Chapter 6 provides an overview of the government's proposed carbon tax
and economic modelling in the context of regional Australia. It examines the impact
that the proposed carbon tax will have on rural and regional areas.
Through the introduction of a carbon tax, the government will seek to change
consumer behaviour, the result being a reduction in Australia's emissions:
Pricing carbon will drive structural change in the economy,
moving resources towards less emission-intensive industries. Many of
Australia's industries will maintain or improve their competitiveness in a
carbon constrained world.
The government has modelled the impacts of the proposed carbon tax at
the international, national, state, industry and household level. While that
modelling assumes full employment even with a carbon price it identifies that:
While aggregate economic costs are small, they vary across
regions and sectors, reflecting changes in Australia's comparative advantage in
a low-emission world. Precise impacts vary depending on the emission intensity
of a state, region or sector, and the opportunities to diversify into
low-emission goods and production processes.
In presenting their modelling to government, Treasury noted that:
Regions heavily reliant on emission-intensive sectors, such
as some resource processing and emission-intensive manufacturing, may be the
most strongly affected over the longer term.
Treasury advised the committee that modelling they have undertaken
cannot accurately identify the effect that the imposition of a carbon tax will
have on regional Australia.
Senator XENOPHON: On the issue of regional effects,
from what I have seen of the modelling, there does not appear to be any
regional effects modelling done of the carbon price. Is that a fair assumption?
Ms Quinn: The analysis that we have put in the public
domain includes analysis down to the state level... It does not go below that,
except for some additional information on the electricity generation around the
Senator XENOPHON: Why wasn't that done? You used the
... And the MMRF model does include a regional module.
... And you did not use that in this case?
Ms Quinn: It has data at a regional level but it does
not have behavioural components of modelling. So it does not allow for the
changes of capital, labour and technology at a sub state, regional level ...
It is available for people to use if they choose — ... and
the Australian Treasury has chosen not to because we do not think that it is
robust, and putting information in the public domain that we do not believe is
robust has consequences and we do not think it would be consistent with our
Previous government regional modelling exercises
Treasury’s claim that the regional modelling is “not robust” would
appear to contradict the practice of other government agencies which conduct
general equilibrium modelling of major reforms. For example, both the
Productivity Commission and the Australian Bureau of Agricultural and Resource
Economics and Sciences (ABARES) have performed such modelling recently.
In 1999, the Productivity Commission used an earlier version of the MMRF
model used by Treasury to report on the effects of National Competition Policy
on rural and regional Australia. They used the MONASH-RR model to estimate the
impact of National Competition Policy on 57 separate regions in Australia.
Indeed, the Productivity Commission believed that the results were ‘robust’
enough to use them in their headline finding that 'only one of the 57 regions
modelled is estimated not to benefit from NCP in terms of output.'
(Coincidentally, that one region was the
La Trobe Valley, a region again facing the disproportionate impact of the
In 2002, the Productivity Commission used an earlier version of the MMRF
model to estimate the output and employment impacts of lowering assistance to
the automotive industry on different regional areas. These results found that
the largest negative impacts would be felt in the Adelaide, Outer Adelaide,
Melbourne, Geelong and Illawarra regions.
In 2003, the Productivity Commission used an earlier version of the MMRF
model to estimate the output and employment impacts of lowering assistance to
the textiles, clothing and footwear industry on different regional areas. These
results showed that the largest negative impacts would be felt in the Geelong,
Wimmera, Melbourne, Ballarat, Bendigo, Albany, Albury and Gippsland regions.
In 2005, the Productivity Commission used an earlier version of the MMRF
to repeat the modelling of the impacts of National Competition Policy (NCP)
that it performed in 1999. The results were once again reported for 57
In 2007, the Productivity Commission used the MMRF model to estimates
the regional impacts of the proposed infrastructure related components of the
National Reform Agenda reforms in 54 different regions. It is telling that this
is the same basic model that Treasury used to estimate the effect of the carbon
tax on the Australian economy. The Productivity Commission, while noting
limitations, believed that conclusions could be drawn from the regional
Subject to data limitations, it is possible to make some
broad observations about the likely impacts of the competition and regulatory
reform streams on regions, that is, before the impact of government spending
decisions on regional activities.
In 2010, the (then) Assistant Treasurer, Senator, the Hon. Nick Sherry,
asked the Productivity Commission to report on the impacts and benefits of COAG
reforms. In the Terms of Reference the Assistant Treasurer stated:
The Commission will develop and maintain analytical
frameworks appropriate for the quantification of the impacts and benefits of
reform, and the provision to government and the community of assessments of the
economy-wide, regional and distributional effects of COAG’s reform
agenda. The frameworks should be transparent, and subject to independent
assessment. As far as practicable, the frameworks should be made available for
It is notable that not only has the government not reported the regional
effects of the carbon tax, it also has not subjected its modelling to
“independent assessment” or ensured that its modelling frameworks are available
for wider use.
In its framework report on the impacts and benefits of COAG reforms, the
Productivity Commission confirmed that it would report the regional effects of
A common economy-wide model will be used to quantify the
aggregate, regional and distributional effects of economic outcomes and those
environmental and social outcomes that affect economic activity. The model will
be similar to that used by the Commission on four previous occasions to illustrate
the potential impacts of widely-based national reform: in 1995 for Hilmer and
related reforms; in 1999 for a smaller range of NCP reforms of particular
relevance to rural and regional Australia; in 2005 to report on the economic
and distributional consequences of NCP reforms; and in 2006 to report on the
potential benefits of COAG’s embryonic National Reform Agenda.
In 2011, the Australian Bureau of Agriculture and Resource Economics and
Sciences (ABARES) published modelling results of the economic and social
effects of the proposed Murray-Darling Basin Plan. ABARES used its Water Trade
Model to estimate the impacts of the Plan on 22 regional areas throughout the
In 2011, ABARES released modelling of the potential effects of climate
change on forests and forestry in Australia, stating:
This integrated study drawing together climate modelling,
forest growth, economic analysis and community vulnerability assessments is an
important step toward understanding the effects of climate change on forest
industries at a regional and subregional level.
