Month: December 2009

Fundamental change does not occur quickly.

John Maynard Keynes circa 1940.

 

TAXATION

Prosperity is the tide that carries us all to realisation and enjoyment of our material and social aspirations. No economy can grow in a sustainable way unless it has a good tax system. The Australian tax system was reformed under Keating with bi-partisan support from Opposition leader Howard, accelerated under Howard as Prime Minister with the excellent introduction of an efficient and almost sensible Goods and Services Tax (GST) .

All taxes ultimately reflect in the prices of goods and services, and asset prices, and also have an impact on the current account deficit. This is simply because business calculates its returns on an after-tax basis. Prices have to rise to increase the rate of return, or goods have to be produced more cheaply to enhance margins. Often Mumbai seems better than Moree or Melbourne.

The problem with taxes generally is that politicians never feel the need to explain taxes properly. All taxes impact on all prices, but politicians keep taxes hidden so that the real costs passed on to the consumer are not blamed upon a poor tax system, and the waste that occurs in government spending, including duplication and triplication, remains largely undetected. Also at disparate State-Federal election times the States can blame the Federal government for high taxes and lack of service delivery, and vice versa.

A good tax system is transparent, relatively simple, involves as few collection points as possible; encourages work, savings and investment; and assists employment creation. It should also be designed to inform taxpayers, to keep governments accountable.

 

THE TREASURY REVIEW

Sometime in the New Year the Ken Henry tax review will be handed to the Federal Government. Ecinya had always thought that there were two economies – the real economy, the production of goods and services, and the symbol economy, money and credit. Last week a journalist, Michael Stutchbury, we believe, identified another economy – the political economy.

Ecinya always hopes to be pleasantly surprised on matters relating to taxation, but given that the preliminary document issued by Treasury in August 2008 ran to 344 pages, and that Treasury is involved in the final document (with Mr Henry being hardly independent), that consideration of extending the GST to food is being excluded from the review, that the government has over-spent in many areas in response to the ‘Global Financial Crisis’, and accumulated significant debts, and blown the Howard-Costello budget surpluses, the final document is unlikely to be a ‘reform’ package.

Thus, at this point in time we can regard the Henry Tax Review as having little to do with the ‘real’ economy, and a lot to do with the ‘political’ economy.

 

BACK TO THE FUTURE – PAYROLL TAX

Our focus in this our first paper on taxation is payroll tax, and we are re-producing in its entirety a paper published as an open letter on 7 March 1991, which fits neatly with our Keynesian head-quote above that fundamental change does not occur quickly, and sometimes does not happen at all, because of the inefficient and misleading character of the ‘political’ economy.

In 1991 Gerry van Wyngen and George Sutton got together, had some economic modelling done, and published a full-page advertisement in The Australian. The quoted cost was $18,000 and this was met by a private company contributing $5,000, a public company $5,000, and Gerry and George contributed $2,000. Because it was considered a matter of public interest, The Australian newspaper reduced the page price to $12,000 at their own suggestion. G & G heartily agreed.

After publication we sent a copy of the advertisement to the top 25 Australian public company Chief Executives and a number of them mentioned payroll tax in television business programmes in the months following. Not one of them wrote to us to express their thanks for our efforts. Without rancour, we found this to be most disappointing and time has not completely removed the scar tissue.

Gerry van Wyngen was a marvellous person, and a consistent and learned contributor to the economic debate via many channels, but principally through his writings in BRW Magazine and The Australian Financial Review. He died in April 2009. This Ecinya Insight is dedicated to his memory.

 

PAYROLL TAX IN AUSTRALIA

Payroll Tax is a State tax and in the 2007 fiscal year payroll tax collections were $14.4 billion, equivalent to 29% of total State tax collections (source Treasury paper ‘Australia’s future tax system’ August 2008). Average weekly earnings are equivalent to $62,400 annually. Dividing $14.4 billion adjusted for 30%, tax but omitting collection costs, payroll tax collections are the current equivalent of 161,500 jobs, about 25% of Australia’s official unemployed of 659,000. Of course this figure of 161,500 is increased by the fact that many people receive less than average weekly earnings, and reduced in the short-term by people who might be sacked by the State governments as they would need to replace the lost revenue from the Commonwealth. A loan from the Commonwealth would overcome this short-term difficulty.

