Monday, July 15, 2013
Moving immediately to a floating carbon price would result in “a black hole of up to $15 billion in the budget”.
- Joe Hockey, shadow treasurer, Friday June 28, 2013, on Channel 7 Sunrise
Now at $24.15 a tonne, Australia’s carbon price was not set to plummet to the European price (currently $6 a tonne) until July 1 2015 - when Australia moved to a floating price linked to Europe’s emissions trading scheme.
Amid speculation that Labor might move earlier to the floating price, the shadow treasurer Joe Hockey said such a re-scheduling would leave the budget up to $15 billion worse off because the current fixed price would be replaced sooner by a substantially lower floating price.
“The fact that they say they are going to abolish it [the fixed price] means they are going to have a black hole of up to $15 billion in the Budget,” Hockey told Channel Seven’s Sunrise on June 28..
The figure came from the Coalition’s climate change spokesman Greg Hunt.
It’s a big number. Hunt put it this way in a press release issued on July 1 2013: “The change could have a $15 billion impact on the government’s revenue over the forward estimates based on the current EU price.”
“Forward estimates” is budget terminology for the current financial year plus the next three. So neither Hockey nor Hunt is suggesting up to $15 billion would be lost in one year. In this case, it would be lost over two years - the current financial year and 2014-15, because the fixed carbon price was never due to exist beyond July 1 2015 in any event.
Greg Hunt’s office says it arrived at the $15 billion black hole number using Table 3.2.7 of the Clean Energy Regulator’s budget statement...
The table shows the government expecting to receive $8.34 billion from the carbon tax this financial year (when the carbon price will be $24.1 a tonne) and $9.27 billion next financial year (when the carbon price is scheduled to reach a fixed $25.40 a tonne).
If, instead, the fixed price was scrapped early and replaced with a floating carbon price of, say, $6.50 a tonne, the government’s carbon price receipts would plummet by $6.1 billion this financial year and $6.9 billion the next, according to the Hunt office reckoning.
That’s a forecast cut of nearly $13 billion – not quite the $15 billion claimed by the Opposition but a substantial shortfall all the same.
But is the $13 billion number correct?
Not in terms of the impact on the budget, it’s not.
Those $8.34 billion and $9.27 billion taxation figures apply to gross income from the sale of carbon permits. The net income figures, listed on the same table three lines below as “total taxation revenue”, are much lower.
What’s the difference? Somewhere between 40 per cent and 50 per cent of the permits are given away for free. (Their value is indicated in brackets, right below the gross figure relied on by Hunt and Hockey). The gross figure is notional. A huge chunk of it will never be received.
And what won’t be received can’t be lost.
Table 7 of Budget Statement 5 outlines what the government expects to actually receive. Reproduced below, it is nominated in “cash” terms that feed into the commonly quoted measure of the budget surplus or deficit, rather than the accrual terms used in the document relied on by the Coalition.
It shows the government was expecting carbon permits to net it $6.26 billion this financial year and $6.39 billion the next.
Moving straight to the current European carbon price of $6 a tonne this year and the projected European price of $6.15 next year would cost the budget $4.7 billion this financial year and $4.8 billion the next - a total of $9.5 billion.
And it’s an upper estimate. The lower carbon price would cut costs for some of the businesses directly and indirectly paying the carbon tax, those that have been unable to pass it on. With lower costs should come higher profits, boosting the budget’s company tax takings.
Estimates by the Australian Industry Group suggest the government would rake in an extra $800 million a year as a result of moving earlier to the lower European carbon price, making the likely hit to budget from an immediate floating of the carbon price nearer to $8 billion.
If the government brings foward the floating carbon price to July next next year, as it now says it plans to, the cost to the budget would be around $4 billion.
Joe Hockey says that moving quickly to a floating carbon price would mean a budget black hole of up to $15 billion. The hole would be likely to be nearer $8 billion if the change was immediate, and would be nearer $4 billion if it happened in one year's time.
It’s a big cost, but well short of $15 billion.
We rate the statement "Mostly False"
In Politifact, The Canberra Times, The Sydney Morning Herald and The Age
Joe Hockey transcript, Sunrise, June 28, 2013
Greg Hunt press release, July 1, 2013
Wendy Black, Greg Hunt’s office. Email exchange, July 9 and 10
Tony Ritchie, Joe Hockey’s office. Email exchange, July 10
2013-14 Commonwealth Budget, Statement 5, table 7
Clean Energy Regulator, 2013-14 Budget statement, tables 3.2.7 and 3.2.9
Frank Jotso, ANU. Phone interview and email exchange, July 9 and 10
John Connor, Climate Institute. Phone interview, July 10
Gemma Williams, Australian Industry Group. Email exchange, July 10
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