Green Tax Reform and Employment Double Dividend in Australia. Should Australia follow Europe’s Footsteps? A CGE Analysis

Australia has one of the highest per capita carbon emissions and its energy sector contributes significantly to the countries carbon emissions. Renewable energy and climate change targets call for a shift from fossil fuels to low-carbon technologies for energy production. Policies aiming to reduce carbon emissions are perceived as leading to higher living costs by many people, but changes in energy policies can also lead to economic gains in the presence of revenue recycling. This paper applies a computable general equilibrium (CGE) approach to study the effect of energy tax in the Australian economy. Four different scenarios of green tax reform (GTR) are simulated to test the employment double dividend (EDD) potential. All four scenarios simulate changes in energy tax and one of four tax revenue recycling policies including: (i) value added tax (VAT) reduction, (ii) payroll tax reduction, (iii) goods and services tax (GST) reduction, and (iv) a mixture of all three recycling policies. The results show strong EDD potential of GST and payroll tax reduction when used along with energy tax in a revenue-neutral GTR approach. The study also presents a comparison of an optimal EDD inducive policy design between the European and Australian GTR approaches