What is the ‘Carbon Tax’?

The Carbon Tax is a pricing mechanism used by the government to charge polluters per tonne of carbon dioxide produced.

When does it come into effect?

The fixed Carbon Pricing Mechanism is in operation from 1 July 2012 through to 30 June 2015. From 1 July 2015 the system will change to an Emissions Trading Scheme (ETS).

What will it mean for Small & Medium Enterprises (SME)?

For most SMEs, the carbon price will be felt indirectly through increased energy costs and increased supplier prices (input-costs). The more energy-dependent your supply chain is, the higher the cost increase is likely to be. How effectively a business can absorb the cost increase will be mitigated by their ability to pass it on to their customers. In highly competitive industries, cost increases as a result of the carbon pricing system will simply be a reduction of bottom-line profit.

An example of where the increase in input costs will have the most detrimental effect on businesses include industries that operate under long-term contracts such as construction, because they will be less able to pass on increases in input costs.

Changes to the fuel tax credit system will have a more direct effect on businesses eligible to claim the tax credits. Rather than directly levying the carbon price on fuels, a reduction in the fuel tax rebate equivalent to the rate of the carbon price will be introduced. The following entities are examples of businesses that are eligible to claim fuel tax credits and will see the credit amount reduced on fuel purchases from 1 July 2012:

• Heavy Road Transport Vehicles (over 4.5 tonnes);
• Construction;
• Manufacturing;
• Wholesale/Retail; and
• Property Management.

What incentives and support programs are available to SMEs?

Two items aimed at SMEs include the increase in the Small Business Asset Write-off from $5,000 to $6,500 and the Energy Efficiency Information Grants.

Businesses that operate under the small business asset-pooling system (businesses that operate with turnover under $2M per financial year) will see their immediate deduction for eligible assets increase from $5,000 to $6,500 commencing in the 2012-13 financial year.

The $40 million in Energy Efficiency Information Grants provide funding to industry associations and not-for-profit entities that work with small business to increase their understanding of the Government’s clean energy plan and how they can become more energy efficient. It is specifically aimed at improving the education of small businesses rather that providing direct financial assistance.

What can SMEs do to minimise the impact of the carbon price?

There is a large amount of uncertainty surrounding what the actual impact will be for small-to-medium-sized businesses. Realistically, we won’t know until the carbon pricing system is in effect and the physical cost increases can be seen.

Regular reviews of financial performance and position over the initial stages of the carbon price implementation will ensure that businesses can shift their pricing and future business planning to compensate for the impact of the cost increases. Accounting systems should be maintained accurately so that business performance can be reviewed at regular intervals.

Businesses will need to look into how their prices can be adapted to pass on the costs incurred and, if they can’t, whether there are other areas within the business than can be streamlined to absorb the costs.

As energy cost increases will affect all businesses, what can we do to minimise these costs?

Energy costs have been tipped to increase significantly in the coming years as a result of the carbon price. Anything a business can do to minimise their energy costs will assist in reducing the impact of the carbon price.

A small list of achievable suggestions includes:

• Switching to more efficient lighting solutions such as LEDs;
• Ensuring all lighting and systems that can be shut down over night are; and
• Where possible, improving the efficiency of processes that rely on high levels of power.

With uncertainty in the economy and the ramifications of the carbon tax, this coming financial year is set to be a testing time for business in Australia.

As with any new piece of legislation and Government policy, we won’t know the full impact until it is in effect. All we can do is plan, prepare, and be ready to adapt to the changes it will create.