The Committee believes there is no reasonable explanation as to why the government
has refused to publish similar modelling results on the impact of the carbon
tax on rural and regional Australia. If respected economic agencies, such as
the Productivity Commission and ABARES, can publish regional modelling results
for other government policy initiatives, then there is no reason that the
Treasury cannot do the same for the carbon tax.
The Committee is of the view that the government does not want rural and
regional Australia to know what the impact of the carbon tax would be according
to Treasury modelling.
The government should of course require Treasury to conduct proper modelling
of the carbon tax impact on rural and regional Australia.
Third-party modelling of the impact of the carbon tax on regional areas
Although the Commonwealth Government has not released regional modelling
results of the carbon tax, state governments in Queensland, New South Wales and
Victoria have done so.
In Queensland, the Labor State Government released modelling on 23
August 2011 of the carbon tax undertaken by the Queensland Government’s Office
of Economic and Statistical Research.
The results of this modelling indicate that parts of regional Queensland will
be the epicentre of the carbon tax negative impact on future prosperity. The
Rockhampton and Gladstone area will see economic activity fall by 8.2 per cent
under a carbon tax, the Mackay area by 5.7 per cent, double to triple the
impact of the carbon tax on the rest of Australia.
Table 6.1: Impacts of carbon pricing on statistical division
activity output, across Queensland as a cumulative per cent deviation from
business as usual
Wide Bay Burnett
Fitzroy Central West
In New South Wales, the State Government released modelling of the
carbon tax on 4 August 2011. That modelling, by Frontier Economics, showed that
the carbon tax would cost 31,000 jobs, at least 26,500 of which would be lost
in regional Australia. The Hunter region would lose 18 500, the Illawarra would
have 7,000 fewer jobs and the Central West 1,000 fewer jobs.
The Victorian Government released modelling on 20 September 2011. The
modelling by Deloitte Access Economics showed that there would be 7,073 fewer
jobs in regional Australia under the carbon tax by 2015. This included 1,574
fewer jobs in the Geelong area and 1,251 fewer jobs in the La Trobe Valley
The Commonwealth Government has made various criticisms of State Government
modelling. However, it has not released its own modelling of the regional
impacts of the carbon tax to disprove the broad and consistent finding that the
carbon tax will have a disproportionate impact on regional Australia. The
Commonwealth Government’s criticisms would have more credibility if it made its
modelling available for others to scrutinise its parameters and assumptions.
It is not surprising that the regional modelling that has been released
finds a disproportionate impact on regional Australia. A disproportionate share
of Australia’s power generation, mining and manufacturing industry resides in
regional Australia, so the carbon tax would be expected to hit regional
Evidence from local regional communities
Given the lack of regional modelling that has been undertaken by the
Commonwealth government, the committee sought evidence from a number of
organisations and stakeholders in rural and regional areas to assist its
inquiry into the impact of the proposed tax and the effectiveness of the
government's compensation package for this sector of the economy.
Evidence heard by the committee suggests that the effort required to
meet the expectation that industries will have to 'evolve'
to keep pace with the government's clean energy future will be of greater
consequence in rural and regional areas as local business and industry struggle
to adapt. The evidence also suggests that the government's proposed
compensation package has been inadequately targeted and that many rural and
regional businesses will in fact be worse off than their multinational
Regional New South Wales
Modelling was prepared on behalf of the New South Wales
to look at the impact of the proposed carbon tax not only in New South Wales,
but across Australia. That modelling
found the following:
'The most adversely affected regions (taking into account both
reference case growth and the impact of the carbon price) are Hunter NSW,
Gippsland Victoria, Northern SA, Illawarra NSW, Fitzroy Qld and Central West
NSW. In all cases the carbon price results in slower growth in output rather
than absolute declines on current levels. The loss in GRP is $820m in Hunter
NSW, $250m in Illawarra NSW and $170m in each of Fitzroy Qld and Central West
NSW. In dollar terms these effects are less than the impacts on Sydney and
Melbourne but in relative terms these effects are generally larger.'
'In Hunter NSW, this effect is large in absolute and relative
terms, and equivalent to 18,500 jobs. The Illawarra in NSW is also negatively
affected by the carbon price (approximately 7,000 jobs) though given that the
reference case growth is stronger the net effect is slower growth rather than a
contraction on current levels.'
By 2030, when the carbon price is higher and assistance to emissions
intensive trade exposed industries is reduced, the effects are greatest on:
Hunter NSW (- 42,500, an absolute contraction relative to current
Illawarra NSW (approximately - 27,400, slower growth in future
Fitzroy QLD (approximately 7,400, mostly slower growth in future
employment, though this more than offsets projected employment growth between
2010 and 2030).
Regional New South Wales
Regional New South Wales (NSW) covers 800 000 square kilometres and
boasts a population of more than 2 519 000.
Its traditional industries include manufacturing, mining and agribusiness.
Tamworth – evidence of the impact
of the carbon tax
The committee held a hearing in Tamworth. This is a major inland centre
in New South Wales.
The committee heard from witnesses from the Tamworth Regional Council and
Tamworth Business Chamber as well as the following enterprises:
Namoi Valley Bricks; and
Grain Products Australia.
Local business groups
These enterprises are medium sized with employee numbers ranging from 28
to 630. These witnesses expressed concern about their ability to absorb or pass
on costs in rural areas. They also commented that despite the government's
proposal for compensation, they remained apprehensive about their continued
financial viability and the subsequent impact on employment in the region.