Considering the recent stimulus package created more jobs abroad than locally as people spent on overseas holidays, and purchased home entertainment systems, we could probably speculate that unemployment numbers might reduce by about 13%, taking the unemployment rate down to under 5% from the current 5.7%. Ecinya still considers that putting the GST on food would simplify the entire tax system, including payroll tax, and we suspect that Mr Walsh, Mr Howard, Mr Hawke, and Mr Keating would substantially agree. The obvious offsets would have to, of course, take place, pensioners, unemployment benefits, lower income tax brackets for lower incomes in particular, a lower corporate tax rate etc.

The advertisement, considered to be relevant today, is reproduced as follows:

"AGENDA PAYROLL TAX

AN OPEN LETTER TO

• Prime Minister Hawke
• Premier Greiner
• RBA Governor Fraser
• Mr Kelty

ABOLISH PAYROLL TAX

• iT WILL CUT UNEMPLOYMENT 1%
• IT WILL CUT INFLATION TO UNDER 2%
• THE COST TO CONSOLIDATED REVENUE IS LESS THAN YOU THINK

Why abolish payroll tax?

Payroll tax is a tax on employment. Payroll tax chokes the source that creates the capacity to pay it, with rising unemployment, as Australian employers struggle to compete against imports. Payroll tax is stupid.

Silly Taxes Upset Proper Industrial Development.

STUPID is an apt acronym. On the one hand we bemoan our lack of industrial and commercial base. On the other, we impose a tax that actively discourages formation of such a base.

Mr Hawke….. where you can lead.

Payroll tax is a deduction for Federal taxation purposes which means that of every dollar paid to a State government up to 39 cents is effectively lost to Federal consolidated revenue. The $6.5 billion expected to be raised by the States this fiscal year will be offset in part by revenue lost to the Federal government totalling in excess of $2 billion. Thus you are in an excellent position to offer to reimburse a substantial part of the loss of revenue to States that would result from the abolition of payroll tax.

Mr Greiner…. where you can lead.

As Premier of Australia’s best managed State and a strong believer in the reform of State taxes you can volunteer your willingness to share in the responsibilities of abolishing payroll tax.

Mr Fraser…. where you can lead.

As Governor of The Reserve Bank and an outspoken critic of inflation, you can promote and facilitate a reduction in inflation in the order of 4% which effectively puts Australia on the road to zero inflation and – eventually – a permanent reduction in interest rates to industry, commerce, miners, farmers and home buyers below 10%.

Mr Kelty…. where you can lead.

As Australia’s leading trade union official, respected for your farsighted thinking, you can demand this tax on employment be abolished. You are undoubtedly aware of the study by Bruce Chapam (RBA Conference Proceedings 1990) estimating a 3% wages fall translates to an increase in employment of 0.7-0.9% per annum. Using the relationship cited by Chapman we estimate abolition of payroll tax would increase employment by approximately 100,000, effectively taking almost 1% off the rate of unemployment.

Why payroll tax raises less revenue than the figures indicate.

Using an estimated collection of $6.5 billion is fiscal 1990-91, after deducting the loss of revenue to the Commonwealth, the net "take" to Australia’s consolidated revenue is in the order of $4.5 billion in a normal year i.e. a year in which Australia is not in recession, with business profitability severely curtailed. However, elimination of payroll tax would increase employment and therefore income tax collections, and reduce unemployment and consequently social security benefits paid. The savings on unemployment benefits (on the Bruce Chapman model) are estimated to total $1.6 billion per annum. The increase in income tax revenue alone from the extra jobs generated by abolishing payroll tax is estimated at in excess of $0.5 billion. Thus the total improvement in the Commonwealth’s consolidated revenue from the abolition of payroll tax would likely exceed $4 billion per annum, being the extra corporate tax paid plus the increased collection in income tax from increased employment, plus the gain from reduced unemployment benefits paid.

