Carbon tax could pay Australian pensions

An Australian carbon dioxide tax of AU$20 per tonne of emissions of the gas would raise AU$7 billion per year - sufficient for the government to provide AU$500 to each of the country’s 14.2 million adults to supplement their pensions.

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The scheme has been proposed by the independent public policy research centre, the Australian Institute, as a solution to the country’s greenhouse gas emissions, and to concern that Australian retirement savings are not sufficient. The tax would be imposed on fossil fuels according to their carbon content, and the money paid into citizens’ superannuation accounts, says the Institute.

According to the organisation, for a 30-year old with 30 years before retirement, the annual contribution of AU$500 would provide more than AU$50,000 upon retirement. A person who received the annual contribution for 40 years before retirement would have an additional lump sum of over AU$110,000 to supplement their pension. Following retirement, senior citizens would continue to receive their annual AU$500 from the carbon tax.

The current compulsory superannuation contribution of 8% of salary is not sufficient for a large proportion of the Australian workforce, particularly those on low incomes and those who take time off work, for various reasons, such as to raise children, says the Institute.

The effect of a AU$20 per tonne carbon dioxide tax would be to raise petrol prices by 5%, electricty by 20%, and natural gas by as much as 13%. However, the association between price rises and an increase in pension contributions could erode opposition to the new taxes, says the Institute. Nevertheless, the Institute notes that for low income households, the considerable time lapse between the higher cost of living brought about by the tax, and the higher pension income could mean that the Government would have to raise social security benefits, which could be financed by a further US$2 per tonne on the tax.

The Institute claims that as use of carbon-based fuels reduces – due to imposition of the new tax – the income for the annual pension contributions would have to be made up from additional taxes on other environmentally damaging activities.

In the long term, the impact on the country’s economy would be a slight decrease in spending, and a corresponding increase in savings, which could reduce Australia’s current account deficit due to a decreased need to borrow from overseas. However, the tax would have little effect on GNP, says the Institute, with a carbon tax as high as AU$100 producing a fall in GNP of only around 0.6% by 2010. If this is combined with an annual average growth rate of 3%, the effect will be very small.

With 90% of Australians believing that the adequacy of retirement incomes is an important issue, and 80% in favour of ratification of the Kyoto Protocol, the Institute believes that its proposal would be popular.

“If explained clearly, most Australians would support paying a little more for petrol and electricity if doing so made a significant contribution to their retirement incomes and helped protect the global environment from climate change,” said Dr Clive Hamilton Executive Director of the Australian Institute.

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