Leading economist and former Treasury head Dr Ken Henry has warned the Australian economy will likely suffer more under the conservative Liberal-National government’s proposed Direct Action climate plan than it would under an Emissions Trading Scheme (ETS).
AAP Newsagency reports the economist also disagrees with a move to shift his replacement, Treasury secretary Martin Parkinson, out of the top job following the May federal budget.
“No government has ever thought it appropriate to remove the head of the Treasury and put in somebody who they think is of a more comfortable political character,” Dr Henry said referencing 114 years of Treasury history.
He conceded though, he doesn’t know Prime Minister Tony Abbott’s motivation for the reshuffle.
“If that is what is intended then that would be a disappointing move and quite a historic one,” he told ABC TV last night.
AAP reports there has been speculation Dr Parkinson was pushed to resign because his announcement coincided with the sacking of three other heads of department shortly after the Abbott government came to power.
Dr Parkinson should be asked to remain in his position, Dr Henry said.
As the Liberal-National government prepares to present its first budget, Dr Henry thinks economist Professor Ross Garnaut has a better handle on costing the coalition’s Direct Action carbon plan than the government itself.
“I wouldn’t question Ross on this issue. I think he probably has his numbers right,” Dr Henry said, acknowledging Dr Garnaut’s estimates that Direct Action will cost the economy up to $5 billion a year.
“Tackling that issue through any mechanism other than an emissions trading scheme will necessarily be more damaging on the Australian economy.”
The government is trying to repeal the current clean energy laws put in place by the previous Labor government.
It wants to replace the fixed price ETS, which will revert to a market based ETS in July 2015, with its so-called Direct Action plan that requires the government to pay companies to abate their carbon output.
Dr Henry, who led a tax review under the former Labor government, also warns Australia is facing an “imminent crisis” in its taxation system unless there is “comprehensive” reform.
AAP reports the 2010 review of the taxation system identified a number of medium term challenges, such as welfare payments and an ageing population
However,t Labor didn’t act on these or his recommendation for a widespread overhaul.
“We’re getting much closer to that point at which we should acknowledge that there is an imminent crisis ahead for the tax and transfer system,” Dr Henry said.
He pointed to spiralling welfare costs related to the disability support pension.
The nation will need to make significant cuts to afford big-ticket commitments such as education reform, the National Disability Insurance Scheme and proposed paid parental leave scheme, Dr Henry said.
“We can’t afford new social policies with the current revenue base.”
Dr Henry believes a future increase in the rate of the GST is inevitable.
With the coalition government facing a massive challenge to rein in the budget deficit, Dr Henry recommended it take another look at his 2010 taxation review.
