Ex-Treasury boss Ken Henry on the case for taxing carbon

The federal government’s much-hyped productivity round table is still almost a month away, but over recent days the anti-tax, climate-sceptic hard right has busied itself trying to mount a pre-emptive scare campaign.

Peta Credlin, former chief-of-staff to prime minister Tony Abbott and now a Sky News commentator, for example, foresaw higher taxes coming out of the August talkfest. In particular, she was agitated about the prospect of a carbon tax.

It was, she said a “near certainty” that the government’s “spending addiction” would see new taxes.

“And what better tax than one that supposedly saves the planet, especially one that’s just been publicly supported by former Treasury boss Ken Henry, the mining giant Rio Tinto, the ACTU and a whole lot of academic economists who should spend more time in the real world,” she said.

Abbott also weighed in via an interview – posted a few days ago on Facebook by the Gina Rinehart-funded Institute of Public Affairs – warning about a renewed push for a carbon tax.

Credlin’s tone was snarky, but her complaint also amounted to a tacit admission of reality. Just as the great majority of scientists recognise the threat posed by climate change, the great majority of economists and tax experts recognise that the most efficient, lowest-cost way to deal with the challenge is by putting an economy-wide price on carbon.

A survey by the Economic Society of Australia a few years ago found 86 per cent support for a carbon price as the most efficient policy to help achieve net zero by 2050 – a fact noted by the ACTU in its submission last month to a Productivity Commission inquiry, which will inform the roundtable deliberations.

Not that the Productivity Commission – hardly a hotbed of left-wing ideology – needs any convincing. It has endorsed a carbon tax for years.

Australia’s premier conservation organisation, the Australian Conservation Foundation (ACF), has also pushed the idea in its submission to the round table. Likewise Rio Tinto, the mining giant that decided some years ago to get out of the fossil fuel business, submitted that a “market-based price on carbon is the most effective way to incentivise the private sector to make low-carbon investments and drive down emissions”.

The list of advocates for change goes on. The fact is, the weight of informed opinion favours a price on carbon.

But the endorsement that really set Credlin off, it appears, was Ken Henry’s. Her editorial included vision of Henry from his appearance last week at the National Press Club.

The former Treasury secretary, who now chairs the Australian Climate and Biodiversity Foundation, did not go to the press club to advocate a carbon tax. He was there to make the case, ahead of the round table, that big productivity gains could be achieved by other means – notably, through the reform of Australia’s main national environmental legislation, the Environment Protection and Biodiversity Conservation Act.

It was a question from a journalist that elicited the grab shown on Credlin’s program: “Do you think it’s time to reconsider a carbon tax?”

“What do we mean by reconsider?” he asked. “Why the hell did we ever drop it? I mean, that’s the question, right? It still boggles the mind that we had the world’s best carbon policy and then, for purely political reasons, decided that we could afford to do without it.”

That snippet of his answer was all Credlin showed, but Henry went on.

“Well, my God, of course we need a carbon tax. But in the meantime we’ve got something else, and we’ve got to make this something else work, right? And I am not of the view that without a carbon tax we should just give up.”

If Credlin’s whinge on Sky News amounted to an admission that informed opinion was not on her side, Henry’s lament to the press club amounted to an admission of the power of the likes of Credlin, Abbott and the other opponents of climate action to rally popular opinion against policy reform.

They have done it before. Under a previous Labor government, a carbon pricing scheme began operating in July 2012. It worked well: emissions fell, the economy grew strongly and the revenue it raised was used to protect households, workers and industries that were vulnerable to the impacts of a carbon price.

The Abbott opposition campaigned relentlessly against it and, after winning government, axed the policy almost exactly two years after it began.

Speaking to The Saturday Paper, Henry suggests the hopes of those pushing for the government to revisit the idea of a carbon tax at the upcoming round table will be dashed.

“The politics of it is absolutely toxic,” he says. “That’s the problem. It turns out that it’s very easy to scare the bejesus out of people. I think it’s as simple as that.”

Indeed, he worries about the prospects of the round table leading to serious reform more generally. It’s been a long time since government has contemplated it; there has been fierce resistance to “any rational economic policy”. As Henry knows better than almost anyone.

He first advocated an emissions trading scheme – a type of carbon price, way back in 2004. It went nowhere. In 2010, when he was Treasury secretary, he chaired the major “Future Tax System Review”, later known as the Henry review, which advocated far-reaching changes to the tax system. The Rudd government adopted only a few of its 138 recommendations. Thankfully, during the global financial crisis the Labor government did heed his famous advice to “Go early, go hard and go households” with financial relief. It saved Australia from the worst effects of the GFC.

In our conversation, Henry reaches back 40-odd years for a moment of political opportunity analogous to the present, to the transition from the policy inertia of the late 1970s to the reform era of the 1980s, when the political system, for a decade or so “realised that there might be advantage in actually doing something rather than just sitting around and having arguments about it”.

“And I think we’re at a similar moment now, where the maturity of the political system is being tested. Are they really capable of doing something that is economically rational and in the national interest or would they prefer to fire cheap shots at one another and play political games?”

I put it to him that this would seem to be a propitious moment for progressive reform. Following the May election, Labor has a huge majority in the lower house, the opposition is internally divided and there is a progressive majority in the Senate. Surely the Albanese government can afford to spend some of that political capital by looking again at a carbon tax?

“It’s not for me to make that call. It’s for Albo to make that call,” he says.

