What's happened?

Prime Minister Rudd has announced details of the budget cuts to pay for the government’s planned earlier move to emissions trading on 1 July 2014.

PM Rudd says ‘terminating’ the ‘carbon tax’ will cost the budget $3.8 billion over the next four years. This is as:

  • Government revenue will fall, by receiving a lower price from carbon unit sales. The price will likely move closer to the international price, today at approximately A$7 for EU allowances and A$1 for Clean Development Mechanism units from projects in developing nations, but this will depend on the acceptability of international units (still to be announced); and
  • The government will retain the generous household compensation, of low income earner tax cuts and pension increases, originally designed to compensate for the higher initial ‘carbon tax’. 

The budget cuts

The announced budget cuts are:

  • Abolishing statutory formula for fringe benefits tax (FBT) on cars - $1.8 billion over forward estimates (next 4 years)
  • Energy security fund: bringing forward free permits, then discontinuing program - $770 million over forward estimates
  • Changes to coal sector jobs package to adjust value to new carbon price - $186 million
  • Changes to clean technology program and carbon capture and storage program - $586 million over forward estimates
  • Return unallocated funds from biodiversity fund to budget - $213 million over forward estimates
  • Cuts to funding for carbon farming futures program - $143 million over forward estimates
  • Changes to public service including 1 per cent cut in executive staff numbers - $248 million

What does it mean?

Low income earners and pensioners will benefit under the announcements. Recipients of car FBT benefits and various carbon and biodiversity schemes and the public service receive cuts.

Coal-fired generator and coal mine assistance would be reduced, but should approach the likely lower costs under emissions trading.

No changes have been proposed to:

  • Renewables programs, including the Australian Renewable Energy Agency (ARENA), Renewable Energy Target (RET) program and the Clean Energy Finance Corporation (CEFC) – likely to give some comfort to the renewables industry and green groups; or
  • the ‘Emissions-Intensive, Trade-Exposed’ (EITE) Jobs and Competitiveness Program (JCP) – of great importance to those industries.

The politics

Changes to the car FBT system will likely be the most controversial of the budget cuts. Claimants will now need to justify the amount they claim. The government says this can now be more easily done than log books, including with mobile phone applications.

For more information on the politics of the early move, see our earlier article here.

Details still to come

The government is still to announce the full details of how the earlier 1 July 2014 move to emissions trading would work, including on the key issues of:

  • The acceptance of international units, in particular how the ‘one-way link’ allowing EU units to be used in Australia would work. The link was originally planned to commence 1 July 2015, but is generally expected to be able to move forward to 1 July 2014; and
  • How government unit auctions will operate and when.

We also await details of the yearly emission reduction ‘caps’ that will apply.