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!

Why Tax Carbon

I am constantly dismayed at this common argument about the carbon tax:  we impose a tax, then we just go and compensate people for the tax, what's the point of imposing the tax in the first place?

The ALP has a lot to answer for for allowing this argument to run.  It's been used by a number of Liberal politicians lately, Christopher Pyne used it on Q&A last night, and it was never answered correctly.

The reason for the carbon tax is where it's applied and where it is felt.  The tax is going to be imposed on industries for emitting CO2.  They will then pass it on to customers by increasing their prices.  So as a Labor government, the policy is that the people being ultimately affected by the tax are going to be compensated.

Now, what this means is that an industry can either pay the tax for emitting CO2 and pass it on, OR they can find ways of not emitting the CO2 (by using green technology) and then their products become comparatively cheaper as their carbon tax outlay will be less.  They get a leg-up on reducing their expenses.  If their competitors increase their prices because of the tax, then the non-emitters can either keep their prices low and thus become far more competitive, or not increase their prices as much and improve their profitability.

What this does is assist low-emitting industries, and penalise high emitters.  After a while, industries will be encouraged to find ways of reducing their carbon emissions.  Either that, or they'll find their prices are not as competitive because they'll now be having to pay extra carbon tax.

It was said that to reduce smoking, tax on cigarettes is increased.  You don't then go and compensate smokers for the increase in cigarette prices.  But this ignores a very important economic concept: substitution.  A smoker really can't substitute other products - you either smoke tobacco or give up.  (There are probably a few substitutes, but not of high importance in our condierations here).

Whereas with energy there ARE many substitutions.  Already we can buy Green Power generated from wind turbines, hydro-electric schemes and the like.  It's more expensive than coal generated power, and therefore it's not really all that popular.  But if you tax carbon emissions, you make Green Power relatively cheaper, and thus increase demand for it.   People will be queueing up to tick the box on the Green Power option if it's not as expensive as coal-generated power; just as most people now take the cheapest power option on their bills (which just happens to be coal-fired stuff).

So the reason why the compensation IS different and the reason why we need to tax the emitters is simply to differentiate the products.  Don't forget if you don't generate CO2, you won't pay any carbon tax.  And if you do (which is regarded as the undesirable outcome) your emissions will make your products more expensive.

For too long industries have had a free run.  They have been allowed to emit CO2 into the atmosphere for free.  It's called cost-shifting.  You do something that costs someone something, but if you're not paying for it, then that cost is not in your accounts, it's in someone elses, therefore the profit is yours.  And some other poor guy (usually the government) has to pay to fix things up.  The government gets its funding from taxpayers, so that cost avoided is paid for by all of us.

I can't see why a government needs to pay for the expenses racked up by companies.  Consider a petrol station now being closed down.  The land needs to be remediated from the chemicals.  No-one would argue that the petrol station itself needs to pay for that remediation work.  But let's say they get away with it by becoming bankrupt.  The land still needs remediation, and now the government (ie us taxpayers) has to pay for it.  That cost has been shifted on to someone else.  And the saving in cost goes straight to the bottom line of the company avoiding it.  In other words taxpayers are subsidising the industries.

This is what has been happening for too long with carbon dioxide.  Emitters have been emitting it for free until now, whereas it's long been regarded as a cost.  Not a financial cost, but an environmental cost.  With a carbon tax, you immediately transfer that environmental cost into a financial cost.  It will appear on the business's bottom line, and they'll be doing something about it - mark my words.  With carbon emissions free there is simply no incentive at all to do anything about it.  Why bother?

We need a carbon tax, plain and simple.  Carbon emissions are NOT free to the world, why should they be free to businesses who actually emit them?  Cost-shifting is so frequently used by big business, and I'll blog more about it later this month as it's a fascinating concept that is, fortunately, being phased out gradually.  One of the biggest cost-shifting phenomena is that of free carbon emissions.

The things they say

Hi guys, I'm back again.  I'm participating in an interesting project at the moment, and that is campaigning on behalf of the ALP candidate for the state seat of The Entrance, David Mehan.

What I'm doing is "doorknocking by telephone".  Our current state member, Grant McBride (ALP), is retiring at this election, and David is the replacement candidate.

My telephone campaign has started very interestingly.  Most people are quite happy to talk about the upcoming election.  I have spoken to a number of traditional ALP supporters, many of whom ARE intending to vote Labor on March 26.  However there are also a number of traditional ALP supporters who are either still undecided, or are not going to be voting Labor on 26 March.  There are also a number of Liberal voters who are not going to be voting Labor, however there are NO Liberal supporters who are thinking of voting for the ALP!

It is interesting how a few of the people I'm calling have (how shall I put this) very little interest in politics.  I have even spoken to people who are not aware that an election is being held in this state on March 26.  I suppose not everyone watches the news.