The Tamworth Regional Council was also of the view that given the
geographical situation of the region, businesses in the region will be
I have some serious concerns which I would like to reflect
on, on behalf of the community, as to this current model that is before us here
at this moment. I believe that our regional community, because of its
geographical situation, will suffer disproportionately from some costs
associated with the tax, particularly from 2014 when the fuel imposts will, I
believe, be experienced—I would be surprised if they are not. Another area of
disproportionate cost is energy, due to our climate—we have extremes of both
hot and cold weather which a lot of coastal communities and larger centres do
not. This exposes the great difficulty in imposing a one-size-fits-all solution
to compensation from the tax.
The Tamworth Business Chamber shared the concerns of the Council,
particularly highlighting the strain that increased electricity prices will
The impost of a carbon tax, while targeted at the top 500
emitters, will have a devastating effect on a number of small businesses
according to local feedback. Since 2008, electricity prices have risen on
average by 39 per cent, with a further 17.3 per cent approved from July 2011.
Regional Australians have to deal with the tyranny of
distance and the majority of us expect to pay a little more for products and
services. However, these ever-increasing costs are pricing some local retailers
and suppliers out of the market. While it can be argued that the government
intends to keep the diesel fuel rebate until 2014, what happens after that?
After that we believe transportation costs will go up. It will cost us more to
have our product delivered to markets and more to have products we want
delivered to us.
It is naive to say that this tax is targeted at the 500
biggest emitters as the compensation the government is offering to taxpayers
will not cover all increases in costs.
These same concerns in relation to increased operating costs and
continued economic viability were repeatedly raised by the witnesses who
appeared before the committee in Tamworth. Those businesses and their views are
outlined in the following pages.
Inverell Freighters expressed concern about increases in fuel costs.
Inverell Freighters operate a fleet of 25 prime movers as well as eight other
trucks. The business employs 40 people
and has an annual turnover of $12 million.
The owner, Mr Keri Brown, noted that it was an already difficult operating
market with many small operators going out of business.
The further impost of a carbon tax will make it even more difficult to remain
competitive. Mr Brown stated that it would be difficult for Inverell Freighters
to absorb a carbon tax and there would be little likelihood of it being passed
Any equitable tax or charge on industry is certainly harder
to absorb in a rural area due to our cost pressures, which are also placed on
our customer base. Our customer base is primarily rural, and we all know the
problems that rural people have and how difficult it is for them to receive any
increase in cost. In some ways, being the size of transport business that we
are, we are like farmers; we are price takers. In our business, we are
sometimes dictated to as to what costs have to be absorbed.
Mr Brown also explained to the committee that although the imposition of
the carbon tax on diesel has been deferred to enable them to prepare for the
transition; they are in fact a 'sitting duck' as there is little that they can
do to further reduce their emissions:
... by its very nature, it [the carbon tax] is designed to
inflict pain on us in order to make us change our ways and our patterns of use.
This is the nub of the problem, and it is why I have a real problem with it.
What can we as a company do? Absolutely nothing. If a carbon tax is imposed on
us, we can do nothing. We are a sitting duck. We just pay the tax and try and
pass it on. Nothing in our pattern of usage can change. We are unable to effect
any changes whatsoever.
Inverell Freighters anticipates that as a result of the carbon tax its
fuel costs will increase by $350,000 per year. Mr Brown explained his concern
to the committee that, in an industry already experiencing slim profit margins,
the additional impost may be the 'straw that breaks the camel's back':
CHAIR: So if you put a $350,000 additional cost on top
of less than zero what does that do to you?
Mr Brown: You ring Ritchie Brothers, the auction
house, and put all your stock through that. Seriously, that is where it goes.
As a typical small business one of the issues you constantly face—we have had
to face this challenge over the last three years—is whether you eventually pull
the pin. But you have loyal staff who have been great to you. It is their
livelihood as well. You just cannot pull the plug on them. I have my son
sitting at the back of the room today. This is what he wants to do for a
living. Those are the sorts of pressures that you have, which are non-business
pressures. You cannot tip out these people who have been loyal to you over such
a number of years and say: 'Sorry, I'm pulling the pin. Send it off to
Ritchies, the big auction house.' How much did we say it was?
Senator WILLIAMS: $350,000.
Mr Brown: With another $350,000 it is goodbye.
Bindaree Beef Pty Ltd is a privately owned and family operated company;
it is one of Australia's largest beef processing and exporting businesses. The
business now operates one plant at Inverell in northern NSW and is a major local
employer. It employs 630 full time equivalent staff.
The business directly injects in excess of $64 million into the town of
Inverell per annum.
Bindaree Beef Pty Ltd expressed concern that the cost burden that will
be introduced as a result of a carbon tax will negatively affect the long-term
viability not only of Bindaree Beef but also the broader beef industry. Mr Phillip
Kelly, Bindaree Beef's Chief Financial Officer, explained to the committee that
under a carbon tax, although Bindaree Beef has already taken action to reduce
their energy usage, electricity would remain a major cost and a cost which they
expect would rise by
17 per cent – or $1.6 million per year:
Our annual electricity cost is about $3.2 million. My
projected figures over the next two years are an increase of $1.6 million, so
that will take our annual electricity costs to $4.8.
Mr Kelly explained that under the government's proposed compensation
package, Bindaree Beef would not receive any assistance:
Mr Kelly: A critical issue that everyone needs to be
aware of is that because of our turnover we fall into the large business
categories, so we fall outside the net of typical government funding support
CHAIR: So you do not get any compensation under the
Mr Kelly: No.
Bindaree Beef explained that it is seeking to implement measures that
will reduce its costs including their electricity usage; as a private company
their ability to modernise its plant and equipment is hampered. This contrasts
with the situation of its three major competitors who are likely to be included
in the top 500 emitters and who are therefore likely to receive some assistance
through direct government support:
Senator WILLIAMS: I want to take you to your
competitors—Swift, Cargills, Teys Bros. I know Teys Bros are up for $2 million
under the carbon tax alone, let alone their electricity and extra fuel et
cetera. Are you saying that because they are amongst the top 500 they will get
some compensation from the government?