Payroll tax collects so little.

As we have seen above, the net revenue to Australia’s various tax authorities is not $6.5 billion. It is not even $4.5 billion after compensating for deductibility on Federal income tax. After adjusting for the employment effects and their revenue implications, the real revenue base of payroll tax is less than $2.4 billion.

You can argue the figures, but not the facts.

Economists in government, The Reserve Bank, academia and banks will undoubtedly be able to sharpen the above figures. The components may differ in degree, but the bottom line will be similar. Our belief is that the eventual loss of revenue from payroll tax is even less than the $2.4 billion projected above. The stimulus to productive activity throughout Australia would eventually provide an increased tax base across a wide range of production and consumption.

Payroll tax is an immoral tax.

It actively promotes unemployment. In the process it denies many people, unnecessarily, the self-esteem and fulfilment that comes from working to one’s capacities and energies. The long-term unemployed do not develop the skills or the confidence to hold down a job. School leavers are disillusioned by the lack of current job opportunities and on-costs that are an impediment to them obtaining work. The loss of youth morale after 12 years at school is disheartening.

When should payroll tax be abolished?

The announcement should be made immediately. The phasing-out can be delayed six months if necessary. The important matter is that business and unions plan for it immediately.

Which industries would be most favourably affected?

All, including manufacturers, processors that add value to Australian rural products and minerals, the hospitality industry, commercial cleaning, banks, retailers, housing, the list goes on.

The States would benefit.

Victoria especially, the home of Australian manufacturing would receive an immediate boost to economic activity and reduction in unemployment.

Eliminating payroll tax would help exports and cut imports.

By making Australian industry and commerce more competitive there would eventually be a strong positive effect on the balance of payments.

There are other secondary benefits.

By deceasing inflation, which flows naturally into lower interest rates, the Australian dollar would also fall. There are very substantial benefits from this. Apart from the direct boost to competiveness, the cost of borrowing money to invest in increased plant and machinery is slashed, the stricken rural sector receives relief, and through the lower dollar, Australian products are cheaper on world markets.

Surely the benefits of eliminating payroll tax are not that substantial and wide?

Yes, in fact they are. Payroll tax is the most stupid tax Australia has ever implemented. Taxes, once introduced, have a habit of sticking because of the traditional adversatorial Federal-States approach to taxation revenue and because Australians have sat on their hands, this stupid tax remains."

In sport, business, and politics, the game is greater than the player.

Adapted from The Strathfield Golf Club motto, translated from the Latin.

Golf is unique. It is a game played by individuals who, with the aid of specially designed sticks, are wholly responsible for their own success or failure in manoeuvring a ball into a defined hole in the ground. The developments that have taken place also reminds us that each group of club members by their efforts and achievements leave a legacy on which lasting and fine traditions are built.

R J Edmends 2003 Club Captain, The Flinders Golf Club.

He did not admit explicitly to cheating on his wife. But Tiger Wood’s image as a perfect family man and faultless ambassador for golf was in tatters on Wednesday night, after he issued a lengthy apology for "personal sins" that had "let his family down".

Tom Leonard, The Sydney Morning Herald, 5/12/2009.

It is pretty easy to have a high opinion of yourself when you get to be PM. One of John Howard’s great qualities was that I think it took him 11 years to suffer from hubris and I think this mob had it after about 11 minutes.

Tony Abbott, on radio 2GB with Chris Smith, Sydney, 4/12/2009.

Don’t be buffaloed by experts and elites. Experts often possess more data than judgement. Elites can become so inbred that they produce haemophiliacs who bleed to death as soon as they are nicked by the real world. Great leaders are almost always great simplifiers, who can cut through argument, debate and doubt, to offer a solution everybody can understand.

Extracts from Colin Powell’s 18 lessons, former US General and Secretary of State.

