It’s official: Carbon tax bill passes lower house, but small business still unsure of sector-by-sector effect

Labor managed to pass its carbon tax legislation through the lower house this morning, in a move it argues puts to bed years of fiery debate about how Australia should tackle climate change.

With the bills expected to pass through the upper house, Australia is now on its way to having a fixed price on carbon starting July next year.

The price, starting at $23 per tonne from July 2012, will rise to $24.15 the year after, and $25.40 from July 2014, before changing into an emissions trading scheme with a flexible price.

The passing of the bills, including a $300 million compensation package for the steel industry, was met by applause from the Government, sole Greens MP Adam Bandt and independents MPs.

Council of Small Business of Australia executive director Peter Strong says while the Government has flagged a 0.7% increase in the cost of living, there’s still no clarity about how much it will cost individual small businesses.

“Small business wants to know, what will it cost me as a truck driver, as an accountant, as a real estate agent?” Strong says.

“At the moment, we’ve got a general figure coming out from the Government. That’s easy to say, but we need more information.”

The Government says under its plan, average household compensation of $10.10 per week will exceed the expected price increase of $9.90 per week. It also says that nine out of 10 households will receive assistance through tax cuts, extra payments or both, and assistance for two out of three households will cover the entire average price rise.

But even if the law passes the Senate and kicks in next July, there is still some confusion over how long it will stay in place should the Coalition win the next election in two years.

Opposition leader Tony Abbott this morning delivered a “pledge in blood” to “repeal this tax” and “dismantle the bureaucracy associated with it.”

“I am giving you the most definite commitment any politician can give that this tax will go. This is a pledge in blood this tax will go.”

But Prime Minister Julia Gillard has dismissed Abbott’s promise to remove the tax, pointing out doing so would require stripping compensation payments attached to it.

Frank Jotzo, director of the Centre for Climate Economics and & Policy at the Australian National University, has described the passing of the bill as the “first step of what could become an enduring and sensible policy approach to climate change.”

“It will necessarily have to evolve over time and you can already see that in the way that this scheme is designed: it starts out with a fixed price and lots of compensation for industry, and then shifts to a market price and lower compensation levels,” Jotzo told SmartCompany this morning.

“And there will be big decisions to be made in the future relating to the emission targets, the caps, the coverage of the scheme and so on.”

Jotzo says Abbott would face a number of challenges in repealing the scheme, including the practicalities of a double-dissolution election.   

“On the policy side of the equation, what this scheme does is not just provide a new tax but provide a tax swap where money has been allocated to income tax reductions and returned to industry, so if you repeal the legislation, you will either have to find that money or unwind those payments.”

“So in my mind, increasing the effective income tax rates for lower and middle income earners will be a political problem.”

“And finally, once this is in and businesses have started to work with it, I imagine there would be strong opposition from parts of industry to having it changed again. Because what they ultimately want is policy certainty.”

A recent report prepared for the Australian Chamber of Commerce and Industry by Castalia Research said that while SMEs will not be subject to the carbon price for their direct emissions, they will “face a substantial increase in costs through the effects of the price on the costs of their inputs.”

“The starting level of the carbon price is irrelevant: what matters is where the price will increase to, and how the fixed price transitions to an ETS,” the report says.

“Our empirical research shows that a carbon price will have a material impact on the profitability of SMEs, with consequent flow-on effects for investment and employment.”

“This impact is caused by the fact that the sector’s businesses are largely price takers subject to a greater degree of trade exposure than is commonly understood. SMEs have almost no ability to pass on the additional costs of electricity and transport from the carbon price to their customers.”