Worry over the carbon pricing scheme by small business is grossly misplaced writes Ken Christensen, managing director of an HVACR industry supplier.
To put it into perspective, there are over two million registered businesses in Australia. Some are big, some are small and many are small to medium businesses like ourselves.
Just four hundred of these companies will be required to pay for their pollution through the Clean Energy Future (CEF) legislation. I am sure the impact this will have on the cost of business for most of us has been grossly exaggerated and sensationalised by companies with vested interests and political parties desperate to wedge voters.
In terms of the overall impact in real terms, the scheme will primarily see an increase in the cost of power. Our company, for instance, is not a heavy user of power but we do run compressors, welders, steam cleaners and test-run significant sized machines in-house so, although we may not use as much as a full throttle manufacturer, we certainly use more power than a typical office.
Our annual power bill is about $14,000 a year.
Under a carbon pricing paradigm, Treasury estimates a 25 per cent increase in the cost
of power. This is an additional cost to our business of $3500 a year. In terms of our total operating expenses, this represents an increase of just 0.2 of one per cent.
Do I want to pay more for power? Of course not, but it certainly is not a deal breaker and I imagine if we are a little more prudent with our power use, we will negate that anyway.
Given that small increase, we could either slightly adjust our prices, trim fat in other areas or suck it up in our margin. Either way, the trickle down to our customers will be pretty well zero.
Of course, there are some other costs within the business besides power that will be directly affected by the CEF, but they will have even less impact than the cost of electricity. So I really don’t see how some of these end of the world scenarios can be substantiated.
Are there any business parallels between the GST and the CEF? It is a revenue-neutral tax designed to modify behaviour of polluters and consumers while encouraging innovation.
The CEF is expected to raise around $10 billion per year, which is only 20 per cent of the revenue raised by the GST. That tax created a spike in inflation of two per cent. If the worst case scenario of the CEF is a proportionate rise in inflation, then 20 per cent of two per cent is 0.4 of one per cent.
Of course, the other important difference is that the CEF does not require any companies, except the big 400 polluters, to do anything. No extra paperwork, no compliance costs.
What are our customers saying about the carbon tax? Not a lot.
Which is surprising considering the amount of press it gets and all those opinion polls suggesting the end is nigh. And what is more of an impediment to a company’s bottom line than an upcoming tax?
Overall, however, Australian manufacturers and our customers would be far better off with a much lower Australian dollar. Already under pressure from general globalisation and an uneven playing field, the value of the AUD has made imported goods so cheap that the most efficient manufacturer cannot compete unless they innovate constantly. This is easier said than done and quite honestly, for some products, constant innovation is not possible. So the greatest impediment to our bottom line is the general health of Australian manufacturing.
As someone heavily involved in the metalworking sector, should we worry about the CEF?
I believe there is a great unsold benefit of the scheme: the drive to innovate and rebuild our power sector. Presently very few companies gain direct business from traditional fossil fuel power supply companies. Those that do gain work, directly or indirectly, will continue to benefit from that work for decades as the coal-powered electricity providers will still be around for a long, long time; perhaps with the exception of a few particularly dirty brown coal stations.
But the real opportunity lies in all the new technologies and the installation and fabrication of infrastructure for that technology. This is a great new chapter yet to be written and unlike the existing industries, there are no incumbent suppliers already in place with contracts locked away.
This opportunity is open to any business with an open mind.
If people really want to protest a tax, how about payroll tax? What could possibly be a greater disincentive to employment than that?