Carbon tax will have minor impact but Treasury forecasts in doubt: expert

The carbon tax is likely to have a relatively minor impact on businesses and the economy but retailers could face a difficult few years as customers continue to tighten purse strings, an expert says.

Elio D’Amato, chief executive of stock market research group Lincoln Indicators, agrees with the government view that the “economy won’t fall over” when it introduces a $23 per tonne price on carbon in July next year.

D’Amato says a global circuit breaker is needed to boost sentiment, with businesses operating in Australia confused about how demand will hold up under the new tax.

He is unsure whether Treasury’s forecasts for the economy to grow by 1.1% per year between now and 2050 under the tax, compared with 1.2% without it, will happen.

“Whilst Treasury have done its very best in terms of predictions we’ve been advocates on the importance of the health of Australian consumers,” D’Amato says.

“The compensation will help but until we know the impact on demand it’s too difficult to predict, so we’d be surprised if they ended up 100% accurate.”

D’Amato agreed with recent comments from Boston Consulting Group leader of consumer practice in Australia and New Zealand, James Goth, that spending in Australia might not return to pre-GFC levels for another three to five years.

“The deleveraging process is a good thing in the long term and not a surprise given the GFC and our pre-GFC debt levels,” D’Amato says.

“And with constrained wage growth and talk of interest rate rises it’s not hard to imagine it’ll continue for some time.”

But D’Amato says “consumers can be fickle” so it’s possible that customers will decide relatively quickly that their financial position is strong enough to start spending again.

On recent weakness in the share market – which has shed $50 billion in the past few days – D’Amato says the carbon tax is playing a role, but contagion fears from Europe, debt ceiling woes in the US and global growth worries were also contributing.

A Lincoln study showed share prices of major polluters fell in the first two months of June but stocks rallied in the second half as figures started to leak about the $23 per tonne starting point and compensation plans. Airlines, manufacturers, transport and resources companies are expected to be hardest hit by the tax.

D’Amato says while many carbon-heavy businesses will be able to pass on the costs the question is whether they’ll experience a drop in demand in time.

“A lot of people are quite nervous about that,” D’Amato says.

National carrier Qantas said the tax would boost its costs by between $110m-$115m during the first year of its implementation and those costs would be passed on to consumers.

Other concerns centre on what will happen when the fixed price is shifted to an emissions trading scheme in 2015, particularly for those earmarked for compensation such as steelmakers, D’Amato says.

Shares fell to their lowest point in July yesterday. At 4500 points the S&P ASX 20 is 300 points below where it was six months ago but it is about 100 points higher than 12 months ago.