Carbon tax: what families need to know

Carbon tax
Carbon tax 

The carbon tax: not since John Howard introduced the GST in 2000 has a government initiative created so much public uproar. Not that a Carbon Tax is a new thing; Finland has had one since 1990, and Norway and Sweeden since 1991. Germany has had an “ecological tax” since 1999 and the UK introduced a “climate change levy” in 2001. The way that carbon is taxed around the world can be viewed here.

How it works.

Basically, the Carbon Tax is an additional cost imposed on those businesses which emit carbon dioxide. It’s a cost of $23 per tonne to buy a pollution permit, and companies will be required to pay for the amount of pollution that they create. At this stage as announced by the government it will be levied against around the top 500 polluters in Australia and the scheme will be overseen by a new organisation – the Climate Change Authority  - commencing on 1st July 2012.

On our mind ... consumer confidence is weighed down by concerns of a carbon tax.
On our mind ... consumer confidence is weighed down by concerns of a carbon tax. Photo: Louie Douvis

For the first three years the carbon tax will be a fixed dollar amount, before transitioning to an emissions trading scheme in 2015.

The purpose of the Carbon Tax is to discourage pollution and encourage high-polluting companies to invest in and develop “green” alternatives. Logically however, the companies who will be faced with this extra expense will pass those costs on to the consumer wherever possible. This is the way in which the Carbon Tax will affect everyday families.

How it will impact Families.

The government has calculated that the average family will be $9.90 per week worse off as a result of the carbon pricing. However the average family will receive $10.10 per week in additional assistance, meaning that in theory there should be little or no difference.

Specifically, according to the government’s calculation, 4 million households will be better off, 6 million will break even, and around 8 million will be worse off. Realistically the impact on individual families will depend on their income and their spending patterns.

Firstly spending:


According to the government’s “Clean Energy Future Plan”:

•     Food is estimated to rise by less than $1 per week for typical households

•     Electricity costs are expected to rise by around $3.30 per week

•     An additional $1.50 per week on the average gas bill

•     Petrol at the bowser should not rise although holiday travel will probably rise as domestic aviation will be liable for the tax.

And compensation:

More than half of the carbon price revenue is being spent in compensation for households. There are two ways that households will receive assistance: through an increase in family payments that they may receive and via income tax cuts on top of these increases.

Family Payments –

Assistance will be provided to parents receiving Family Tax Benefit in two stages.

Firstly, families will receive an up-front lump sum advance in May-June 2012, while their regular Family Tax Benefit payments remain unchanged. This advance provides assistance for the period from the introduction of the carbon price on 1 July 2012 until 30 June 2013.

This  advance delivers a lump sum equivalent to a 1.7 per cent increase in the relevant maximum annual rate of FTB. For example, a family with a child aged 13-15 will receive a tax exempt Clean Energy Advance of $109.50 in June 2012. A family with a child aged under 13 years will receive around $85.

Then from 1 July 2013, families will receive assistance through a new fortnightly, tax-exempt supplement, equivalent of the advance outlined above.

Assistance for families will also include the introduction of a new Single Income Family Supplement from 1 July 2012 which will provide up to $300 to assist eligible single-income families who would receive little or no assistance through tax changes compared with dual income families with similar income. In addition, single-income families could also be eligible for up to $69 extra FTB B.

Income Tax Cuts –

The tax-free threshold will be more than trebled to $18,200 in 2012-13. Together with $445 of low-income tax offset, this means people on annual incomes of $20,542 will pay no net tax.

From 2015, the tax-free threshold will be further raised to $19,400. This will result in an additional one million workers who will not need to file a tax return.

This additional tax-free threshold will be balanced with changes in the marginal tax rate, and as a result of these changes:

• a person earning $20,000 a year will receive a tax cut of around $600, meaning that they will pay no net income tax
• a worker with annual income of around $25,000, will receive a tax cut of around $500
• most middle income earners will receive tax cuts of at least $300
• no person will pay more income tax.

For more information.

While there are no details as yet on the Taxation Office or Family Assistance websites, the details of the government announcements can be found on the newly-launched Clean Energy website here. 

To calculate the impact on your individual situation, try the government’s “Household Assistance Estimator” here.

What do you think of the carbon tax? Join the conversation on the Essential Baby forums.