Many people do not believe in the global warming problem, and many do. Many people who believe in the problem do not believe in the Trading Scheme as the best solution. Many people who believe, or who are sceptical, or disbelieve, do not like the people who are leading the political debate where egos are elevated, hyberbole heightened towards Churchillian proportions, zealotry has replaced enthusiasm, giving support to the thesis that elected officials believe they have been ordained.

Ecinya editor on a clear morning in the Mornington Peninsula 2/12/2009.

We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let’s face it, of no concern to Wall Street. The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we’ve already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again. It is not at all clear that the recent data have removed any uncertainty as to which world we are in.

John Hussman, Hussman Funds Management, December 2009

 

SUMMARY OF THIS WEEK’S INSIGHT

When egos soar, taxpayers have a chance to be poor, or poorer, or less rich. Last week was psychologically disturbing at home and abroad. Tiger Woods became a metaphor for the fundamental dysfunctionality that ails America – the twin sisters, the cults of crony capitalism and celebrity; Mr Obama was confused over productivity, but took a reasoned and correct gamble on Afghanistan; Mr Swan gave a dissertation on Reserve Bank independence but denied the four pillars their independence; papal fallibility rebounded thrice on Mr Rudd as he rushed off to brief Mr Obama on climate change; Mr Turnbull lost the opportunity to do the job he has not yet demonstrated any sustainable capacity to hold; and Ken Henry made a speech that was exceptionally disappointing on fiscal policy at the 2009 Whitlam Institute Symposium on 30 November.

What a week!

Unfortunately, some of the elements surrounding some of the happenings have implications for the development of our outlook for 2010, which is currently in process of formulation for publication on 13 January 2010.

A GLIMPSE AT 2010

Firm predictions are out of the question, but we believe we are in a volatile market recovery in context of either a muted or fragile economic recovery. Our strategy will be to invest and trade (Cactus), but also to start a longer-term fund (Bamboo) using real money of course which enforces needed discipline and teaches us humility on a regular basis. Overall, our current view is that in fiat money system and if Obama moves from the soft-left towards the centre, and some progress is made in relation to global discord, then risks are to the upside.

TIGER AND OBAMA

Winston Churchill (who had an American mother) once famously said: “You can always rely on America to do the right thing, once it has exhausted the alternatives". America needs a reality check and Mr Obama needs to do it sooner rather than later. Perhaps the January 2010 State of the Union address will be an appropriate forum. Many of the things we get from America are not as they seem: the dot.com bust, the banking system, the weapons of mass destruction, the Reagan years and its economic and foreign affairs exaggerations, etc. But now we have Tiger who was the icon of the gentlemen’s game, golf, who has let his family, friends, and fans down by being relatively normal. We suggest he should go on TV with the alleged 5-10 lovers, charge an excessive fee, and then give it all to Muhammad Yunus of Bangladesh.

What concerns us from this episode is that Tiger was unaware of his broader responsibilities to look after the game, rather than himself. In similar vein we were disturbed that Mrs Obama appeared on the front cover of Vogue shortly after the inauguration and last night in Washington at the Kennedy Centre did a high-five with Mr Obama at a performing arts concert to celebrate American culture. In Australia and New Zealand we like our heroes to be somewhat modest and self-effacing. Mr Obama needs to be a good economic manager more than anything else, and not a big-issue celebrity. He has the rhetorical and intellectual skills to be a great President of the United States (the world’s largest economy) and like Tiger needs to recognise his broader responsibilities and approach them with focus, purpose, and balance. He does a lot of good things. He should be spending a lot of time with Mr Volcker and some time with Paul O’Neil and ask each of them to remind him constantly that Afghanistan is being fought on Mastercard, Diners, American Express, ChinaCard, and BernankeBank.

When some better numbers came out last week on US employment (though many consider the numbers grossly understated) Mr Obama said the good news was the ‘increase in productivity’. Productivity increases if you reduce the denominator. You do the math. If you have the same level of activity (bolstered by home grants and cash for clunkers incidentally) and divide it by 90 workers instead of 100, because 10% are officially unemployed, then the 90 workers now concerned about job security only have to work 11.1% harder to make up for the workers who have lost their jobs.