Mr Kelly: Given that they are multinational companies,
some shareholder driven with one in particular backed by a government bank and
another a very diverse multinational and multicommodity company, they have
access to funding arrangements and so forth that we unfortunately do not. As a
small family-owned business, we face issues like the banking industry in
Australia not banking meat-processing businesses. We are fortunate we have got
a very good relationship with our existing banker. The other impost, which I
have spoken about before, is that we fall outside of the net when it comes to
government funding programs because we are classed as a large business.
Senator WILLIAMS: Have you had any indication
whatsoever that there may be some financial assistance from the government when
they collect this carbon tax money to help you through your transition or to
help you to compete?
Mr Kelly: There is nothing that I have seen so far in
the information I have been given which indicates that Bindaree Beef will
qualify for any support.
Mr Kelly expressed to the committee the difficulty of the industry as
price takers. He indicated that Bindaree Beef would try to absorb as much of
the impact of a carbon tax but ultimately they would need to pass on the costs
to their customers, the cattle producers:
As a business we try to absorb as much of any cost increase
we can. Ultimately, that gets passed on to our customers. Our customers of
livestock are cattle producers. Cattle producers are facing enough problems in
the Australian industry at this point in time. They can ill afford to suffer
any decrease in income. It is an absolute furphy that agriculture will be
exempt from any carbon tax. Primary producers, as the ultimate price takers,
are at the end of the line and primary producers will take on board increased costs
in their business, either through direct increased costs or lower prices for
Like Inverell Freighters, Bindaree Beef also suggested that the added
impost of a carbon tax may be the 'backbreaker' for their business:
Mr Kelly: The impact of the carbon tax on Bindaree
Beef could possibly be the backbreaker.
Senator CAMERON: Are you serious about that?
Mr Kelly: I am deadly serious. I am very passionate
about it because I protect 630 employees, I protect the viability and economic
long-term viability of the township of Inverell, I protect the cattle producers
who provide us with cattle and I protect the beef industry.
Namoi Valley Bricks
Namoi Valley Bricks (NVB) is a family owned company that has operated
since 1959. At present, NVB employs 28 staff, 26 in Gunnedah and two in Sydney.
The company also engages several transport contractors. NVB has an annual
turnover of $4.5 million and operates on thin profit margins, of approximately three
Mr Michael Broekman, owner of NVB, explained to the committee the steps
that his family business has taken over the past few years in an effort to meet
their carbon responsibilities. He explained their involvement in biodiversity
and their commitment to running a clean and efficient organisation which had
resulted in their business having emission levels 20 per cent below the
national average for brick manufacturing.
Mr Broekman, however, voiced his concern that the carbon tax, in its current
format, is too complicated and does not support businesses in renewable
Over the last few years, as the carbon debate has come to the
forefront, we have ... tried to look at ways for our organisation to meet our
carbon responsibilities. We have done so by getting involved in biodiversity.
We have 400 acres of native bushland locked up for biodiversity needs. We have
a policy on using ethanol fuels, looking at trying to get into biodiesel. We
have also done an audit on our emissions—an emissions study—and found that our
organisation runs at about 20 per cent below the national average in relation
to brick manufacturing. We have done that because (1) we have a responsibility
and (2) running a clean and efficient organisation means that it should be more
In recent times we have been looking at solar as an offset
against power cost. Our organisation would need to run something like a
200-kilowatt system to be power efficient or power neutral. A 200-kilowatt
system would cost us in the vicinity of $750,000 to implement, which was unaffordable.
The repayments on that sort of program would outweigh the cost. So we looked at
other options, or other avenues, and ended up coming back down to a
150-kilowatt system, at about $450,000 worth of infrastructure costs. Again, we
cannot get the numbers to add up; we cannot get it to work. But the cost of
that renewable energy technology does not allow us to offset against our power.
It is disappointing, because those are the sorts of things we
should be doing as a business, and that is what I was hoping to see out of a
carbon tax: that businesses like ours could be supported in renewable
objectives. So far in the package—which, I admit, I have not had a lot of time
to look through to the nth degree—I do not see a lot of incentives for
businesses like ourselves to be able to change our ways of doing things with
some sort of government support.
from what I can see so far, the model that has been put up is
full of waste and is not directed at the real cause.
Mr Broekman explained that as his business's main competitors are large
multinationals, the introduction of the carbon tax will further undermine his
Mr Broekman: Our competitors are the multinationals in
the building products game—Boral, Austral, CSR, PGH and the like. At the
moment, there are only three independent brick makers left in New South Wales...
CHAIR: To the extent that imposing a carbon tax
further undermines the competitive position in Australia and makes overseas
emitters, often emitting more for the same product, more competitive and helps
them take market share, we are not actually resolving the issue, are we? We are
not actually reducing global emissions; we are just shifting emissions from
Australia to other parts of the world.
Mr Broekman: That is right.
CHAIR: So why would we do that? Why would that be a
sensible thing to do?
Mr Broekman: I am not in government, so I do not know
why we want to go down this path. That is the argument. My view is that there
must be a simpler way of doing this that gives us clear direction and a clear
Mr Broekman, like Inverell Freighters and Bindaree Beef, also expressed
a concern about the ability of his business to pass on the cost of price
increases to consumers and the effect that will have on his business's
Senator CAMERON: And when the carbon tax is
implemented there is an opportunity then to pass those price rises through, is
Mr Broekman: There is if you have a robust economy,
but our business is very much affected by the two-tier economy. The building
sector in New South Wales is in a very depressed state and we work in a very
competitive environment. At times, over the history of our business, yes, it
has happened, but at this stage, with the nature of our industry and the way
the economics is running, there would be no chance of passing that on.
Senator CAMERON: All of the analysis that I have seen
would lead me to believe that you can pass it on. In fact, one of the things
the government has had to do is to provide powers to the ACCC to make sure
people do not pass too much on.
