Small Business “Expected” To “Pass On Majority Of Increased Costs To Customers”, Says Govt

11 Aug

Own a small business?

Employed by a small business?

The government’s Clean Energy Future scheme Regulatory Impact Statement might interest you (relevant section reproduced in full; emphasis added):

Attachment A: Small Business Impact Statement

Small businesses are defined by the Australian Bureau of Statistics as any business with less than 20 employees.

Direct impacts

The Government does not know of* any small businesses who would be directly liable under the carbon price (certainly they would have significant turnover26).

Indirect impacts

The more important impacts on small business will be the indirect impacts associated with increases in the price of inputs. The carbon pricing mechanism will effectively put a price on greenhouse gas emissions (referred to below as carbon emissions). Products that ̳embody‘ carbon emissions (that is, products where emissions were released in their manufacture) will rise in price. The degree of price rise will depend on the price of permits and the amount of carbon released.

The price of permits will depend on the prices set by the Government in the fixed price period, the pollution cap set by Government in the flexible price period, the design of the mechanism and the cost of abatement in the economy. In putting forward preferred positions to Government the mechanism has been designed to minimise the costs associated with meeting any given emissions target. The coverage is recommended to be as broad as possible, subject to measurement and compliance cost constraints. The broad nature of the mechanism should open up more avenues for carbon abatement, thereby ensuring that the lowest cost opportunities are pursued first. Allowing the use of certain international units to meet liabilities under the carbon price mechanism will open up international abatement opportunities which will further reduce the costs associated with placing a price on carbon emissions.

Nevertheless, the price of certain goods and services (those with a significant amount of embodied carbon) will rise. Price rises will be associated with electricity usage, potentially around 10% over the first five years. Most electricity generation in Australia is derived from the combustion of fossil fuels which releases significant amounts of greenhouse gases.

The prices of other goods are also likely to increase. However, it should be noted that many of the most emissions-intensive goods, such as cement, steel and aluminium, are internationally traded and provided significant assistance to offset the impact of carbon pricing.

Overall impacts

Overall the majority of impacts on small business will result from changes in the price of inputs. For some small businesses, which rely on emissions intensive inputs, these may be significant. However, it is expected that small businesses will be able pass on the majority of these increased costs to customers.

Moreover, the impacts on small business will be in proportion to the impacts on other businesses and households**. Price rises faced by small businesses are likely to be in line with price rises felt by other sectors of the economy. Relative to larger businesses that have to participate directly in the scheme, the impacts on small businesses will be significantly lower.

26 At an initial carbon price of $23 per tonne, an emitter on the 25 kt CO2-e/year threshold would have a yearly liability of $600,000. Their turnover would have to be significantly higher than this figure.

* The government “does not know of any” small businesses who would be directly liable? Dear reader, the government does not know anything about any of the so-called “biggest polluters”, much less anything about small business. Proof here.

** Key difference not stated: small business will receive zero “compensation”.

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