Australian carbon tax – winners and losers*

With the Opposition party and various interest groups objecting to the Australian Government’s proposal of a carbon tax, public opinion about pricing carbon is divided. Some of the disagreement may be due to misunderstandings about the effects of the policy. In an effort to clarify some of the issues, this paper reports the simulated effects of a carbon tax of $23 per tonne of carbon dioxide on different economic agents, with and without a compensation policy. We employ a computable general equilibrium (CGE) model with an environmentally-extended Social Accounting Matrix (SAM). According to the simulation results, the carbon tax can cut emissions effectively, but will cause a mild economic contraction. The proposed compensation plan has little impact on emission cuts while significantly mitigating the negative effect of a carbon tax on the economy. At the sectoral level, brown coal electricity, black coal electricity and the brown coal mining sectors are big losers. The effect on various employment occupations is mildly negative, ranging from -0.6% to -1.7%, with production and transport workers worst affected. Regarding household utility projections, low income households suffer more from a carbon tax and benefit more from the proposed compensation policy. However, the commonly used equivalent variation (EV) tends to reverse this conclusion.