Hogsback explores the meaning of birthday cakes and carbon tax

IMAGINE a solar-powered birthday cake. That might be too hard for some readers but not for Hogsback, who remembers with amusement the last time an Australian politician tried to play games with tax and ended up on a mullock dump.

Tim Treadgold

John Hewson was the offender back in 1993 when he lost the so-called unloseable election because he was unable to explain how a new tax would apply to a birthday cake.

The same thing is happening today as the Australian government struggles to explain the size of its proposed carbon tax, who will pay it and who will get compensation.

Solar power, wind power and all things green underpin the carbon tax, which is why Hogsback has been wondering whether a birthday cake baked with solar power will be cheaper than one using coal-fired power.

To understand, fire up your DeLorean for a trip back to the future and a gander at Hewson’s dilemma.

In the lead-up to the 1993 election, Hewson proposed the introduction of a goods and services tax on everything, including food. He later watered down that proposal to exclude certain foodstuffs, but not all.

When asked to explain in an excruciatingly embarrassing television interview how his GST would apply to a birthday cake, he got caught up in the detail of whether it was a cake being sold in a shop or baked at home, and whether the GST would apply to the candles on the cake.

Looking back 18 years and it sounds so terribly trivial, but take the cake example and apply it to the proposed carbon tax.

Just as Hewson failed to become prime minister in 1993 because he could not explain the detail of a new tax, so too will the current government find it horribly difficult to design a tax which catches some carbon pollution and then tries to pay out compensation to minimise electoral damage.

For younger readers who missed the Hewson “cake” interview, here’s a slice of the conversation between him and Mike Willisee.

Willisee: If I buy a birthday cake from a cake shop and GST is in place, do I pay more or less for that birthday cake?

Hewson: Well, it will depend on whether cakes today in that shop are subject to sales tax or they’re not, firstly. And they may have a sales tax on them. Let’s assume that they don’t have a sales tax on them, then that birthday cake is going to be sales-tax free. Then, of course, you wouldn’t pay it, it would be exempt, would – sorry, there would be no GST on it under our system. ... [Then it will depend on] how it’s decorated, because there will be a sales tax perhaps on some decorations as well ...

And on and on he went until this: “If it is a cake, a cake from a cake shop that has sales tax, and it’s decorated and candles as you say, that attracts sales tax, then of course we scrap the sales tax, before the GST is ...”

Willisee: If the answer to a birthday cake is so complex, you do have an overall problem with the GST, don’t you?

Spot on Mr Willisee, and coming to a TV screen near you very soon will be re-runs of that interview plus modern-day equivalents of who pays the carbon tax, who gets an exemption and who gets compensation.

First cab off the carbon tax debate will be the rate and its effect on electricity costs. So far, the government says not a lot, but there are already estimates floating around that the lowest suggested starting point of $25 per tonne of carbon will add up to $275 to an average household power bill.

But here comes the next big problem. In Queensland, households use an average of 7.9 megawatt hours of energy a year, whereas in New South Wales they use 11MWh per year – so will people in Sydney require more compensation than people in Queensland?

Then there is the question of compensation for steelmakers, such as Bluescope, and car manufacturers, such as Ford. Who gets compensation and who doesn’t? That will be the difference between those companies staying in business or closing their doors.

First signs of the “cake” returning have already been spotted outside Parliament House in Canberra, with one opposition member waving a loaf of bread around and asking how much more it will cost with a carbon tax, and another assembling the ingredients to make a cake and asking which will be hit by the tax and which not hit.

By now you get the picture and it’s one which says the proposed carbon tax is facing more than the headwinds of today. It is facing an unforgettable lesson of history and how to botch the launch of a new tax.