Business warns of $3b gap in carbon pricing

Business is warning of a looming $3 billion-a-year hole in the budget when revenue from the carbon tax plummets once the price floats in 2015.

As the Treasury secretary, Martin Parkinson, warns that budget surpluses will remain ”razor thin” and revenue lower for many years, two business lobby groups point to a budget shortfall because of the gap between the carbon price for which Australian households will receive locked-in compensation and the price the government is likely to get for pollution permits.

The carbon price will begin in July as a fixed tax of $23 a tonne, rising to $25.40 by the time the price floats. But on present forecasts the international price, to which the Australian price will be linked, is likely then to be about $13. That means Australian permits would be sold at the proposed floor price of $15, with the government charging a ”top-up fee” for even cheaper permits bought overseas.

The chief executive of the Business Council of Australia, Jennifer Westacott, told the Herald estimates prepared for it by Deloitte Consulting showed a $15 permit price from 2015 would cost the budget $3 billion a year, a drag that could turn the $9.6 billion in cumulative surpluses projected between 2015 and 2019 into a $9 billion cumulative deficit.

The outgoing chief executive of the Australian Industry Group, Heather Ridout, said it would be ”increasingly difficult for the government to make the budgeting of its carbon scheme add up, because once they start paying out the compensation they have to fund it”.

The budget in May will have to include a revenue forecast for the first year of the floating carbon price. Mr Parkinson would not reveal what price that estimate would be based on.

Concern about the level of the carbon price was revealed during the Labor leadership stoush when the Resources Minister and Kevin Rudd supporter, Martin Ferguson, conceded business was worried about the starting price and Mr Rudd spoke about shortening the fixed-price period.

A Deutsche Bank analyst and former Rudd government adviser, Tim Jordan, said the international carbon price was likely to remain volatile for a long time. ”The global carbon price is tracking below the Treasury modelling estimates … Europe’s weak economic conditions are putting downward pressure on their carbon price, and in the absence of a strong economic recovery or a policy shift, the outlook for the European price is subdued,” he said.

”I think it will take the best part of a decade for a uniform global carbon price to emerge. In the meantime, countries with different targets and different policies will join the global market, and that means that Australian firms could face a volatile carbon price.”

But the government’s climate change adviser, Ross Garnaut, said it was by no means certain the European price would still be so low in three years, because the price was difficult to forecast. ”If it is, it will mean Australian households and some businesses will be overcompensated to a level not envisaged when the scheme was devised.”

Households will receive compensation in tax cuts and rises in pensions, benefits and family payments.

Professor Garnaut said the budget impact of variations in the carbon price was small compared with the effect of factors such as changes in the exchange rate.

The European Union is locked in talks to try to push up the low carbon price in its market.

The $23 price resulted from negotiations between the Greens and the government. The Greens deputy leader, Christine Milne, said the low price in Europe was irrelevant because its governments were taking action to ensure that by 2015 a price recovery was under way and because trade-exposed industries were being compensated.

A spokesman for Greg Combet said: ”The normal budget process is under way and this will all be accounted for in the budget.”

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