Why Abbott shouldn’t axe the carbon tax

Few issues get the SmartCompany community as fired up as the carbon tax, which finally starts on Sunday.

In the last few days we’ve seen big numbers of comments on Wednesday’s story about Tony Abbott sending anti carbon tax leaflets to butchers, bakers and other small business people, and yesterday’s story about our survey on how SMEs are feeling about the tax.

Most of the comments were against the carbon tax, a few were for it. A few more still highlighted what I think the prevailing mood is out there in the SME community: Uncertainty.

More than a few comments have asked why SmartCompany couldn’t spell out exactly what prices will rise and how this will impact businesses. The simple fact is that we don’t know.

I don’t think any business of any size has a really good idea of what costs will rise and when. Energy costs will increase, probably by more than 10%, but it’s hard to get a clear sense of how other costs will shift across an entire business.

And when you don’t know how your costs will move, it’s all but impossible to adjust your own pricing.

I do worry about the potential for a lag effect on profitability. The ACCC has made a big point of saying that companies should not increase prices and blame it on the carbon tax without proper justification. But I think it will be some months before most businesses can adjust their prices in response to carbon tax-related cost increases – in the meantime, entrepreneurs will just have to wear that erosion of margins.

These practical uncertainties are frustrating, and it’s hard not to think that the Federal Government should have done more to model the sort of scenarios SMEs can expect to face and communicate this modelling with the SME community.

This wouldn’t have been easy and only so many industries could be covered. But I don’t think the vacuum of information has helped improved the Federal Government’s terrible communication record, and it’s allowed the Opposition freedom to run what has been a pretty effective scare campaign.

The lack of information around the carbon tax is not helpful, and neither is the timing of its introduction. While there is never a perfect time to introduce a big new reform, the skittishness of the global economy and, to a lesser extent, the domestic economy doesn’t provide a great backdrop. Great GDP figures aside, this remains a pretty patchy environment.

But for all this, and at the risk of putting some members of the SmartCompany community offside, I do not think that Opposition Leader Tony Abbott should repeal the carbon tax when he wins office next year, as he almost certainly will.

There are three key reasons:

• Firstly, we do need to take action on climate change. Both sides of the political divide believe this, and while some remain unconvinced by the science – I emphasise I am not one of them – I think most entrepreneurs would agree that protecting our environment is important. And even if you are a business owner who doesn’t believe in climate change, I would expect you would believe in risk management – think of the carbon tax as a form of risk management.
• Secondly, I think the impacts of the carbon tax should be relatively mild for most SMEs. There will be some sectors more exposed than others (particularly those with high energy costs), but the estimate from accounting firm Pitcher Partners this week of a cost increase of 1-2% for most businesses seems pretty realistic and relatively manageable over the medium term.
• Finally, Abbott’s plan to repeal the carbon tax threatens more uncertainty. What businesses want is a stable legislative environment, not one where major reforms are started, then stopped or reworked or replaced.

Not everyone will agree with the carbon tax and its timing, but unfortunately, when it comes to the environment, we do need to take our medicine and the sooner we start the better.

Dumping the tax, and starting another period of uncertainty, makes very little sense.