Prime Minister Julia Gillard says around 90% of households will receive income tax cuts and direct payments under the Government’s carbon tax plan, with small businesses with turnover of less than $2 million set to see the instant asset tax write-off increased from $5,000 to $6,500 to encourage investment in energy efficiency.
As was widely predicted, around 500 large companies and energy generators will pay a carbon tax set at $23 a tonne from July 1, 2012. The carbon price will rise 2.5% a year for three years, before the Government moves to an emissions trading scheme.
While the 500 companies affected is around 500 fewer companies than the Government originally said would pay the tax, the amount raised by the tax will still be around $30 billion between July 1, 2012 and 2015.
This will be poured back into compensation for households, with a particular focus on low and middle-income earners, and assistance for heavy industry.
Just under $15 billion of the revenue raised by the tax will be returned to households, with nine out of 10 households getting a tax cut or government payment increase. Pensions are set to rise 1.7%.
The Government says the average increase in living costs for a household will be $9.90-a-week, while average compensation will be $10.10.
Gillard says this means six million households will be fully compensated for the impact of the carbon tax, while four million low-income households will actually be better off. The Government says only 700,000 of Australia’s 8.8 million households will receive nothing.
The key assistance measure will be a tripling of the tax-free threshold from $6,000 to $18,200 from July next year and $19,400 in 2015.
Taxpayers earning more than $80,000 will receive a minimum tax cut of $300 a year.
However, tax cuts fall dramatically for those earning more than $80,000, depending on how many children a family has.
Gillard says the tax cuts are a crucial in achieving the Government’s two big objectives.
“I want us to have a clean energy future. I want us to have higher workforce participation. We in this package are doing both,” she said today.
“By using that [tax cut] mechanism, what we are doing is creating better incentives for people to increase workforce participation. This is an important tax reform.”
Industry will receive assistance of $9.2 billion, with Gillard saying the bulk of support will be for “important” industries that generate “high levels of carbon” such as coal, steel making and heavy manufacturing.
Industry assistance will include a $1.3 billion-package to protect coal sector jobs by rewarding mines that cut emissions and a $1.2 billion Clean Technology Program that will see Government match money spent by manufacturers on energy efficiency measures.
But there was little new money for small businesses in the package.
Businesses with turnover of less than $2 million a year will be able to access at $6,500 instant tax write-off for assets purchased after July 1, 2012.
However, this not totally new money – a $5,000 instant tax write-off announced by Treasurer Wayne Swan in the May Federal Budget. This $5,000 write-off was introduced as a replacement for the Entrepreneurs Tax Offset.
The Government has also made a pitch to win over small business lobby groups by allocating $40 million in grants for these groups to help educate SMEs about energy efficiency.
While Treasurer Wayne Swan says in the introduction of the carbon tax represents “a very substantial structural change” to the economy, the Government is playing down in the impacts.
Gillard says the carbon tax will increase prices by 0.7% of CPI, according to Treasury modelling, while the economy will grow at 1.1% between now and 2050 under the carbon tax, compared with 1.2% without it.
Modelling show the Federal Budget will take a $2.68 billion hit in 2011-12, falling to $475 million in 2012-13.
However, Swan says the Government’s much-vaunted Budget surplus will remain intact.
“The economic cost is small and it’s small if we act now,” Swan said.
Aside from the support for households and industry, the Government will pour $13 billion into renewable energy, with the goal of increasing the proportion of energy from renewable sources to 20% by 2020.
The Government will set up an independent body called the Clean Energy Finance Corporation that will have $10 billion make “commercial investments” in clean energy through loans, loan guarantees and equity investments.
A further $3 billion of existing funding for renewable energy development will now come under the auspices of a new, independent statutory body, the Australian Renewable Energy Agency.
It is expected that some of this money will be used to shut down coal-fired power stations in Victoria, although the Government will not reveal how much cash is available for this task.
The Government says it aims to reduce domestic emissions by 80% by 2050, higher than its previous target of 60%.
In total, 160 million tonnes of carbon – equivalent to 45 million cars – will be cut.
“We are here today because the science is in, the science is clear. Our planet is warming,” Gillard said.
The package, which was negotiated with the Greens and has the support of key independents, will come to Parliament later this year.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
