Cost Shifting

Some classic examples of cost-shifting occur in some of the so-called "sin-stocks".  Probably the best example is that of the cigarette companies.  Their product, which costs about 50-60 cents to produce retails at around $15; so no doubt there's a strong desire to produce it - there's a lot of profit there.  Naturally the government is keen to also put their hands in the pot and adds excise and tax along the way.  But is it enough?  Clearly not.

The costs that are shifted include the littering problem, the smoke that is annoying for non-smokers, plus of course, the health issue.  Here's where the cigarette companies cost-shift.  They sell their product with the full knowledge of these other social costs, but don't contribute to them at all.  It all goes to their bottom line, and the health system and other government agencies are reduced to paying for these external costs.

The alcohol industry also does similar things.  The consequences of alcohol consumption are immense.  We have assaults, vandalism, broken marriages, massive car accidents, health issues, not to mention the simple task of cleaning up vomit!  All these are costs of consuming alcohol that the alcohol industry does NOT pay for.  Someone else picks up the tab for these "incidental" expenses, and the alcohol industry does not include them within their accounting bottom line.   It all stays there in the alcohol industry's books as profit, and is a massive expense for the governments who have to provide police, paramedics, counsellors, doctors, nurses and the like to clean up the mess.

With these issues, it's not difficult to get support from people about the cost-shifting.  People tend to agree that the industries need to fully pay for their impact on society.  For example, we now pay a levy to dump used car tyres when we buy new ones.  We pay an environmental levy when we get our oil changed in the car.  TV manufacturers are finally being forced to provide mechanisms for taking back their TV sets when they are no longer in use.

It's the same situation with carbon disposal.  Up until now it has been completely free to discharge Carbon Dioxide into the atmosphere.  This massive cost shifting has meant industries have been able to shift the cost of disposal of their pollutants on to other areas of the economy, and have the resultant profits in their own P&L statements.  The carbon tax is a fantastic way of pulling the costs into the existing accounting system without too much reliance on regulation or other cumbersome methods.  If it costs money to pollute, then it is in the interests of the company to reduce that cost, pure and simple.  Any reduction in costs in the accounts will result in an increase in profit.  And maximising profit is one of the most important aims of being in business.  It's listed right up there at the top of any company's aims!

These arguments need to be made and explained to the Australian people.  It's a pity the Federal Government is failing in its attempts to do so!