Mr Broekman: Again, it is great that the ACCC will get
those powers, but I can assure you that, due to the nature of our business and
our industry, trying to bring in price increases will be detrimental to our
Senator CAMERON: What specific increase for 1,000
bricks would be caused by the carbon tax?
Mr Broekman: Again, I am only a small-business owner.
I just do not have the resources to work that out. We are a small business in
rural New South Wales that struggles to survive on a day-to-day basis. To spend
resources to try to work that out is impossible.
Senator CAMERON: The Treasury estimates the overall
impact on the economy is 0.7 percent. Do you agree with that?
Mr Broekman: That is right. I have said here earlier
that I do not think the carbon tax in its current structure will break our
business but it could have a detrimental effect on our bottom line. A one per
cent increase in costs could affect our bottom line by at least a third.
Senator CAMERON: But if the public are aware that they
are being recompensed for any increase in the cost of bricks then you would be
in a position to pass through your increases, would you not?
Mr Broekman: If the industry were not so competitive
then yes, you could. But, even with the last wages increase that has just come
through, we tried to pass on those costs to our consumers and that has already
affected our sales.
Grain Products Australia
Grain Products Australia (GPA) is a small starch manufacturing plant in
Tamworth. It employs 67 permanent full-time employees and 14 casual staff. GPA
has annual revenue of $50 million; one third of that revenue is derived from
exports. GPA's annual wheat requirement of 60 000 tonnes is sourced from the region
– from farms in the area north-west of Tamworth. GPA uses a local flour mill,
which employs 38 staff, to mill its wheat.
GPA explained that the proposed carbon tax will threaten the future
viability of the plant which, following recent upgrades to equipment has
remained unprofitable for a number of years.
Mr Henry Segerius, the Director and General Manager of Operations, Grain
Products Australia, identified a number of concerns with the carbon tax, all of
which will threaten the business's ongoing viability including an inability to pass
on higher costs because of intense competition; the direct cost impact that
will result from the imposition of the tax without a consequential benefit to
the business; and the fact that GPA's overseas competitors have no equivalent
cost impost on their electricity expense. Mr Segerius explained that the cost
of natural gas to GPA's main competitor is just one-third of the cost that they
pay in Tamworth.
In addition, Mr Segerius voiced concern that the costs of reporting and
compliance following introduction of a carbon tax will be high and detract from
running a business:
... it is clear that the tax and its administration will
impose added costs which will reduce our competitiveness and threaten the
viability of the business. At the same time the tax will not provide any more
incentive to reduce our emissions than is already the case through high and
increasing electricity and coal costs.
It is GPA's concern that Australia is going to pay a very high price to
try and influence the rest of the world to take action against carbon
Mr Segerius went on to say:
Senator MADIGAN: We have heard today about the
so-called level playing field and the free market. Under what is proposed by
the government your company—an Australian company—will pay the carbon dioxide
tax and your competitors exporting to Australia will not.
Mr Segerius: Correct.
Senator MADIGAN: Would it be fair to say that that
will put you at an even further disadvantage under a so-called level playing
Mr Segerius: Yes.
Senator MADIGAN: How much bang for your buck do you
think your company is going to get from this proposed tax in reducing
Mr Segerius: None.
Queensland's population is more geographically dispersed than any other
mainland state; just 45.7 per cent of the Queensland population live within the
capital city compared to an average of 63.8 per cent in the other Australian
The economy of the state owes its relative strength to the industries of
mining, agriculture and tourism.
Mackay – evidence of the impact of
the carbon tax
The committee held a public hearing in Mackay. At that hearing the
committee heard from a number of industry groups – the Chamber of Commerce and
Industry Queensland, the Mackay Whitsunday Regional Development Corporation,
the Mackay Area Industry Network, and Tourism Whitsundays as well as the
Mackay Sugar; and
Local business groups
The Mackay region's economy is largely driven by mining, farming and
These industries all stand to be negatively affected by the added impost of a
carbon tax. Witnesses from the Mackay region identified that the existing
additional challenges faced in regional areas would be compounded under a
According to the Mackay Policy Council of the Queensland Chamber of
Commerce and Industry:
... in regional areas, the cost of transport is more
significant than it is in metropolitan areas. Most consumables and business
inputs have a big transport component in them. Regional businesses and
consumers will be disadvantaged compared to their counterparts in the capitals
by any increase in transport costs.
There is a bigger transport component in our regional way of
life because most goods are produced or circled through the capitals. Food,
building materials, medical supplies and inputs for just about everything have
a bigger transport component when you are in the regions than they do in the
metropolitan areas. For that reason, the regions will be more impacted by the
Speaking on behalf of their 300 members, Mr Peter Grant, Chair of the Regional
Policy Council of the Chamber of Commerce and Industry Queensland, voiced the
concerns of local businesses:
As residents of a regional area and as representatives of
business in a regional area, we are greatly concerned about anything that
disadvantages our businesses and communities in regional areas compared to the
metropolitan areas. We are very strong advocates for decentralisation.
Queensland already is quite decentralised, but there are always pressures to
centralise. People who live in the regions do so for many and varied reasons.
Even from an environmental point of view there are certain advantages in having
a decentralised country and not being concentrated in large metropolitan areas.
Mr Grant explained that business confidence in the region, which has
remained weak since the global financial crisis, has fallen further in the
three months since the announcement of the carbon tax.
Mr Grant identified that the concern of businesses is that the carbon tax will
stifle growth, which will in turn damage their viability in the region:
Business confidence has been poor since the GFC. Alarmingly,
it has fallen further in the last three months as highlighted by a recent Pulse
Survey we did of business conditions in Queensland. Even in Mackay, which
should be the epicentre of the resources boom, business conditions are less
than buoyant in most sectors and have fallen in the last three months. Business
confidence is essential for employment and investment in business. The proposed
carbon tax along with other factors is something [sic] the confidence of
business owners. Businesses are concerned that the carbon tax will put the
brakes on mine development and the flow-on effect will be felt by all those
almost supporting businesses in this region.