If God had meant politicians to lie he would not have needed to invent spin, misleading and deceptive conduct, innuendo and obfuscation.

WAYNE SWAN

Peter Walsh, our editor’s favourite post-war politician, said recently that Mr Rudd was an economic illiterate. When Walsh waxes lyrical, Ecinya listens. But Mr Swan appears not to be far behind Mr Rudd in terms of economic literacy. Last week Mr Swan said that 3 out of the 4 major banks were wrong in raising rates beyond the cash rate increase from the Reserve Bank because the RBA was the ‘independent arbiter’. Now if the RBA is ‘independent’, surely the major 4 banks are even more independent. He could have said he was disappointed and had sought and received explanation which he understood and disagreed with for a variety of sober economic reasons. Sometimes you don’t have to play politics in your lunch-hour.

EMISSIONS TRADING

We don’t like the emissions trading scheme and wrote about it on 13 October 2009 under our Insights article ‘Exercise caution in your approach to carbon credits’. Global warming is about much more than Mr Rudd and Mr Turnbull. It is a lesser issue than the GST but we did receive fulsome explanations from Messrs Howard and Costello. When leaders get too far ahead of their constituents, embracing the warm delights of Kirribilli House with chardonnay in hand, the grandeur of Washington and the splendour of Copenhagen, their learned discourse can cause them, unwittingly, to overlook the basics of their indulgence of the public purse.

THE EMISSIONS TRADING SCHEME AND MR RUDD

Thrice rebuked: Just as he endorses Nathan Rees, Nathan gets the sack. Just as he embraces Mr Turnbull, who renegotiates an ambit claim on the ETS intended to create the appearance of win-win, Mr Turnbull gets the sack. Just as he looks forward to a stoush with the Liberals’ Mr Beazley in Joe Hockey (perception: great blokes, but too soft), the Liberal coalition opts for Abbott and Barnaby. Papal fallibility reigns supreme. We can probably now expect that Mr Rudd will cease his door-stop interviews as he leaves church each Sunday as God is a broad church and not on Labor’s front bench even in symbolic terms. In the words of The Desiderata: "And whether or not it is clear to you, no doubt the universe is unfolding as it should. Therefore be at peace with God, whatever you conceive Him to be. And whatever your labours and aspirations, in the noisy confusion of life keep peace with your soul. With all its sham, drudgery and broken dreams, it is still a beautiful world. Be cheerful. Strive to be happy."

KEN HENRY

Mr Henry is no doubt a hard-working and sincere man as well as being a great friend of the hairy-nosed wombat. However, Ecinya was disturbed to see him embracing the fiscal policy initiatives developed under Whitlam. Messrs Hawke, Keating and Walsh undid much of the damage inflicted upon the Australian economy by Mr Whitlam and Mr Malcolm Fraser and now we find that Mr Henry wants to take us back to the future. We quote part of his paper, but recommend a full reading

"Well-being and the Size of Government
What about the size of government?"

"The Whitlam Government came to power with a broad ranging policy agenda – the implementation of which had the effect of increasing both the scope and size of Australian government. The agenda included real increases in social welfare payments, free university education, universal medical coverage, new departments of Aboriginal Affairs, Environment and Urban and Regional Development, and significant public sector real wage rises.

"Unemployment benefits to individuals more than doubled in real terms; widows pension expanded to supporting mothers; disability pensions expanded."

"The policy initiatives were reflected in strong growth in the level of government outlays over the course of the Whitlam Government."

"Australian Government expenditure grew from 18.9 per cent of GDP in 1971-72, the last full budget year before the Whitlam Government came to power, to 24.8 per cent of GDP in 1975-76, the last budget delivered by the Whitlam Government, representing spending growth of around 56 per cent in real terms."

"In the three and a half decades since, while there have been significant annual fluctuations, the average level of spending by the Australian government has changed little, to be around 25.25 per cent of GDP.
The Whitlam Government was, therefore, responsible for an enduring increase in the size of government. That is, the close to 6 percentage points of GDP expansion in government."

