The Green light for carbon pricing

This week the Australian Government successfully passed the Clean Energy legislative package through the Parliament. Whether you call it a ‘carbon tax’ (which it isn’t, despite the Government describing it as such) or a ‘carbon price’, the changes will have economy-wide effects. They also reinforce the public perception that the Greens are a powerful political force in the finely balanced minority Government.

Will the Greens succeed in harnessing the momentum of the carbon package to end the use of fossil fuels and halt coal seam gas extraction? Or will the Opposition succeed in gaining a mandate from the electorate to implement its ‘pledge in blood’ to repeal the legislation?

What is certain is that barring an early election, a carbon price will apply to the 500 largest polluters from 1 July 2012, moving to an emissions trading scheme in 2015. The cost impact on consumers will be either fully, partially, or not at all offset through the tax and transfer system. Low-income households (including pensioners) will receive assistance to fully offset price rises, while households earning more than $150,000 (a level that some seek to portray as ‘well-off’) will bear the full effects of the carbon price and are expected to change behaviours to account for this.

The tax thresholds and rates will be changed in two stages, such that up to a million people will be removed from the tax system, which is a good outcome. The effective tax-free threshold will increase from its current level of $16,000 to $20,542 on 1 July 2012 and then to $20,979 in 2015. When this is combined with some marginal rate increases at the lower end, it will ensure that no tax cuts are received for those earning $80,000 or more (clearly they must be ‘well-off’ too).

What do you think?

Robert Jeremenko FTIA
Senior Tax Counsel


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