Rudd's $3.8bn climate tax shuffle

PM Rudd has announced a number of cuts to carbon pricing programs and compensation to cover for the loss of revenue from dumping the carbon tax. Worse, he is conforming to Abbott’s rhetoric that carbon pricing equals cost of living pressures.

The government has just announced a range of climate program cuts, reductions in carbon pricing compensation, and changes to fringe benefits tax to cover a $3.8 billion shortfall in revenue from dropping the fixed price on carbon.

The government announced it won’t seek to adjust funding to ARENA and the Clean Energy Finance Corporation, stating in a press conference that renewable energy programs will remain untouched.

However this is not accurate. Around $162 million will be cut from the Clean Technology Program which has supported a number of solar PV installations on business premises. In addition, $200 million from this program will be deferred into later years.

A number of energy efficiency equipment and service providers, as well as solar PV suppliers focussed on business rooftops will be disappointed to hear of these cuts. Informal feedback suggests that this program had been highly effective in overcoming manufacturing businesses tendency to ration capital for energy savings initiatives, because they were considered non-core business. This is even though such initiatives often provided better financial returns than the core business. 

Other major changes announced to carbon pricing-related programs are:

-- Free permits that were to be provided to brown coal generators under the Energy Security Fund will be withdrawn two years early, saving $770 million.

-- $213 million of unallocated funding under the Biodiversity Fund will also be withdrawn.

-- Cash assistance provided to emissions intensive coal mines will be reduced by $186 million in line with reductions in the carbon price.

-- Funding for the carbon capture and storage programs will be deferred again, pushing out $200 million into later periods. In addition, $24 million will be clawed back by Treasury.

The government will also withdraw the Fringe Benefits Tax rort that allowed people to claim concessions for cars without providing documentation that the car was used for work purposes. This is expected to save the budget $1.8 billion over the forward estimates and hopefully should reduce fuel use slightly.

The government will also aim to save $248 million through cuts to senior ranks of the public service and more efficient procurement of IT software.

On top of these budget changes the government is making much of how the switch to trading will help households with the cost of living. This is deeply concerning because it essentially perpetuates the opposition’s scare campaign about pricing carbon.

This ignores the reality that pricing carbon represents a reasonably modest impost on household budgets and allows for compensating reductions in income tax and increases in pensions. Even if the carbon price remained at $25 or even increased most households would remain better off because of tax cuts.  

In fact household average electricity consumption appears to have dropped by about 1000kWh in recent times due to a range of energy efficiency initiatives. This means many households have managed to reduce their electricity bill by an amount (around $250 per annum) that fully offsets the effect of the carbon price.

The government made the mistake of conforming with the opposition’s inaccurate rhetoric in terms of government deficits equalling higher interest rates.

It is now committing the same mistake with carbon pricing equating to a cost of living problem. It is not a cost of living issue if you end up paying less income tax. This is about shifting how we collect taxation revenue to tax a bad thing, pollution, rather than a good thing, generating income.

If Europe acts to address the overallocation of permits under its carbon pricing scheme, Labor will have made a rod for its own back.