Carbon pricing is the policy that keeps on giving. From the AFR:
[Rudd] used the decision to try to turn the tables on Opposition Leader Tony Abbott over the cost of living by claiming that, under the change, the average family would save $380 in 2014-15.
He said the opposition’s taxpayer-funded direct action policy would cost the same family $1200 a year, a figure the Coalition rejects.
…The decision to move the carbon price from a fixed price of $25.40 a tonne in 2014-15 to a floating price of about $6 will cost the budget $3.8 billion for one year.
..Mr Rudd announced $3.9 billion in cuts, about half of which are structural, meaning the government would reap the financial benefits after the revenue hole is plugged.
While the $3.8 billion revenue hole will be filled by savings made over the four-year budget forecasts, there will be a loss of $1.8 billion to the budget in 2014-15, the year the greatest expense is incurred.
The savings include $248 million in cuts to the Commonwealth Public Service, costing 800 jobs; $1.9 billion in reduced industry assistance and climate change programs that are funded by the carbon tax; and the $1.8 billion cut to FBT concessions.
In short, we’ve been delivered 1+% of GDP stimulus package for 2014/15. However, as I’ve already argued, I think it quite unlikely that this dough will ever reach households. A little game theory explains why. Carbon intensive business is now confronting a floating price of carbon that will, if there is any sense in any of this, continue to rise well past the $23 it’s currently being subjected to (let alone one year at $6). If I’m a business that’s been raising prices in the face of this new charge then I’m not about to drop the price and lower expectations of future price increases because there’s a short term increase in my margins. That’s just going to force me to raise prices again next year and repeat the pain. No, I’m going to keep the windfall and keep my clients expectations where I want them.
This is not unreasonable and I can’t see how any regulator can do anything about it. So the benefit will flow straight to the bottom line of high carbon polluters who may or may not spend the money.
Meanwhile, the car industry is being hit by the removal of $1.8 billion over four years in tax deductions associated with salary sacrificing:
From Tuesday, new cars salary-packaged or provided by employers will only benefit from a fringe benefits tax break if a logbook can prove how much it is used for business purposes. The changes take effect from April 1, 2014.
It’s a dramatic change from the existing ability to subject just 20 per cent of a vehicle’s cost to FBT each year, even if it is used purely for personal travel.
…[Smartsalary’s] Mr Ellis lashed out at the government’s press release announcing the change, which claimed that two-thirds of employees who salary-sacrifice cars earned over $100,000, calling it “absolutely false” and “obviously intended to create a false impression”.
Over a third of such car owners earned less than $80,000 a year, he said.
Remunerator managing director Matthew Honan said that at least 25 per cent of all new cars purchased in Australia were under novated leases or otherwise salary-packaged. He said employers and their staff were likely to pause packaging until there was more certainty around the new measures.
These are the quotes of angry interests so some caution is prudent but I think it likely that novated leases are associated most with SME’s that don’t keep a fleet. So that will definitely mean less money spent. Whether or not they are justified on a tax equity basis, the changes seem likely, as well, to cause a pause in buying now and probably slower renewal of new car sales when the policy is pushed through. What the multiplier effects of $1.8 billion in tax breaks over four years are I can’t say but they’ll not be insignificant.
Once you add in the other cuts and the rising carbon price still embedded in Treasury forecasts, there is a revenue boost for the government beyond the near term.
Over the 2014/15 year the package may be a carbon stimulus plan of dubious efficacy. But in the long term, when carbon prices rise, this is quite clearly a carbon austerity package.