Albanese is cautious about moving on any reform for which the government does not have a clear mandate. It made no promises before the election relating to a carbon tax. It did, however, promise reform of the EPBC Act and it did promise action to lift productivity.

In his address to the press club, Henry set out to debunk the view that environmental protection is something separate to economic advancement, if not antithetical to it.

Quite the opposite, he argued. Addressing the former begets the latter.

This is the core philosophy of the organisation he now chairs, and for which he spoke at the press club.

The Australian Climate and Biodiversity Foundation (ACBF) was established in 2021 as a kind of hybrid business and environmental lobby group, with a board of directors drawn from the private sector. Henry himself is a former chair of National Australia Bank.

He says the motivation behind the ACBF’s founding, under former Wilderness Society chief Lyndon Schneiders, was “frustration with the inaction on environmental law reform and the inability of people to see … any sort of connection between environmental law and its application, and what’s actually going on in commercial Australia”.

“It’s obviously time to stop the [environmental] degradation,” he says. And at the same time, to facilitate “a massive transformation of the economy” – to get Australia to net zero emissions, while growing productivity and improving living standards.

Over the past quarter century, Australia’s record on both protecting the environment and increasing productivity has been woeful.

On the latter, Henry notes that following the major economic reforms of the 1980s, Australian productivity growth was very robust.

“Over the decade of the 1990s,” he told the press club, “average productivity growth was 2.31 per cent a year. Over the past 25 years, it’s averaged 0.98 per cent a year. That’s a pretty fundamental difference, right? If we continue on that trajectory … we will have no option but to raise taxes, and quite significantly, by several percentage points of GDP.”

Or radically cut spending.

Henry offered a killer statistic, illustrating the cost of Australia’s failure to maintain the productivity growth of the 1990s.

“Assuming that real wages grow pretty much in line with productivity growth,” he said, the slowdown has cost the average full-time worker in Australia “more than half a million dollars over the past 25 years”.

It has been a quarter of a century, too, since the Howard government implemented the EPBC Act. Multiple reviews, most recently the report by Professor Graeme Samuel, released in 2021, have found the act unfit for purpose.

Ahead of the 2022 election, Labor promised major reform of the EPBC Act, including the establishment of an independent environment protection agency. It didn’t happen. Now Murray Watt has promised action.

On the basis of a couple of meetings, Henry is impressed with the new environment minister.

“I think he’s strongly committed … to the reform of the EPBC Act. I’ve come away thinking this guy’s serious,” Henry tells me.

“I’m pretty sure he understands the importance of getting it done in the first half of the parliamentary term, rather than the second half.”

That won’t happen before the round table though, which raises questions about what, exactly, it will produce in the way of productivity-enhancing environmental reform. Notably, the current list of those attending includes no representatives of conservation organisations, with the exception of Henry.

And to the extent that the government has addressed the issue of environmental law reform ahead of the summit, it has been about speeding up the consideration of development applications.

This is not necessarily a bad thing: the current regime is too often incapable of delivering, as the government puts it, a “quick yes or a quick no”.

Speeding up the process, could, for example, expedite the rollout of renewables.

“Protecting nature can be achieved in an efficient and effective manner,” says Brendan Sydes, the ACF’s national biodiversity policy adviser.

“A key failing of the EPBC Act is that it ties proponents up in a lot of processes without much to show in terms of nature protection outcomes.

“The answer to this is not to strip away already failing environmental protections under the guise of ‘streamlining’. The solution is clearer standards and nature protections and an independent, accountable regulator to make sure the rules are followed and standards are implemented.”

In his press club address, Henry put the urgency of overhaul in stark terms, saying the EPBC Act “has done little more than record the degradation of the natural world, one project at a time. And without major reform, that’s all it’s ever going to do.

“I have previously, in other places, described our failure to steward our natural resources as an intergenerational tragedy, as intergenerational theft, even as a wilful act of intergenerational bastardry. I guess I’m in danger of running out of printable descriptions to convey the gravity of the situation.”

Some of the statistics he cited, culled from the most recent “State of the Environment” report, are shocking.

“One-hundred-and-five Australian species have been recorded extinct, including 10 per cent of all known mammal species,” he recited.

“A further 21 per cent of all remaining mammal species are currently threatened with extinction; 741 species have been added to the threatened species list since 2000. In total, 2138 animal and plant species are now considered to be at threat of extinction.”

Henry noted also the “State of the Environment” report’s words – that the accelerating decline in the natural environment is “reducing the environmental capital on which current and future economies depend”.

In its submission to the productivity round table, the ACF also emphasised the economic consequences of environmental degradation. Among the ecosystems that were collapsing, it said, were the Great Barrier Reef, which supports 64,000 jobs, and the Murray–Darling Basin, which produces more than 30 per cent of our food.

Suffice to say the productivity round table looms as an early test of the courage and commitment of the Albanese government to serious reform. So does reforming the EPBC Act.

As Ken Henry told the National Press Club: “Reforming our broken environmental laws is an obvious lever to enhance resilience and to lift moribund productivity growth, and reforms provide an opportunity to cut the cost of government, both Commonwealth and states, dramatically.

“Now, of course, I can think of other reforms to boost productivity, some even harder than this, though none more important.”

We’ll soon see what the productivity round table comes up with in relation to environment laws.

In the meantime, Peta Credlin might like to back off the scare campaign about a carbon tax. Because one is not on the agenda.

More’s the pity.