Mr Grant also raised concerns with the government's proposed compensation
Businesses are also concerned that the tax seems to be a
business tax. Households will be compensated with businesses left to pay. Many
are just hanging on with profitability and capital investment levels already
poor and they fear that the added cost will push some of them over the edge.
Mr Grant did explain to the committee that household compensation is
necessary, however, to ensure that demand and consumer spending is not further
suppressed. The concern of businesses is that the proposed tax and compensation
package will be inefficient:
I am not going to argue against compensating households
because that will suppress demand even further. We are in a situation already
where household demand is at very low levels. We can see that retailers are
struggling to entice customers into their stores. Retailing is a very large
employer so we certainly would not want to see household demand stifled any
further. If you take the position that you have to have a carbon tax, I am not
going to argue against household compensation. However, one of the things that
concerns business is that too much of the tax take will not be tied up in
administering whatever scheme is brought in. It will be very counterproductive
for our economy if we collect $10 and give $5 to households and $3 to renewable
projects, and spend $2 administering the whole shebang because we have already
reduced our efficiency by 20 per cent.
He explained that the inability of businesses to pass on any increased
costs that result from the carbon tax may lead to the failure of some
In some cases, passing on costs will be imperative because
the businesses are running very, very close to the wind already. If they are
unable to pass the costs on, it could mean the failure of those businesses. If
they do pass the costs on, then the consumers of those services and businesses
will be paying more. Businesses will fall into various categories. In this area
we have some smallish businesses that do export, and generally they will not be
able to pass on any of those costs, so those costs will have to be absorbed by
Like the Chamber of Commerce and Industry, representatives from the
Mackay Whitsunday Regional Development Corporation and the Mackay Area Industry
Network, identified that the lack of information about how the tax will work is
creating uncertainty, thereby damaging business confidence and driving
investment and jobs offshore:
We have already seen examples of the effect on the market of
rising business costs. Industries under threat include the cement industry and
we saw the recent closure of Cement Australia's facility at Kandos. This is a
good example of potential supply threats to our domestic market. As the number
of suppliers declines input costs will rise because competition will decrease
or it will go offshore.
These witnesses also voiced strong concerns in relation to: the cost of
living, including housing affordability; exports, as a result of the dollar's
high value; tourism which is also suffering; and the unknown costs of
administering the tax.
Mackay Canegrowers provides representation, advice and services to
growers in the Central Queensland region on a wide range of issues including
advocacy, marketing, water, workplace health and safety, transport,
environment, training and business management.
Approximately 4,000 farmers within the Queensland sugar industry produce
approximately 30 million tonnes of sugar cane annually. This cane is then
processed into four million tonnes of sugar; one million tonnes for consumption
in Australia and New Zealand, and the remainder exported.
Mackay Canegrowers explained to the committee that despite the exclusion
of agriculture's direct emissions from the carbon tax, as their key inputs will
be affected, their main concern with the tax is the potential it has to lessen
the industry's international competitiveness:
Our principal complaint about a carbon tax is that it lessens
our international competitiveness. We are a trade-exposed industry; over 80 per
cent of our production is exported. When you hear about the world's
sugar-producing countries, what comes to your mind is Brazil, India and
Thailand. You have all heard about them being major sugar-producing countries,
but they all have a significant domestic market. I am saying that, of all the
major sugar-producing countries, we are the most trade exposed by a country
mile. Even our domestic sales—that is, what we sell into Australia and New
Zealand—have their price discovery anchored to the world price. The world price
is the economic engine of our industry. Over 80 per cent of world sugar
production never crosses international borders. The international commodity of
sugar has been characterised for decades by high levels of government support
and market interventions. Certainly the resultant world price that we access as
producers in Australia is not necessarily a reflection of the costs of
efficient producers within Australia. Hence, it is impossible for Australian
cane producers to pass on our costs to any other consumers or any other
economic sector. I guess at the end of the day we are the end of the rail line.
There is no one else that we can pass our costs on to.
It is our view that a carbon tax simply falls on to our cost
bottom line. It makes us less competitive and less profitable. We do not
believe our principal competitors, of whom I have articulated a few—Thailand,
Brazil, South Africa, Guatemala and India—are exposed, at this juncture, to any
trading scheme or any carbon tax. So given that circumstance we believe that a
carbon tax will make Australian cane farmers less competitive, whilst
conferring a competitive advantage to our competitors.
Tourism Whitsundays voiced concern that the government's proposed carbon
tax package will damage their industry through increased operating costs.
Tourism Whitsundays represents the tourism industry in the Whitsundays; it is a
part of the Great Barrier Reef tourism industry. The industry employs
approximately 63,000 people along Queensland's east coast, making it the
state's largest employer, and generates $5.8 billion in revenue.
Tourism Whitsundays estimates that the tourism industry provides direct
employment for 3,400 people in their shire.
Tourism Whitsundays' concern over increased operating costs is the
result of their reliance on barges and ferries and the impact that the
wind-back in the diesel fuel rebate will have for them.
As a result of this change to the diesel fuel rebate, one ferry company alone
will face increased fuel costs of $124,000 in the first year, $255,000 in the
second year and $392,000 in the third year, assuming no increase in diesel use.
These increased costs will be felt independent of any other costs or factors
that impact their business:
Mr O'Reilly: We are an unusual sector of the industry
in that we are so reliant on marine and aviation tourism. Whilst it is going to
have a drastic impact on tourism across Australia and make us more expensive—we
have already become one of the most expensive destinations in the world—I can
see nowhere where that impact is going to be more severe than on us. In [the
carbon tax's] current form, I would not like you to pass it.
CHAIR: In the current form, you would not like us to
pass it. We are all in favour of doing the right thing by the environment. The
question is whether what is being done is actually going to make a difference.
