Australian Carbon Tax Details Published

by Mary Swire, Tax-News.com, Hong Kong

12 July 2011

The Australian government has released comprehensive plans to tackle carbon emissions by placing a levy on around five hundred of the country's largest producers, with the impact on consumers offset by a variety of changes to personal income taxation and welfare payments.

According to details of the plans, released on July 10, 2011, the levy will be set at AUD23 (USD24.5) per tonne of pollution beginning July 1, 2012. This is to rise by 2.5% a year in real terms during a three-year fixed price period until July 1, 2015. The carbon price mechanism will then transition to an emissions trading scheme where the price will be determined by the market.

Around 500 businesses will be required to pay for their pollution under the carbon pricing mechanism, with more than half of this revenue used to assist households with tax cuts, increased family payments and higher pensions, benefits and allowances. Carbon price revenue will also be used to support jobs and to invest in clean energy and climate change programs.

In order to support the steel industry, which is under pressure because of the high Australian dollar, increases in raw material costs and the weak growth of the Australian construction industry, a number of measures have been proposed.

An AUD300m package to support jobs in the sector has been announced, complemented by the Jobs and Competitiveness Program, launched also on July 10. The funds will help encourage investment and innovation in the industry, the government said, while the industry will also see a small increase in free permit allocation from 2016-17 onwards. The Jobs and Competitiveness Program will provide generous industry assistance measures for jobs and businesses, to 'assist a smooth and manageable transition to a clean energy future', the government said. A total of AUD9.2bn has been allocated for a three-year period starting July 2012, and will be channeled to emissions-intensive trade-exposed industries that face international competition from companies in countries yet to introduce comparable charges on carbon.

On electricity generation, the government has said it aims to decommission and replace the most polluting facilities, and encourage the use of more eco-friendly energy production. Through a number of initiatives, the renewable energy sector is expected to increase in size by a factor of 18 by 2050.

Initiatives to be launched by the government in this respect include:

• Energy efficiency information grants – the government will provide AUD40m in grants over the next four years to industry associations and non-government organizations to promote energy efficiency measures among small businesses and community groups;
• Low Carbon Communities program – the government’s Low Carbon Communities program will be expanded from AUD80m to AUD330m to improve the energy efficiency of council and community buildings and low-income households;
• Clean Technology Investment Program – this program will provide grants to manufacturers totalling AUD800m over seven years. The grants will enable firms to invest in energy-efficient capital equipment and low-pollution technologies, processes and products; and,
• The implementation of mandatory CO2 standards for light vehicles.

As a result of the introduction of the levy - akin to a carbon tax - tax credits provided to industries will be reviewed. From 2012-13, fuel tax credits will be reduced for businesses, with some exceptions, so that they face an effective carbon price like other heavy polluters. Businesses in the agriculture, fisheries and forestry industries will be exempt from the reduction in fuel tax credits and therefore shielded from the effective carbon price on their transport fuel costs. Heavy on-road vehicles like semi-trailers will also initially be exempt from the fuel tax credit reductions. However, the government intends to apply these arrangements to the heavy on-road vehicle industry from 2014-15. Lastly, as aviation fuels do not receive fuel tax credits, domestic aviation fuel excise will be increased by an amount equivalent to the carbon price to provide an effective carbon price from 2012-13.

The government has said it further recognizes the challenges a low carbon future poses to smaller businesses. Therefore small entities will not face the carbon pricing mechanism. Small businesses will not have to count or monitor their carbon pollution or electricity use.

While small businesses won't directly pay the levy, the government has announced that the small business instant asset write-off thresholds of AUD6,500 will be extended as a supportive measure. This will boost cash flow and help small businesses to grow and invest in assets, which may be more energy efficient, the government said.

Another major announcement from the government, aside from the carbon tax, is a reform of the personal income tax system, aimed at simplifying the existing system as well as supporting the impact of the carbon tax on consumers.

From July 1, 2012, every taxpayer earning up to AUD80,000 a year will receive a tax cut, with most seeing the amount that they pay falling by at least AUD300 annually. A second round of tax cuts is scheduled for July 1, 2015, increasing this figure, for taxpayers earning below AUD80,000 to at least AUD380. This will be facilitated by the trebling of the tax-free threshold, from AUD6,000 to AUD18,200 from July 1, 2012, and to AUD19,400 from July 1, 2015. Under the proposed changes, every taxpayer earning below AUD80,000 will receive a tax cut, while those above will not be subject to greater tax.

The government has said that more than half of the revenue raised by putting a price on carbon pollution will go to households to offset the carbon levy's indirect impact.

Nine out of ten households will receive assistance through tax cuts, extra payments or both. For two out of three households, this assistance will be enough to cover their entire average price impact, it is claimed. Over four million households will receive assistance that exceeds their expected average price impact, leaving their household budget better off, the government said.

Almost six million households will receive assistance that covers all of their average price impact, and around eight million households will get some assistance.

As a result of the carbon levy, households will on average see cost increases of AUD9.90 a week, while the average assistance will be AUD10.10 a week. Households that implement measures to reduce their carbon footprint will still receive the full carbon price assistance amount but will see this cost impact fall.

According to the government, the Clean Energy Supplement will be equal to a 1.7% increase in pensions, allowances and family payments.

A special Single Income Family Supplement of up to AUD300 will assist single income families with income between AUD68,000 and AUD150,000, in recognition that, unlike dual income families, single income families will only be eligible for one tax cut.

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