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Community costs will be imposed by Carbon Pollution Reduction Scheme

Publication date: 16 Dec 08 | Source: THE TAX INSTITUTE

Australia’s premier professional tax body, the Taxation Institute of Australia, is disappointed at some of the tax treatments proposed in the Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future White Paper.

Taxation Institute President, Sue Williamson, said that the Taxation Institute has concerns that under the current policy proposals there will be an increase in the cost to the community because:

  • unnecessary cash costs and GST which will be imposed on business will be passed on to consumers; and
  • pensioners and low income earners may not receive the full benefit of the proposed compensation due to the interaction of the welfare and tax systems.

“The Taxation Institute commends the Government's commitment to a CPRS and acknowledges its extensive community discussions in respect of the proposed CPRS,” Ms. Williamson said.

“However, given that the CPRS is designed to set the cost of carbon which is to be passed on to the consumer, the Taxation Institute believes it is important to ensure that the impact of taxation on the CPRS will be minimised.

“Of key concern are the latent costs that will be passed on by business to consumers as a result of trapped GST in the estimated $115 billion per annum secondary market.  Businesses will be forced to recoup the trapped GST and high funding costs by higher prices to consumers.

“Further, in light of the tight commercial environment where borrowing funds is extremely difficult for businesses, the Government has not addressed the additional cash costs associated with the levying of $1.15 billion of GST each year on the purchase of carbon reduction permits.

“Similarly, by deciding to treat the administrative penalty for permit shortfalls as non-deductible, the Government, has potentially increased the cost of the Scheme by 40% as entities will bid higher to acquire deductible permits rather than incur non-deductible penalties.  The penalty needs to be tax deductible to avoid the additional cost of funds and associated increase in GST liability.”

The Taxation Institute says these costs impact the whole model as they will ultimately be passed through to the consumer.

“It is early days, but there must be a question as to whether the proposed compensation package for low income earners will be adequate to cover these increased costs,” Ms. Williamson said.

“Compensation is to be delivered through increased benefits and pensions.  However, it is unclear whether the Government intends to include this compensation in taxable income or benefit eligibility thresholds.

“If so, and the full compensation amount is to get to the intended recipients, there will need to be adjustments to the thresholds to alleviate the potential for higher effective tax rates or reductions in welfare entitlements.  This is a prime example of the very issue that the Henry review is focusing on - the interaction of government handouts and the tax system.  

 “Whilst the White Paper is a crucial step forward in formulating a model to reduce of the impact of climate change on Australia, the Taxation Institute urges the Government to consult further to address these issues” said Ms Williamson.  
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About the Taxation Institute of Australia:  The Taxation Institute is Australia’s largest and most diverse body of tax professionals working together to improve the tax system and the delivery of tax services through education, sharing of information and consultation.

Media Contacts:

Sue Williamson, President - Taxation Institute of Australia on 0411 646 783
Peter Laidlaw, Lighthouse Communications Group on 0419 210 306