Innovative Study Proposes Revenue-Recycling Carbon Tax for Australia’s Environmental and Economic Growth

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A groundbreaking study by Mona Mashhadi Rajabi, a Postdoctoral Research Fellow at the University of Technology Sydney, unveiled a novel approach to address Australia’s environmental and economic challenges. 

The research advocates for a carbon tax paired with an ingenious “revenue recycling” mechanism that could yield dual benefits for the nation.

“My study recommends that all the tax revenue be used in the first year to support consumption. However, the amount of money allotted to investment would rise from the second year as the carbon tax rate increases. It is estimated that about $57 billion would be available for new technologies over 13 years under this carbon tax,” Rajabi said.

At the heart of revenue, recycling is channelling the funds generated through the carbon tax into the economy. This reallocation occurs without inflating government revenue, easing different stakeholders’ apprehension. 

Rajabi’s study draws insights from successful models in Norway, Ireland, and Switzerland and projects the implementation of a carbon tax policy in Australia from 2023 to 2035. The key parameters include a uniform tax rate across all sectors, commencing at $23 in 2023, gradually rising to $70 by 2030, and maintaining this level through 2035.

An essential element of the research proposes that the collected revenue could be employed to reduce income taxes to mitigate the carbon tax’s inflationary consequences. This strategy would enhance consumers’ purchasing ability and counterbalance the economic slowdown caused by increasing costs.

The study estimates that this multifaceted approach could substantially reduce carbon emissions by up to 35% by 2035. Moreover, Australia’s GDP could experience growth of 0.286%, fostering new job opportunities in the research and development sector.

“Following the recommended carbon tax design, Australia’s transition to a low-carbon economy would be accelerated, which would benefit both the economy and the environment,” Rajabi said.

As the nation grapples with its stance on carbon taxation, Rajabi’s research offers a compelling and pragmatic path forward.

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