Industry faces double tax on carbon

The government’s climate package will serve industry a double blow, as existing carbon reduction measures are still in effect. Heather Ridout writes exclusively for

Ai GROUP’S initial evaluation of the federal government’s climate change package is that large parts of industry will be deeply concerned that their long-term competitiveness will be damaged. The carbon tax represents another cost to be faced at a time of a high dollar, high interest rates, rising electricity prices and  global economic uncertainty. 

Though the government has gone some way to take account of industry concerns, a number of issues remain. 

The initial price of $23 is excessive and should be reduced; the measures providing transitional support to trade-exposed businesses need to be strengthened; and there is no plan for cleaning-out the existing array of inefficient and greenhouse gas abatement measures. 

On the positive side, the government has sought to provide the greater degree of certainty required to support investment, particularly in energy generation, which will be welcomed by those supplying to the industry. 

In sectors such as manufacturing, where margins have become relatively thin, the impact of these extra costs should not be underestimated. 

For example, large iron casting businesses will not be eligible for permit allocation, but their liabilities could easily reach around $1.5 million in 2012-13, sapping the available cash flow and leaving little for investment, including in emissions reduction and energy efficiency. 

The manufacturing support programs have a welcome and important emphasis on innovation and efficiency. However, they are in the form of matching grants and presuppose an available source of funding at a time when industry faces extra costs from the carbon price.

The initial price of $23 a tonne will present a major shock to industry and there is a significant risk that in 2012-13 at least, our carbon tax will be above global prices. Ai Group argued for a softer starting price of $10 per tonne, but wasn’t successful.

The $23 price is particularly hard to accept when it is added to the impact of the numerous existing, mostly wasteful, carbon reduction measures imposed by the federal and state governments. The fact that the package does nothing to eradicate these measures means that industry effectively faces a double carbon tax burden. 

Ai Group’s engagement and the spotlight we have put on small business and the manufacturing sector is reflected in the increase in the write-off provisions for small business; the comprehensive steel program and the clear focus on manufacturing in the Clean Technology Investment Program; the Clean Technology Innovation Program; the programs for the food and foundry sectors; and the Clean Energy Finance Corporation. These programs will be important to industry’s future. 

Overall, the impact of the total package deserves further scrutiny as the detail is revealed.