That is the concern we have. Will most of your cost increases come when the
carbon tax hits fuel? What is driving the biggest cost impacts of the carbon
Mr O'Reilly: The one that will be incredibly immediate
in the marine tourism area is the marine fuel rebate. That is going to have
6.21c taken off it next year—2012-13—and then in the following year there will
be an additional 6.521c off, and in the following year 6.85c. In total, 19.59c
per litre will go onto their costs. These people are using about two million
litres of diesel a year so at the end of that third year it is $771,000.
Tourism Whitsundays voiced concern that their industry is not being
treated with the same level of importance as those of mining and agriculture:
I had the pleasure of chatting with the Minister for Regional
Australia, Regional Development and Local Government, Mr Crean, last week and
it seemed that the impact had not been considered at all.
The impact of climate change could be quite significant. I
think the immediate impact of the proposed taxation regime will be far more
swift and far more devastating.
I am suggesting that there will not be anybody there to be
inundated if we apply this tax and this town dries up and blows away. I want to
make sure that we are treated equitably. I am not suggesting that we should not
be taking steps for climate change. I question whether this is the correct
step. Most importantly, when you are applying new taxes like this, we really
demand to see tourism treated with the same respect as mining, agriculture,
forestry and all of those other industries that seem to have got a pat on the
head when we have been ignored.
Tourism Whitsundays informed the committee that the increased operating
costs that result from the imposition of a carbon tax will have a negative
effect on the international competitiveness of Queensland's tourism industry;
as costs increase tourists will be driven to overseas destinations.
Mackay Sugar Ltd
Mackay Sugar gave evidence to the committee that their preliminary
assessment of the carbon tax has identified that, in the long run, the
introduction of a carbon tax will provide some opportunities, whilst in the
short term, there will be some costs that cannot be passed onto customers given
that a large proportion of their product is exported.
Mackay Sugar, a public unlisted company, is a raw sugar producer. The business employs
over 800 people during the crushing season and 550 people in the non-crushing
season. It supplies approximately 20 per cent of Australia's raw sugar.
Mackay Sugar has been identified by government as one of the top 500
emitters; however the company has informed the committee that they are unlikely
to qualify for assistance as an emissions-intensive trade-exposed industry and
that as an alternative they will be looking to determine their eligibility for
assistance as a food processor.
The witnesses also explained their business's involvement in renewable energy:
As a large sugar manufacturer, Mackay Sugar generates
considerable quantities of renewable energy using by-products of the annual cane
crop. The 20 petajoules of renewable energy produced and consumed each year in
our three factories is equivalent to the energy contained in about 700,000
tonnes of coal. If Mackay Sugar derived its energy from fossil based fuels,
like most businesses do, we would generate an extra 1.7 million tonnes of CO2
each year. We receive no recognition for this effective carbon abatement.
However, under the proposed carbon tax Mackay Sugar will be largely exempt from
direct greenhouse gas emission liabilities. Also, a carbon price will drive our
business to improve overall energy efficiencies and reduce the use of
supplementary coal fuel at our factories.
Although Mackay Sugar will be largely exempt from a carbon tax, their
liability will be $1.5 million per annum:
CHAIR: And you said you were not getting any
emissions-intensive trade-exposed assistance.
Mr Hodgson: No, we do not.
CHAIR: Why is that?
Mr Hodgson: The definition for that is emissions per
million dollars of export product.
CHAIR: It is because your emissions are too low.
Mr Hodgson: Yes.
CHAIR: You are in the top 500, so you get captured by
the carbon tax.
Mr Hodgson: We do... It is a little complex on our
site. The refinery is owned by a joint venture, CSR and us, or Sucrogen as they
are now. We have a liability because we emit the carbon emissions from burning
coal in the off-season to supply steam and electricity to the joint venture.
CHAIR: So you are in the top 500 emitters. Are you
Mr Hodgson: Yes. Our raw sugar is effectively 100 per
cent trade exposed, even though only 80 per cent is exported. But even what we
sell domestically is sold at world export prices.
CHAIR: So that $1.3 million is a net cost, then?
Mr Hodgson: It is.
CHAIR: What does that represent as part of your
Mr Hodgson: As part of our margin it is quite
significant. As far as our total revenue goes it is about 0.3 per cent of our
total annual revenue.
Queensland Nickel raised concerns that the implementation of the
proposed carbon tax as it now stands will place them at a significant trade
disadvantage to their overseas competitors.
Queensland Nickel is a 100 per cent value-add manufacturing/processing plant
with a turnover of $1.1 billion per year.
Queensland Nickel is one of the top 500 emitters – it is number 48 on the
Its operations, located in Townsville, provide a large amount of private
employment in North Queensland, as well as significant regional benefits
through payments to government, Queensland Rail, Townsville port operation and
a number of local businesses and community sponsorships:
An independent assessment of direct industrial and
consumption effects, commissioned by the Townsville Enterprise group and conducted
in January 2009, estimated the impact of closure of Queensland Nickel and the
loss of then 750 direct jobs would result in approximately 2,396 jobs lost
within the Townsville community. Since the purchase of the plant by Mr Palmer
we have increased our workforce from 550 when he took over to 900 direct
employees now and a further 200 contractors, resulting in a direct positive
impact and no doubt a bigger financial impact if we were to change at the
Queensland Nickel's concern is that the clean energy bills, as they
stand, will force them into a loss situation with serious impacts on their
operations and the region while at the same time providing an advantage to
their high emitting overseas competitors:
The policy intent is to direct assistance to Australian
businesses and Queensland Nickel is the only Australian owned nickel producer.
The other two are multinational companies. A single definition for nickel would
grossly under compensate Queensland nickel and deliver a windfall gain to at
least one of the multinationals because they would average all the emissions
across them, divide them by 3 and lift one out of an area where they are not
Overall Queensland Nickel has significant concerns about the
clean energy future bill. The government is embarking on a massive development
program and obviously manufacturing will pay for it. Regional areas, due to
increased distribution costs, will be hardest hit, and we are in a regional
area. Queensland Nickel's significant contribution to regional development,
investment and employment is put at risk by the proposed bill, increasing the
impact in the Townsville region.
