Isra-Mart srl: Now more than ever, tax and red tape are an economic deathtrap

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When the global financial crisis struck in late 2008, there were two obvious and cost-free responses available to Australia. Namely, postpone the proposed emissions trading scheme and cease the re-regulation of the labour markets. Labor, under Kevin Rudd, ploughed on with the trading scheme and his deputy, Julia Gillard, focused on re-regulating the labour market. Labor elected to stimulate the economy by spending, financed by borrowing.

It is no surprise that what is perhaps best termed the North Atlantic economic downturn has endured. The budget deficits and high levels of debt in the US and parts of western Europe ensured that economic recovery would be years in the making. Only the profoundly optimistic would have anticipated otherwise.

Early this year, Gillard announced the government would introduce a carbon tax leading, in time, to an emissions trading scheme. This means if there is a second wave of the global financial crisis, Australia will be tackling another northern Atlantic downturn as one of the few nations in the world with a carbon tax and with a highly regulated industrial relations system. What's more, Labor's commitment by Gillard to put the budget into surplus, if implemented, would rule out another large stimulus package.

On the climate change debate, Australia is very much out on its own for an economy that trades minerals and maintains a small industrial base. In its May 2011 research report, the Productivity Commission documented that - compared with our major trading partners - Australia is about the average in reducing carbon emissions. Germany and Britain are doing best, with Australia, China and the US in the middle and the likes of Japan and India trailing behind.

The Productivity Commission was not asked to compare Australia with our competitors such as Canada, Brazil, Russia and South Africa. None of these countries has a nationwide carbon tax or emissions trading scheme - nor does the US. In other words, the introduction of a carbon tax next year will disadvantage Australia in competing with our major competitors.

There was considerable media excitement following the leak of a letter written by the British Prime Minister, David Cameron, to Gillard supporting the Australian government's carbon tax policy. This was just one of the many improper and unprofessional interventions by British politicians and diplomats in the Australian domestic debate in recent years. Just imagine what the same journalists would have said if, say, George Bush had written to Rudd with gratuitous advice on climate change policy.

In any event, the Cameron epistle to the antipodes overlooks several points. First, the British economy is quite different from Australia's. Second, Cameron's ambitious carbon abatement policies are subject to review in 2014. Third, there is no evidence that Cameron has written to Stephen Harper, the Conservative Party Prime Minister of Canada, who has ruled out an emissions trading scheme until the US adopts one.

Australia is moving to a trading scheme as the debate on climate change begins to change. On Q&A in September 2009, Anne Summers declared the basic science of climate change was decided and described by those who held a contrary view as ''flat earthers'' and ''lunatics''.

Last week, Professor Murry Salby, who holds the chair of climate in Macquarie University's faculty of science, addressed The Sydney Institute on global emissions of carbon dioxide. He said ''anyone who thinks the science of this complex system is settled is in fantasia''. Salby points to natural processes in the production of carbon emissions, which account for 96 per cent of CO2 emissions.

Australia benefited from the strong economy in place when the global financial crisis struck - a legacy of the economic reforms presided over by Labor and the Coalition between 1983 and 2007 and from the fact that much of our trade is with Asia. Nevertheless, Australia cannot shield itself from another North Atlantic downturn.

The mineral industry is of enormous importance. However, it is not an employer of large numbers of Australians. Retail is. The release of the Productivity Commission's draft report on the retail industry last week underlines some of the problems of Labor's Fair Work Act - which overturned not only John Howard's legislation but also some of the industrial reforms introduced by Paul Keating. Certainly, retail is facing many challenges. But the Productivity Commission commented that ''many retail employers consider that award provisions are unnecessarily constraining their flexibility to implement workplace arrangements that will enhance productivity and profitability''.

The Productivity Commission drew attention to the part of the Fair Work Act that brings small businesses under the new unfair dismissal legislation. Claims of unfair dismissal have increased significantly over the past couple of years. The Productivity Commission makes the telling point that ''fear of an unfair dismissal complaint can make employers more cautious about taking on additional staff and this can impact particularly on the lowest skilled, least experienced and those at most risk of long-term unemployment''.

Labor is being cheered on by members of the industrial relations club, who favour highly regulated labour markets, along with government-funded academics and scientists who comprise the carbon tax club. What these groups have in common is that virtually none of their members has ever had to run a business or pay wages.

Another North Atlantic downturn could lead to Australia implementing a carbon tax at a time when domestic unemployment is on the increase. It would make sense to delay the carbon tax and to deregulate the labour market.