"Expenditure during the Whitlam Government has never been reversed. And I think I can safely say that it never will be."

"Initially, the increase in government expenditure was not matched by a commensurate increase in government revenue, with revenue increasing by only two percentage points of GDP over the term of the Whitlam Government (from 20.9 per cent of GDP in 1971-72 to 22.9 per cent of GDP in 1975-76). Subsequent governments chose to fund the increased expenditure through increased taxation rather than ever growing levels of public debt; that is, to make larger government fiscally sustainable."

Ecinya comment: The real losers out of the Whitlam-Fraser years was middle Australia and far from promoting real opportunity, The Whitlam-Fraser legacy has created a permanent under-class, a permanent and protected elite who are advantaged by access to government via their political donations capacity (serial tax dodgers inhabit this space), a strong bias towards high-inflation outcomes, non transparent and dodgy public accounting (occasionally saved by Auditors General of integrity and courage), a difficult operating environment for small business, and high nominal interest rates. Additionally nurses, teachers, and police officers are still significantly underpaid and devalued.

“Each year, the world demands more and more energy, with no end point in sight. And each year, it is more and more evident that the extraordinary machine we have built to supply that demand cannot sustain itself in present form. Not a day goes by without some new disclosure, some new bit of headline evidence that our brilliant energy success comes at great cost – air pollution and toxic waste sites, blackouts and price spikes, fraud and corruption, and even war. The industrial-strength confidence that was a by-product of our global energy economy for most of the twentieth century has slowly been replaced by anxiety.”

The end of oil: on the edge of a perilous new world, Paul Roberts

 

“It’s a lack of leadership. It’s a lack of being able to take on the oil industry and the automobile industry, and recognising that they’re not Uncle Sam.  Uncle Sam has to be Uncle Sam, and Uncle Sam is acting like General Motors.”

S. David Freeman, Energy Adviser (Carter Administration)

 

“And here we have a serious problem: America is addicted to oil.”

George Bush, State of the Union address, 2006

 

“Every country must have an industrial base. The only way you can do that is by building new industries of great value that make a difference in the world, and that can provide better jobs. I think that’s a very necessary social resolve for what we’re doing, and that’s why we say we are changing the world for the better.”

Stanford R Ovshinsky, Developer of EV1 battery, Co-founder of Cleantech Group and Founder of Ovinshky Innovation

 

 ECINYA COMMENT

We’ve all heard of the Toyota Prius or the Honda Insight – trendy hybrid cars that not only save the planet and your pocket, but have seen the likes of Cameron Diaz and Jack Nicholson swap their Italiano sports cars to step out on the red carpet from a green vehicle. BMW and Mercedes shortly followed suit to ensure they didn’t miss out on market share.

Less talk and celebrity-fuelled publicity has arisen about the electric car, a vehicle that is even more environmentally friendly and energy efficient, requires less maintenance, operates quietly and smoothly, and, in fact, was first introduced in the 20^th century. Despite its advantages, the electric vehicle (EV) was drowned out by its competitor, the petrol car, due to mass production and cheaper oil. The EV has its drawbacks; the battery packs do not last the distance that petrol cars do and take longer to recharge than the 5 minutes it takes to fill up a petrol tank. These pitfalls are being investigated further by scientists in order to produce a car that can meet consumers’ expectations, the biggest inconvenience being the ability to go the distance. Mass produced EV’s are not available in Australia but this may change in 2010-11. Currently, a top-performing EV costs $130,000-$150,000, shipped from the US, with a waiting period of about 2 years. Alternatively it is possible to convert your current petrol vehicle to an EV for approximately $15,000. Unfortunately, no government rebate is available for this conversion.