I keep wondering what the situation would be if we had voluntary voting in this country.  After all, at the moment, many people vote who have no idea of the issues involved, and simply regardit as a burden imposed on them by the faceless ones.  If the decision was left to people who WANT to vote then perhaps a more informed decision could be made on who gets in, and those who don't care can just accept what those who bothered to show up and vote decided.  This is why I was heartened when Tony Windsor, Bob Katter, Rob Oakeshot and Andrew Wilkie were the ones deciding who would be the next Federal government back in September last year.  After all, THEY were interested, informed and had a stake in the issue, unlike so many of the electors out there who couldn't really care less.

Incidentally, one question I ask many people when on the phones is just out of interest, are they able to name the Liberal candidate for The Entrance.  Not a single person has been able to answer this as yet.  (To save you from the suspense, his name is Chris Spence.

Victorian TAC Christmas Ad revisited

We ran this last year.  Are you going to be driving again this Christmas?

You NEED to watch this.  Confronting I know, but if this gets the message home to one person I'll be glad.

Click Here to go to YouTube.  Need I say any more?

Wulfe HWS

It was uncanny that a few days ago I wrote "things happen in threes".  I really didn't mean it and have no time for superstitions generally.  Well, it sort of didn't happen in threes, but as I type, Michael from Mizu Plumbing is currently installing a new Vulcan hot water service in the cupboard under the stairs.

It's actually been leaking for years, but it has come to a head and we've been investigating where this mystical water leak is coming from.  It has destroyed the walls around it, the bottom plate and the skirting board.  But it hasn't been real clear exactly where the water has been coming from.

Well, it's been the hot water service and the reason why we haven't been able to identify it is that it only leaks when the electricity to it is turned on and the element is heating. And because that's on Off Peak Tariff 2, that's only really between 11pm and 6am of a night.

Night before last after I had removed all the damaged gyprock and skirting board to try to get to see where the leak was I went out and the channel I had cleared was full of water.  Given that it had been almost dry an hour before I reckoned I was in a prime spot to see the leak and I was right.  Yep.  The hot water service, which was thirteen years old and not a very good brand according to our plumber who has had to replace quite a few of them.  There was a sure and steady drip of water coming out from the base of it, and falling exactly where the water had been accumulating.  It had been running around the channels where the bottom plate had gone and wicking up the studs and into the gyprock.

So the third thing has been fixed within the last couple of weeks: the water tank pump, the personal video recorder and now the hot water service.  That'll do us for a while thanks.  Which is just as well, as I now have a lot of carpentry and gyprocking to do.  Here's the extent of the water damage:

Bianco Pump Back

Wow, things are happening in quick succession now - today a BRAND NEW Bianco Pump finally came into stock which the wife brought home after work, and not only that, I reinstalled it today as well.

We now have the toilet and washing machine connected to that completely full 5,000 litre rainwater tank in the back yard, and to celebrate, I flushed the toilet FULL FLUSH three times!  (Okay, I was clearing the air out of the lines, but it was slightly celebratory).

The new pump is quieter, and has a longer mains lead on it, which is great as the previous one only just reached the power point before.

Our next in-home repair is going to be a water pipe in the laundry which is looking like having tiny pin-prick corrosion holes in it, which is causing water to slowly drip into the laundry wall and rot the bottom plate out.  It is going to be interesting to see what happens.  If all goes well with our plumber, he's going to be here after lunch time when I get back from having an Xray done.

Homecast comes home

On Thursday the Homecast PVR returned home in working condition!  The electronics technician I dropped it into was fairly busy.  I dropped it in Monday, and then rang on Tuesday afternoon.  "Have you had a chance to look at it?" I eagerly asked.  Alas, no.  "Just so you know: we're missing it" and I left it at that.

On Wednesday I thought I'd leave him to his own devices and not bother a very busy man who has a phone glued permanently to his ear.  Well, every time I dropped in he was on the phone talking through procedures!

On Thursday morning he rang me.  Early.  "It was a couple of capacitors and a resistor, and it's all fine now - $99.  And I'm leaving early this afternoon at 3:30, so you can pick it up Friday if you want".

I interjected that I'd be there within an hour, and he said that'd be fine.  I'll say that'd be fine.  The thing came back home, I checked it out and re-installed it in its pride of place.

It had recorded a show at 8:30pm on the Saturday night, but it hadn't recorded "Insiders" which is on ABC1 at 9am on Sunday mornings.  So it failed between then and then.  Was there a power surge, Saturday night at all?  A couple of caps, a resistor and a pair of diodes in the power supply chain sounds suspiciously like a bit of a power surge to me.  Anyway, we'll never know, and the Homecast is back in heavy service as usual.  Didn't even get the VHS machine out while it was absent, although it was starting to look like it was going to be fired up again.  Sheesh, I wonder if it actually still works?