In short, because there is no current reduction opportunity
that would enable Queensland Nickel to utilise, say, the three-for-one offer
that is currently out there in the proposed clean technology program, and in
the absence of a fair and equitable definition for nickel, the impact of the
carbon price on the business will be serious in the short term and could be catastrophic
in the long term.
The witness explained that the fact that the carbon tax would result in
an unlevel playing field would lead to these potentially negative outcomes.
The coal industry is the backbone of many regional towns across
Australia resulting in direct and indirect employment and substantially
contributing to the economic viability of the towns in the areas they have
The Australian Coal Association (ACA) in its public submission to the
Joint Select Committee on Australian Clean Energy Future Legislation stated
that the Government’s scheme represents an $18 billion tax take from their
industry in the first 10 years.
In addition, the ACA has stated that the tax undermines Australia’s
international competitiveness. The Government fails to accept that Australia
competes on a world scale for investment in the resources sector competing
against such regions as Africa and South America which have a lower tax impost
compared to Australia.
The ACA has
said that the impacts of the proposed scheme includes:
a permanent reduction in margins across the commodity cycle
risking premature mine closures and job losses in regional areas;
a competitive disadvantage relative to producers in Indonesia,
Columbia, USA, Canada, Russia and South Africa and emerging competitors such as
Mozambique and Mongolia;
reduced new project investment certainty; and
uncertainty about committing sustaining investment at existing
impacts on project valuation and business decisions forcing companies
to re-order the ranking of Australian projects in their investment pipelines.
The ACA has also
stated that ACIL Tasman’s preliminary advice also suggests new mining
development job opportunities will be reduced by 27%. This reduction also represents
over $25 billion in lost revenue for Australia over the next ten years.
Victoria has a population of around 5 million people, 70 per cent of
whom live within the capital city, Melbourne.
Victoria's regional centres are all within a relatively short distance from the
The regional areas of Victoria are characterised by a variety of different
economic opportunities including: agriculture (dairy, beef, sheep and wool,
pigs, poultry, fruit and vegetables, viticulture); commercial fishing; food
processing; tourism; automotive manufacturing; aluminium smelting; tourism; timber
processing and paper product manufacturing.
Government modelling, conducted by Deloitte Access Economics,
shows that the regions experiencing the greatest negative impacts are those
specialising in electricity generation or mining, oil and gas, and commercial
services. The La Trobe LGA experiences the strongest negative impact on output
and employment as a result of the national carbon price. This is largely due to
the region’s dependency on electricity generation. By 2020, output in Latrobe
is set to decline by 3% and there will be an estimated drop in employment of
552 jobs relative to the reference case.
The committee held a public hearing in Geelong to hear the views of some
of these regional stakeholders.
Mr David Chaston, Managing Director of Geelong Galvanizing, and the
current Vice Chairman of the Galvanizers Association of Australia, appeared
before the committee. He told the committee that the industry employs over
3,000, a large proportion of which is classified as unskilled workers. In
appearing before the committee, Mr Chaston voiced the concerns of the industry
explaining that the introduction of a carbon tax will threaten the industry's
It goes without saying that the GAA and the industry it
represents is most concerned about the implications of a carbon tax on its
business, especially if such a cost burden makes it less able to compete again
pre-galvanised steel imports that are not exposed to the same carbon tax costs.
Mr Chaston explained that further damaging the industry's international
competitiveness through the introduction of a carbon tax will have dire
consequences for the Australian industry, which is becoming increasingly trade
Such an outcome would obviously no doubt be wealth destroying
to the business owners and cause massive job losses throughout the industry.
Mr Chaston advised the committee that his business has estimated that
the introduction of a carbon tax will have an impact of 5 per cent across all
of their costs, the issue being that that increase will not be felt by their
The Geelong Chamber of Commerce, one of Australia's oldest continuing
chambers with over 550 members,
who also appeared before the committee, raised similar concerns to Geelong
If it is a negative shared by our competitors globally, then
we can live with that, but, when we see an impost applied locally and not being
applied to our competitors, that disadvantages us and we are opposed to it. I
think we would acknowledge that the carbon tax, relative to the high Australian
dollar and relative to many other increases in prices, is just one more
element. It is not decisive in itself, but it is an impost in the wrong
The Chamber identified that the many jobs provided to locals by the
Geelong region's manufacturing base could be put at risk by the introduction of
a carbon tax and outlined that they favour more of a 'carrot and less of a
stick' in encouraging emissions reduction:
The high Australian dollar is having a significantly
detrimental effect on Australian manufacturers; the carbon tax is likely to
exacerbate this situation. A plan that is likely to result in manufacturing
jobs simply moving offshore to countries such as China, which does not have a
carbon tax, makes no sense. 
Over the years, as you know, there have been a lot of
downturns in the manufacturing sector and Geelong has been pretty hard hit over
the years. A lot of the traditional workforce–we are talking about second and
third generation families–of manufacturing positions have really had their
positions pretty much decimated. It has led to some fairly high unemployment in
certain sectors of the community... for this sector to be hit even further is
going to impact most definitely on this vulnerable sector...
The committee considers that the evidence clearly reflects that the
introduction of a carbon tax will have a disproportionate negative impact on
regional Australia. Furthermore, the government has not accurately or
adequately modelled the possible affects citing difficulties with modelling at
a sub-state level.
The committee considers that neglecting to model the impact of such a
major policy change as the introduction of a carbon tax on regional Australia
is irresponsible and offensive and flies in the face of established practices
by state governments.
Throughout its inquiry the committee heard the concerns of regional
Australia and considers that, to date, these stakeholders, who play an
important role in Australia's economy, have been overlooked. Foremost in the
minds of these businesses is the concern that the impost of yet another tax
will cause further erosion of their already slim profit margins, thereby
putting their long term financial viability, and the jobs and livelihoods of
families in regional Australia, in jeopardy.
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