If these operational disadvantages are overcome, however, will we see an increase in EV owners? The average consumer may bear a heightened awareness of climate change and fuel cost efficiencies, but it is unlikely that the ‘powers that be’ will welcome such a dramatic shift of economic dependence. One of the greatest advantages of an increasing market in EV’s is a decreasing dependence on foreign oil. The energy source is domestically produced (even if the electricity is sourced from coal powered plants, the environmental impact is drastically reduced), but fuel companies obviously have a strong incentive to deter growing independence from oil.

Oil has played king of commodities, economies and policies. Over the past week, Dubai has announced that it is struggling with debt repayments, yet global market anxiety has eased and there is an expectation that Abu Dhabi will come to its neighbour’s aid if worse comes to worst. The oil sheikhs will step in and save the day. Saudi Arabia has about one fifth of the world’s oil reserves and is the biggest crude oil producer. We have seen oil sky-rocket to just under $140 in June last year, before trading in its current range ~45% below this high. The commodity has a lucrative earning potential. However, oil can only remain profitable if alternative fuels are not a viable option.

Furthermore ex-heavy weights from the energy and motor corporations have been in top positions in the White House, such as Condoleezza Rice, who was also a director of Chevron Corporation. California toyed with the idea of an electric car mandate, pushing for an increase in zero emission vehicles, and this, along with a push for mass-produced electric vehicles, has been swept under the carpet.

LPG fuelled vehicles have gained interest, emitting lower emissions than petrol or diesel engines. Australia has a large supply of gas from Bass Strait, offering less reliance on the Middle East. Bass Strait LPG is also a major export earner to countries including China. Rebates on the intallation of LPG to existing petrol & diesel engined vehicles and for new vehicles fitted with LPG are available from the Australian Government as a "green" incentive.

The International Energy Agency, OECD, predicts that by 2030 Petroleum Fuels will account for 80% of worldwide fuel usage; Biofuels will account for 12%; Electricity 6%; and Natural Gas 2%. OPEC’s forecasts are similar in nature as there are no major assumptions concerning future shifts in demand for oil. India is the biggest importer of oil and developing countries’ need for the fuel only points towards an increasing demand. However, the automobile industry is the largest consumer of oil and alternative vehicles can weaken dependence and addiction. Thus the electric car has the potential to transform the global economy, affecting trade not only in oil, but in steel, chemicals and nonferrous metals as well as electricity generation and distribution.

Additionally, Sherry Boschert, author of Plug-in Hybrids: The Cars That Will Recharge America, conducted studies demonstrating that the use of EV’s would reduce carbon dioxide (CO2) emissions by 0-59% when compared to petrol cars, even if using electricity produced by coal. If the electricity were to be produced by solar or wind power, emissions would be completely eliminated. Yet as the debate over emissions and their potential impact upon the environment and the economy reaches boiling point, politicians are entangled in a power struggle, whilst Australia’s consideration of the EV remains deficient.

In Denmark the government has agreed to remove its 180% tax on EV’s and Israel will reduce tax from 72% to 10% on zero-emission vehicles. Tax incentives help accelerate the adoption of EV’s and Nissan Motor Co. Chief Executive, Carlos Ghosn, believes that high fuel prices will further spur demand for alternative-energy fuelled cars in coming years. Therefore could government support of EV’s become a viable alternative to an emissions trading scheme (ETS) as an attempt at fighting climate change? An investment in such an industry, poised to become the way of the future, is as yet virtually non-existent in Australia. Such an undertaking makes more sense than the $43 billion national broadband network, the largest single investment in infrastructure in Australia’s history, for which no cost-benefit analysis was undertaken.

The development of an EV industry would no doubt come with its own set of difficulties and criticisms, but the environmental benefits would be undeniable and job creation a positive outcome. Moreover a key component of many electric cars is the lithium-ion battery and in the 2009 US Geological Survey Australia was listed amongst the world’s top six lithium producers, with approximately 23% of the world’s broad base lithium reserves, suggesting the opportunity for growth in exports should the EV market continue to grow worldwide.

Thus, this ‘little’ car should not be ignored. More than just a quiet ride, it has potential benefits for the environment and economy worldwide. Keep an eye on it.

By Nicole Loewensohn and Emily Stewart