Impact of Carbon Tax on Business Lesser than Anticipated

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By Vittorio Hernandez | January 29, 2013 9:33 AM EST

An Australian Industry (AI) Group study of the impact of the carbon tax on the energy cost of doing business indicated it is lesser than anticipated. The analysis seems to support the contention by Treasurer Wayne Swan that the tax also did not lead to runaway prices, contrary to the scare campaign initiated by the Opposition against the measure.

Since the carbon tax was collected beginning July 1, 2012, three business surveys covering the manufacturing, services and construction sectors made in June, July and November 2013 said their energy cost went up at an average of 14.5 per cent.

In the November survey, it estimated the impact to manufacturing at 14.5 per cent higher energy costs, 13.6 per cent for services and 14.8 per cent for construction businesses.

"The high profile of the carbon tax appears to have led to some over-estimation by businesses of the specific impact of the carbon tax on their energy costs increases over the past year. In the November survey, manufacturing businesses attributed close to 85 per cent of their total electricity cost increases over the past year to the carbon tax, whereas data from other sources suggest that, at least for many small businesses, the contribution of the carbon tax to total energy price rises was probably closer to one half," AI Group Chief Executive Innes Willox said Tuesday in a statement.

Another major finding is the uneven distribution across industries of the net cost burden of the carbon tax, reaching as high as 90 per cent for food manufacturers, but is only about 11 per cent for the supply chain. However, businesses are rather hesitant to pass on the added cost from the carbon tax to their customers such as pricing power of customers, local demand conditions and competition from imported goods where there is no carbon tax.

As a result, only 42 per cent of Australian businesses plan to pass their higher costs on account of the carbon tax. To ease the additional burden on Aussie enterprises without risking Australia's 2020 greenhouse gas targets, Mr Willox pushed for early linkage to international carbon prices which are lower than Australia's, currently at $23 per tonne.

Mr Swan, in defending the carbon tax, cited the consumer price index report last week by the Australian Bureau of Statistics that the country's inflation rate went up merely by 0.2 per cent in the December quarter or about half of economists' forecast.  

"This is a result which is entirely consistent with Treasury modeling. In fat much of the impact of the carbon price in inflation occurred in the previous quarter . . . There has been very modest impact on inflation and Mr (Tony) Abbott's predictions of legs of lamb costing $100, Gladstone and Whyalla being wiped out have come to naught," Mr Swan was quoted by News.com.au.

Opposition leader Tony Abbott has vowed to repeal the law creating the carbon tax should the Coalition win this year's election which would be sometime between August and November.

However, Prime Minister Julia Gillard said even if the Opposition would win power, it would only result in a "little fiddle and a name change."

The AI Group study did not touch on the impact of the carbon tax on electricity bills of Australian households. But an 80-year-old Australian woman complained to a radio station that her electricity bill jumped to $645 from $435. The old lady sobbed that after paying her rent, there is not enough money left to pay her soaring utility bills.

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