Wise Lord & Ferguson, Chartered Accountants, Hobart, Tas

Carbon Tax Announcement

The Australian Government has developed a comprehensive plan to move to a clean energy future. Central to that plan is the introduction of a carbon price that will cut pollution in the cheapest and most effective way and drive investment in new clean energy sources such as solar, gas and wind.

On 10 July 2011, the Prime Minister, Julia Gillard announced further details in relation to the Government’s Carbon Price scheme – called Securing a Clean Energy Future. This is a two-stage plan for a carbon pricing mechanism, which will start with a fixed price for a period of three years before transitioning to an emissions trading scheme. The Government plans to implement the fixed price stage from 1 July 2012 with the carbon price starting at $23 a tonne, rising at 2.5 percent a year in real terms.

The carbon price will be accompanied by assistance which the Government says will support households, jobs, businesses and communities, to help them adjust, lower their carbon pollution and to protect our international competitiveness. This will be in the form of two rounds of tax cuts and increases in pensions, allowances and benefits to assist households with price impacts.

Following are some of the proposals announced by the Government that will be required to be passed by Parliament prior to being legislated:

Price – The two-stage approach

• The carbon pricing mechanism will commence on 1 July 2012, with a price that will be fixed for the first three years. The price will start at $23 per tonne and will rise at 2.5 per cent per annum in real terms.
• On 1 July 2015, the carbon price will transition to a fully flexible price under an emission trading scheme, with the price determined by the market.

Treatment of fuel and transport

• Transport fuels will be excluded from the carbon pricing mechanism. However, an equivalent carbon price will be applied through changes in fuel tax credits or excise to those sectors not specifically exempted.
• A carbon price will not apply to household transport fuels, light vehicle business transport and off-road fuel use by agriculture, forestry and fishing industries.

Households

• Due to the implementation of the carbon price, it is expected that the cost of living will be impacted. Although households are not directly impacted by the carbon price, most of the impact would be seen through the increase in cost for electricity and gas usage and the flow on impact of the carbon price on affected industries.
• The increase in average household costs is expected to be approximately $9.90 per week. However, the Government has also said that the average assistance provided will be around $10.10 per week.
• The assistance is proposed to be provided to households by way of tax cuts and increases in pensions, allowances and benefits. The household assistance package is targeted at those who need help the most, particularly pensioners and low- and middle-income households.
• The Government has provided an online ‘Household Assistance Estimator’ to assist households in understanding the impact that the carbon price is expected to have on prices of goods and services and the cash assistance that is being provided to them. This estimator can be found on https://www.cleanenergyfuture.gov.au/helping-households/household-assistance-estimator/

Tax reform

• According to the Government, the carbon price will raise revenue which will provide the opportunity to cut other taxes. Therefore, income tax will be cut by raising the tax-free threshold to $18,200 in 2012-13.
• From 2015, the tax-free threshold will be further raised to $19,400. This will result in no income tax being withheld on income received by income earners that have taxable income below the new tax-free thresholds.
• In addition, new tax scales will be introduced where every taxpayer with taxable income below $80,000 will receive a tax cut. The income tax rate will then remain constant for taxpayers with taxable income of $80,001 and above.
• Following are the proposed tax scales to be applied with the implementation of the new tax-free threshold:

* Includes the effect of the tax free threshold and the Low Income Tax Offset

Pensions, allowances and benefits

• A household assistance package will be introduced which will include:

-       Special payments for people who have high energy use because of medical needs

-       Shared assistance between aged care residents and providers for an opt-in program where household assistance payments can be directed towards accredited energy efficiency measures through non-government organisations.

• Pensions and other benefits are automatically indexed to keep pace with the cost of living, while the tax changes will be set at a level to cover the expected impact of the carbon price.

Small business

• The carbon pricing mechanism will not apply to small businesses and they will not be required to count or monitor their carbon pollution or electricity use.
• The Government has also proposed the following assistance for small businesses:

-       The Small Business Instant Asset Write-Off Threshold is extended to $6,500

-       Establishment of a $40 million program to provide information to small businesses and community organisations on measures they can take to reduce their energy costs

-       Provision of additional funding for the delivery of clean technology advice and other non-grant business support programs to small and medium businesses, including the Supplier Advocates and Enterprise Connect.

-       The ability for all businesses in the food processing, metal forging and foundry industries to apply for grants for energy efficiency improvements under the $200 million Clean Technology Food and Foundries Investment Program.

Rural communities

• The Government has excluded the agricultural and land sectors from the carbon price. However, these sectors will still have opportunities to secure economic benefits under the Carbon Farming Initiative.
• Farmers, forestry operators and other land managers will not pay a price for the carbon pollution from their activities and will also not face a carbon price for their off-road use of fuel or their on-road use of light vehicles.
• Farmers and land managers can gain new sources of income through the Carbon Farming Initiative. Credits generated under the Carbon Farming Initiative and recognised for Australia’s international obligations under the Kyoto Protocol on climate change will be able to be sold to companies with liabilities under the carbon pricing mechanism. This includes credits earned from activities such as reforestation, savanna fire management and reductions in pollution from livestock and fertiliser.
• The Government will initially be investing around $1 billion in land sector measures over the next four years, to support the Carbon Farming Initiative, reduce emissions and maximise the benefits of storing carbon in our landscape.
• Novel approaches including biochar, biofuels and new crop and grazing species will be targeted. Funding is also available to assist agricultural industries and other organisations to test new ways of measuring, modelling and reporting on carbon pollution. This will help develop new methodologies for the Carbon Farming Initiative.
• The Government has also announced of a 15 per cent refundable tax offset for conservation tillage equipment for three years. This will improve soil carbon, water retention and productivity.

Conclusion

In summary, although the carbon pricing scheme is only targeted by the Government to directly affect the larger carbon emitters within specific industries, the flow on effect will see rise to the general costs of other goods and services as well. The Government proposes to release draft legislation for implementing the scheme by 31 July 2011. We wait in anticipation for the progress and outcomes of this release.