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Professor McKibbin says the Government's carbon tax modelling is flawed. (flickr.com: Senor Codo)
A prominent economist who sits on the Reserve Bank board has criticised the Government's assessment of the economic impact of the carbon tax.
Yesterday Treasurer Wayne Swan said that based on Treasury estimates, a $20 per tonne carbon tax would not have a long-term impact on jobs and the economy.
He said employment will increase by 1.6 million jobs by 2020 under a carbon price.
But economist Warwick McKibbin, from the Australian National University, says the Government's modelling is flawed.
He told Lateline Business a carbon tax could affect the cost of living.
"That's the adjustment process in these models; if you raise carbon taxes and people lose their jobs, real wages will fall and therefore you'll go back to full employment," he said.
"So the critical question in that sort of model is not what happens to jobs: it's what happens to real standard of living."
Professor McKibbin runs his own software company which develops modelling for policy analysis, including a carbon pricing model.
He says he has submitted different modelling to Treasury and says the Government should use his model in its estimates.
"It would be very unfortunate if the leaked announcement that came out yesterday about the employment effects of carbon taxes was used in a model that wasn't mine, because mine is the only model that has unemployment," he said.
"The other models that people have for carbon pricing actually assumes full employment, so by definition, no matter what you do to the economy, employment cannot change.
"What should happen if you put on a carbon tax in those models is real wages should fall. Now, from the selective leaking, I think that that question hasn't fully been understood."
The Opposition has criticised Mr Swan for using snippets of Treasury modelling to bolster his case for a carbon price.
Opposition treasury spokesman Joe Hockey said it was difficult to draw any conclusions from the information provided.
"To have a treasurer appear at the National Press Club indicating he was going to reveal economic modelling and talk about the details of the carbon tax, and all he gave us was guff and bluster," he said.
"He doesn't reveal any modelling. He doesn't release any assumptions in the modelling."
Professor McKibbin says both the Government and the Opposition are missing the point.
"I think both sides of politics haven't understood that the key to increasing investment in energy generation in this country, and it's not about the carbon price today, it's about the carbon price we expect to see in 10 years, 50 years, 70 years," he said.
Professor McKibbin's term on the RBA board ends in July and he has not been reappointed.
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Chat about this story w/ TalkitaSource: http://www.abc.net.au/news/stories/2011/06/08/3239252.htm
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