to fund some of those politically sensitive activities, avoiding some cutbacks while, at the same time, diverting any electoral backlash onto the Greens.