New Treasury modelling says economy will grow under carbon price, but manufacturing, car industry to be hit hard

Newly released Treasury modelling says the economy will continue to grow under a carbon price, although there will be a sharp difference between the winners and losers.

The update, looking at carbon priced at $23 per tonne and covering compensation for the steel industry, finds that employment will continue to grow strongly, with 1.6 million new jobs tipped by 2020.

Estimates for a 0.7% consumer price rise are left unchanged, and remain well below the 2%-plus increase that accompanied the introduction of the goods and service tax, the report says.

Income is tipped to rise by $9,000 in today’s terms by 2020 and by more than $30,000 to 2050.

“The Australian economy will continue to prosper as we reduce emissions,” the report says.

“Gross domestic product (GDP) in today’s dollar grows from $1.3 trillion now to over $1.7 trillion in 2020 and to around $3.6 trillion in 2050.”

“Similarly, employment continues to grow strongly, with 1.6 million jobs created by 2020 and six million jobs by 2050, with or without carbon pricing. These results are consistent across all policy scenarios.”

But the report has dire news for the car industry and textiles, clothing and footwear sector, with output tipped to decline by 39% and 34% respectively by 2020.

Conversely, mining output is expected to soar by 66%, construction by 51%, services by 38% and agriculture up 12%.

The report says without carbon pricing, Australia’s emissions would continue to rise steadily.

The report also says that putting a price on carbon would achieve Australia’s emission target of a 5% reduction below 2000 levels – a commitment shared by the Coalition.

The Opposition has criticised the report, saying it was based on the idea that the US would have a cap-and-trade scheme or carbon tax equivalent by 2015 and be part of a fully global trading scheme.

The report does not cover the mooted closure of emission-intensive power plants, nor the development of the Clean Energy Corporation or policies that assist targeted facilities in industries with an unusually diverse level of emissions. The report nonetheless says it “provides a robust picture of the effects of the package at an aggregate industry and macroeconomic level”.