Why business was the budget's biggest loser

Labor's decision to backtrack on its commitment to cut the rate of business tax was an inevitable consequence of endless negativity from industry lobby groups.

Gail Kelly, CEO of Westpac, picked up on this problem in an interview with the Sydney Morning Herald prior to the federal budget.  According to the SMH, Kelly felt that Australian business leaders needed to put aside their combative approach to policy debate with Julia Gillard. She said that, ''It's important that big business rolls up its sleeves and engages constructively and I think the prime minister is also adopting this approach. She is a consultative person.”

Yet instead, according to Kelly, many businesses were trying to ''run an agenda through third parties or the media'' to undermine the government, which was counterproductive.

Just like anyone else, a government must believe that when it delivers something positive for a particular group, or substantially concedes to a group's demands, it will receive some degree of support, or at the very least a cessation of criticism.

Yet business lobby groups such as the Business Council of Australia (BCA) and the Australian Chamber of Commerce and Industry (ACCI) have not demonstrated such a capacity. While the Minerals Council has certainly honoured its agreement to cease specific criticism of the government on the mining tax, it has continued to heavily criticise the government in general.

The manner in which business lobby groups have approached the debate over a carbon price is a clear case in point that there's not much point in government meeting business lobby groups' demands. The government has put in place incredibly generous provisions to shield trade-exposed industry from the costs of the carbon price which come at the cost of the rest of the community. Ever since the Carbon Price Green Paper in July 2008 the government has repeatedly conceded to demands from heavy emitters:

-- They increased the already generous levels of free permits and watered down the rate at which business would be weaned-off these free permits. Heavy emitters will receive 94.5 per cent of their permits for free at the commencement of the scheme and no less than 90 per cent free permits until 2020.

-- They responded to the BCA's demand to open-up the qualification for free permits to a much larger number of businesses through use of a value-added criteria for assessing emissions intensity of an industry.

-- They delayed the introduction of the scheme by two years.

-- They guaranteed that even the most polluting LNG project would receive at least 50 per cent of their permits for free, even though a carbon price has made no difference to investment decisions.

-- They gave the two dozen highest emitting coal mines several hundred million dollars.

-- And they gave the steel industry several hundred million dollars on top of 94.5 per cent free permits, which means they'll end up making money from the introduction of the carbon price.

So what thanks did the government receive in return for all these concessions?

Well the Australian Industry Group (AiG) and the BCA, who endorsed the carbon pricing package in 2009 in the depths of the Global Financial Crisis, decided in 2011 that apparently circumstances had changed and they needed more free permits. Also even though a $15 carbon price floor is far lower than what business was expected to pay when AiG and BCA agreed to the carbon pricing package in 2009, they now complain they'll suffer inordinate competitive damage unless they can buy the permits for the going international price of $4. This is a price that is so low it will do absolutely nothing to shift Australia's economy away from the most emissions intensive in the developed world. 

As for ACCI, it has never even accepted that Australia might need to reduce its emissions and seems intent on regime change. And the Minerals Council has continued to push an hysterical argument that until its members receive all their permits for free, they'd rather leave all that coal, gold, and iron ore in the ground rather than sell it to the Chinese and Japanese for record high prices.

Overall business interests have showed themselves to be fair weather friends in the whole debate over reducing the rate of business taxation. Sure they want government to reduce the rate of tax but they aren't willing to argue for the measures necessary to pay for it. Nor have they demonstrated to the government that they'll reward them for delivering on their demands.

In the face of a dishonest campaign by Tony Abbott, heavily encouraged by business lobby groups, about the carbon price crippling households – is it any wonder the Gillard government chose to sacrifice a tax cut for business to handouts for families?