Former Treasury head Ken Henry says it "boggles the mind" that Australia scrapped the carbon tax, urging the Albanese government to reintroduce the tax measure.
The Australian economist was Treasury secretary from 2001 to 2011, during which time advice for the scheme, introduced by Julia Gillard in 2012, would have been prepared.
Addressing the National Press Club in his capacity as chair of the Australian Climate and Biodiversity Foundation on Wednesday, Henry argued improved environmental protection laws were key to unlocking Australia's productivity as well as meeting environmental targets.
Newly appointed Environment Minister Murray Watt faces the task of making Australia's nature laws fit for purpose, after changes were shelved during Labor's first term of government.
Asked whether the Albanese government should use its majority government and clear mandate to reconsider the carbon tax, Henry responded enthusiastically: "Of course we need a carbon tax."
"What do we mean reconsider? Why the hell did we ever drop it? That's the question," Henry said.
"It still boggles the mind that we had the world's best carbon policy. And then, for purely political reasons, decided that we can afford to do without it."
The carbon tax, repealed by the Abbott government in July 2014, put a price on every tonne of pollution produced.
It hoped to incentivise businesses to adopt cleaner technologies and behaviours, otherwise forcing exporters and manufacturers to buy permits for their emissions.
Henry supports raising taxes following leaked Treasury advice
Earlier this week, the ABC reported leaked documents show Treasury has advised the government to raise taxes and cut spending after the election.
Treasurer Jim Chalmers attempted to downplay the advice, saying the heavily redacted document had not adequately captured the government's brief, which was already being focused on.
"I'm pretty relaxed about it, to be honest, because, of course, Treasury provides advice for incoming governments and no government typically goes into the detail of that," Chalmers said on Tuesday.
However, the suggestion mirrors advice by Treasury in a report published in 2010, which looked into Australian tax reform over a 10 to 20-year period, colloquially referred to as the Henry review.
"If the budget is to meet these growing spending pressures, then we've got two options. We either increase taxes, as a share of GDP, or we grow the economy faster," Henry told reporters.
He explained average productivity growth has slowed down from 2.31 per cent a year during the 1990s to an average of 0.98 per cent a year.
"That's a pretty fundamental difference, right. If we continue on that trajectory, as we said ... we will have no option but to raise taxes."
