A souring carbon tax victory for Abbott

AiG numbers shows carbon tax pressure is far lower than Tony Abbott thought, while a far greater concern for business is Coles and Woolworths' market dominance.

While at first glance the AiG report into the impact of carbon pricing on Australian business looked like a win for the Coalition, that winning feeling is souring faster than a $1 litre of milk in a hot Woolies car park.

Opposition leader Tony Abbott was quick to quote the report's finding yesterday that Australian business had seen an average increase in power costs of 14.5 per cent due to the carbon tax, when Treasury modelling had expected only 10 per cent.

Abbott told reporters: "It just goes to show that if you want to get this economy going again, if you want to make people's jobs more secure and families' cost of living lower, get rid of the carbon tax."

A compelling argument... at face value.

But the report contains plenty of other bombshells, that make the 14.5 per cent figure look pretty shaky.

The first is that a lot of Australian businesses just don't know what component of energy price increases were due to the tax. The report says: "...a third of manufacturers and construction firms and up to half of services businesses did not yet have enough information to be able to quantify the increase in their total energy costs as a result of the carbon tax."

And those that did give AiG an estimate were disproportionately blaming the controversial tax.

The report notes: "It appears likely that the high profile of the carbon tax may have overshadowed other important cost drivers in electricity pricing. Both business and households will have seen an increase in generation costs of around 20 per cent, but final bills also incorporate substantial costs for maintaining electricity networks (poles and wires), along with state-based retail and green scheme charges."

Even worse for Abbott is the clear evidence that addressing factors other than the carbon tax could probably do more to, in Abbott's words, "get this economy going again ... make people's jobs more secure and families' cost of living lower".

Foremost among these is that old chestnut of the Coles/Woolies supermarket duopoly.

Wesfarmers, which owns Coles, is expected to post strong quarterly sales today, with Woolworths expected to do likewise tomorrow – and while one quarter's figures do not a duopoly make, they will be watched carefully by those with an axe to grind – particularly since the AiG report found food manufacturers were caught in cost/price squeeze.

While food manufacturers reported among the highest increases in costs due to the carbon tax, around 90 per cent of them were simply unable to pass the costs on to their customers – and with the two big supermarkets commanding about 70 of the grocery market, that means it's largely those two players that have told suppliers to cop the cost increase on their own bottom lines.

The report states: "...responses from food manufacturers indicated that major food retailers and those in the food service industry would not tolerate price increases, leaving manufacturers to improve energy efficiency, cut other costs or accept lower margins."

The report also notes that the high dollar is also to blame for food manufacturers' woes – they are eligible for some grants to cover carbon tax cost increases, but miss out on the big 'trade exposed' giveaways contained in the government's Clean Energy Futures package, despite having to compete with cheaper imported groceries.

And for Tony Abbott, there is another reason he will wish this report had never been published. Within the Coalition, the Nationals have been agitating for a national supermarket regulator to be set up, as has just occurred in Britain – its new Groceries Code Adjudicator will have power to fine big supermarkets who use market power to squeeze suppliers. Business Day reports the Nats will take this to a party-room meeting this Friday.

Not everyone thinks there is real duopoly power in the Coles/Woolies market domination. Just yesterday, Tim Wilson of the Institute of Public Affairs argued in The Australian that: "If there ever was a duopoly, it is almost certainly over. The job of the regulator should now be to bury it by making sure the market is open for new entrants.

"Instead of trying to manipulate the market, the ACCC should be advocating for the end of local and state regulations that make it more expensive for new supermarket entrants."

But that view is not widely held by SMEs in the food manufacturing sector. Peter Strong, executive director of the Council of Small Business Associations, points the finger squarely at the big supermarkets. "This is not a carbon tax problem," he told me yesterday, "but a competition policy problem. Instead of wasting a year debating the carbon tax, we wanted more debate on competition policy, contract law and workplace relations – they would have a much bigger impact on the economy."

Indeed. A lot that might have been said in parliament in 2013 was drowned out by the daily grind of carbon tax hyperbole and the suspension of standing orders disrupting question time to accuse Prime Minister Gillard of lying about the tax and wrecking the economy. If the the economy is falling apart, the AiG report does a good job of hiding it – it reports that while energy costs have risen, PPI figures show other inputs such as agricultural produce prices are down 4.3 per cent, and imported good prices are down 1.2 per cent – resulting in a PPI decrease of 1.8 per cent overall.

The AiG report includes several big areas of concern where additional carbon tax relief packages may need to be introduced – manufacturing, more generally, and construction also showed "a significant gap between the proportions of businesses that experienced increases in their input prices from July 1 as a result of the carbon tax, and the proportion that were planning to increase their selling prices in response."

That said, for the food manufacturers – the group 'hardest hit by the carbon tax' – there really are more important issues to debate in parliament than the carbon tax itself.