As Australia gears up for Treasurer Jim Chalmers' economic roundtable in September 2025, a familiar ghost is haunting the policy debate: the carbon price. Economists like Ross Garnaut, Ken Henry, and Rod Sims are dusting off this relic from the Gillard era, touting it as the "most economically efficient" way to tackle climate change while magically repairing the budget deficit. But let's cut through the green-tinted rhetoric. A carbon tax, far from being a silver bullet, risks becoming a sledgehammer to Australia's economy, inflating costs, strangling industries, and burdening households already reeling from post-Covid economic pressures. Resurrecting this Gillard policy is a dangerous misstep that threatens life as we know it.
Proponents like Garnaut argue a carbon price is a market-friendly way to reduce emissions, forcing polluters to internalise the "social cost" of carbon by investing in cleaner technologies. Sounds elegant in theory, but the reality is far messier. The Gillard government's carbon pricing scheme (2012–2014) offers a case study in its real-world impacts. According to a 2013 report by the Australian Institute of Energy, the carbon tax drove up wholesale electricity prices significantly, with generators passing on costs to consumers, sometimes more than 100% of the tax itself. The Energy Users Association of Australia noted in June 2013 that fossil fuel and renewable generators alike profited at consumers' expense, with no meaningful reduction in emissions attributable to the tax alone.
This isn't efficiency; it's a tax on everything. Energy-intensive industries like cement, bricks, aluminium, and glass, saw production costs rise by 0.8–1.7%, per the Housing Industry Association, contributing to a projected 12.6% decline in housing construction. Households faced higher electricity bills, estimated at 10–15% increases for the average family, while small businesses, already battered by global supply chain issues and inflation, struggled to absorb the added costs. The 2025 Federal Budget projects a $42.1 billion deficit, with net debt climbing to $768.2 billion by 2028–29. Piling on a carbon tax now, when households are grappling with cost-of-living pressures, would be like pouring petrol on a smouldering economy.
Garnaut claims a carbon price could aid budget repair, but this is a fantasy wrapped in academic jargon. The Gillard-era scheme generated $24 billion over three years, but much of this was funnelled back into household compensation and industry subsidies to offset its regressive impacts. A 2023 study proposing a new carbon tax starting at $23 per tonne and rising to $70 by 2030, admits it would increase inflation by 0.5% in 2023 and 1.52% by 2035, reducing consumption and economic growth unless offset by income tax cuts. But with the government already committing $17.1 billion to personal tax cuts from 2026–27, where's the fiscal room for more giveaways?
The budget's already strained by "off-balance sheet" spending, like $23.1 billion in 2025–26 for student loans and equity transactions. A carbon tax's revenue would likely be swallowed by compensatory measures or green subsidies, as seen with the $13.7 billion for hydrogen and critical minerals incentives. Meanwhile, the tax would hit Australia's coal and gas exports, key revenue drivers, hard. Japan's recent pivot to reduce coal and LNG imports signals trouble for Australia's trade balance, and a carbon price would only make our exports less competitive. Far from fixing the deficit, it could deepen it by stifling growth in a $1.16 trillion debt-laden economy.
Labor's current climate policy, the safeguard mechanism, isn't perfect, it's been criticised for relying on questionable carbon credits that may not deliver real emissions cuts. But it targets only 220 high-emitting facilities, leaving households and small businesses largely untouched. A carbon price, by contrast, would blanket the economy, raising costs for everything from electricity to groceries. Garnaut's Superpower Institute argues it would incentivise emissions cuts across all sectors, but the 2012–2014 experiment showed limited impact: emissions dropped 7% initially, but rose again post-repeal, with electricity sector reductions driven more by solar uptake and plant closures than the tax itself.
The safeguard mechanism, while flawed, avoids the broad economic pain of a carbon tax. It's a scalpel, not a chainsaw. Expanding the Capacity Investment Scheme, which underwrites renewable projects, may strain the budget, but it's targeted and doesn't kneecap entire industries. A carbon price, especially one rising to $70 per tonne, would act like a regressive GST hike, disproportionately hitting low-income households unless offset by complex (and costly) rebates, as seen under Gillard.
The carbon tax's history is a political cautionary tale. Julia Gillard's 2012 scheme, branded a "tax on everything" by Tony Abbott, led to Labor's 2013 election loss. Public protests, from No Carbon Tax rallies to business backlash, highlighted its unpopularity. Today, with inflation at 2.5% and the Reserve Bank wary of further stimulus, a new tax risks reigniting cost-of-living fears. Small businesses, already benefiting from $56.7 million in energy efficiency grants, would face higher operating costs, undermining the government's own support programs.
Moreover, a carbon price could cripple Australia's global competitiveness. As a coal exporter and high per capita emitter, Australia faces unique challenges, but penalizing domestic industries, while competitors like China face less stringent rules, is economic suicide. The 2025 Budget's focus on green metals and hydrogen under the Future Made in Australia plan shows a path to decarbonisation without blanket taxation. Why risk jobs and growth when targeted investments are already driving renewable uptake?
A carbon tax isn't just a policy, it's a lifestyle tax. It would inflate electricity, fuel, and food prices, hitting regional and low-income Australians hardest. The 2012 tax raised household electricity bills by up to 15%, and a new one could do worse in today's inflationary environment. With real GDP growth projected at a sluggish 2–2.25% through 2025–26, adding a tax that curbs consumption is a recipe for stagnation. Families, already stretched by rising rents and energy costs, would face another hit, while businesses like Whyalla Steelworks, supported by government loans, could see their competitiveness eroded.
Ken Henry's nostalgia for the "world's best carbon policy" ignores its real-world fallout: higher costs, job losses in coal and manufacturing, and negligible global impact given Australia's 1% share of emissions. Garnaut's claim that it's a budget fix ignores the need for compensatory spending, which neuters fiscal gains. The 2023 Economic Society survey favouring carbon pricing reflects an academic echo chamber, not the lived reality of Australians facing $940 billion in gross debt.
Instead of a carbon tax, Australia should double down on innovation and targeted incentives. The $1.7 billion for critical minerals mapping and quantum computing in the 2025 Budget shows a commitment to a net-zero future without punishing consumers. Expanding the safeguard mechanism to cover more sectors, while fixing its carbon credit issues, would be less disruptive than a tax. Investing in nuclear energy, as some Coalition members advocate, could provide stable, low-emission power without inflating costs.
The Albanese government's roundtable may see economists wax lyrical about carbon pricing, but courage isn't blindly reviving a failed policy. It's standing up to academic groupthink and valuing Australians' economic survival. A carbon tax would inflate costs, deepen deficits, and erode competitiveness, all while delivering questionable environmental gains. Life as we know it, affordable energy, thriving industries, and household stability, hangs in the balance. Let's not sacrifice it on the altar of woke climate virtue. The roundtable should focus on innovation, not taxation, to secure Australia's future.