THE Productivity Commission has attacked the Rudd Government's plans to hand out billions of dollars worth of free emission permits to emission-intensive firms, warning that it would just shift the burden of adjustment to other industries.
In its annual report on government assistance to industry, the Commission says the $8.2 billion hand-outs originally proposed for carbon-intensive firms in 2011-12 would virtually double Federal Government spending on industry support. Even under the Howard government, it says, budget spending and tax breaks for business shot up from $5.1 billion to $8.4 billion in the five years to 2007-08.
The Rudd Government's spending plans for research and development, the car industry and the farm sector would add another $20 billion in coming years, it says. But the emissions trading scheme would put all that in the shade.
The commission says free permits to emission-intensive firms alone would cost taxpayers $6.5 billion in 2011-12 under the original plans — now postponed for two years due to the global financial crisis.
The Government says the free permits are needed to stop firms shifting production to countries without carbon caps — "carbon leakage" — and the Coalition and industry say they are not generous enough. But the Commission says they will be too expensive and wasteful, and make other firms bear the burden of reducing emissions.
"Policies that counteract carbon leakage will most likely transfer the abatement task to other sectors," it warns. "This will impose additional costs on other firms that must buy permits to emit greenhouse gases."
Plans to shield emissions-intensive industries mean other firms will have to do even more so that Australia's emissions reduction targets are met, the commission says. They will have to pay higher prices for the reduced supply of permits, reducing their output and increasing its price.
The commission urged the Government to set up a regular review mechanism to ensure that commitments were kept and targets met, as well as keeping the need for free permits under review.
Overall, the commission estimated that the Government in 2007-08 provided net assistance of $9.4 billion to specific industries, firms and business types: $8.4 billion through the budget and $1 billion in net tariff assistance.
The drought has made agriculture the most protected sector, with 7.5 per cent of farm revenues now due to government assistance, compared with 4.5 per cent in manufacturing.
Of the budget's $8.4 billion of support, $1.25 billion went to drought relief, $2.3 billion to research and development, and $1.36 billion on tax breaks and other support for small business.