Carbon tax raises costs, cuts jobs, Australian Chamber of Commerce and Industry audit reveals

THE carbon tax has slashed hundreds of millions of dollars from company profits and forced struggling manufacturing firms to shift production - and jobs - offshore.

A national survey of Australia's $110 billion food processing industry has revealed nearly 30 per cent of businesses reported cost increases of 5 per cent or more since the carbon tax was introduced.

And 67 per cent of companies - including many small businesses - have been unable to pass on these higher costs to their customers.

Instead, they have been forced absorb the price hit on their bottom line.

Another audit by the Australian Chamber of Commerce and Industry reveals 82 per cent of businesses report the carbon tax has reduced profits - a year since the greenhouse scheme was introduced.

Around 30 firms were surveyed by AFGC with several deciding to shift production overseas to escape the carbon impost.

While higher energy bills is the biggest expense, the carbon tax has also added to rising packaging, transport and other expenses.

One food processing firm said the carbon tax had added nearly $5 million to operating expenses - including $500,000 in packaging and $240,000 in freight and storage fees.

Murray Goulburn, Australia's largest dairy firm, says the carbon tax has added $14 million to its annual expenses for the year to June 30.

Robert Poole, general manager, shareholder relations, said Murray Goulburn "cannot pass on these costs" because the price of dairy was "primarily" set by the global market.

But higher energy bills remains the biggest cost burden for manufacturing with nearly 50 per cent of those firms surveyed reporting their electricity bill had jumped 15 per cent or more.

One of Kevin Rudd's first decisions after ousting Julia Gillard as Prime Minister was to accelerate by a year plans to shift to a floating carbon price - in order to reduce the impact on business.

But AFGC chief executive Gary Dawson said it was already too late for a number of companies who are "reassessing their production planning in response to high costs".

"For a big energy user the additional cost of the carbon tax on their energy bill alone runs to millions of dollars a year so of course it forces an assessment of whether there are lower cost options (offshore)," Mr Dawson said.

ACCI chief economist Greg Evans lashed out at the carbon tax and other green programs which he said "have encouraged a de-industrialisation trend in the economy".

"We are already seeing an impact on jobs and investment in industries reliant on energy. This includes food processing, plastics and chemicals, metal manufacturing and oil refining, where we have seen successive announcements of winding back investment or relocating production facilities offshore," Mr Evans said.

Innovation and Industry Minister Kim Carr said the Government's decision to move from a fixed to a floating carbon price one year early "will link Australian businesses with international markets, reduce carbon liabilities from 1 July next year and provide certainty for firms looking to invest in Australia's future".

"The food processing sector stands to benefit substantially from the Asian Century and Labor will do everything it can to see business realise the opportunities on offer," Senator Carr said.

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Economy set to bounce back

After big job losses at car makers and as the Rudd government wrestles with politically poisonous budget cuts, there is a glimmer of good economic news with a report suggesting manufacturing will bounce back from the mining investment boom.

The Grattan Institute report says that far from being permanently damaged, industries sensitive to the exchange rate, such as manufacturing, tourism, education and agriculture, "survived the boom in reasonable shape".

The findings come as the government prepares to reveal a downgrade in its economic forecasts and a fresh round of budget cuts perhaps as soon as this week.

The Rudd government's expenditure review committee is expected to finalise spending cuts on Monday, despite the political risks with the federal election this year.

The Reserve Bank may cut interest rates again when it meets next week. Another cut in rates, which are already at a half-century low of 2.75 per cent, would take the cash rate to the lowest level since the 1950s - and well below the so-called "emergency low" of 3 per cent that prevailed during the global financial crisis.

About 400 Holden workers took voluntary redundancy on Friday. The remaining 1700 workers at the Adelaide car assembly plant are considering a management proposal for reduced pay and conditions to keep the plant open.

The Grattan report, titled The Mining Boom: Impacts and Prospects, concedes Australia runs the risk of a recession as the resource investment boom fades. But it says "recession is far from inevitable", in part because Australia has avoided the high inflation that accompanied previous booms.

Figures released in the past week show that excluding the effect of the carbon price, Australia's annual inflation rate is less than 2 per cent, easily low enough to allow the Reserve to cut rates further.

The report says that rather than killing manufacturing, the mining boom "temporarily accelerated" its long-term decline as a share of gross domestic product.

Manufacturing has been sliding as a share of gross domestic product since the 1970s.

A survey of exchange rate rises in 16 countries similar to Australia shows manufacturing grew particularly rapidly after the exchange rate came down.

"Within three years, manufacturing exports as a share of GDP had risen by more than a third on average," the report finds.

"Therefore temporarily high exchange rates in economies comparable to Australia have not had long-lasting effects on export volumes and the added value of manufacturing,'' the report concludes. "Manufacturing exports usually bounce back rapidly and reach trend within a few years."

The president of the Australian Manufacturing Workers Union, Andrew Dettmer, said he would "have to believe in the tooth fairy" to think that "once an industry has been devastated, suddenly a few economic indicators return and therefore it will somehow return to production''.

Ford was leaving Australia and Holden was considering its future. "The international thinking is that once manufacturing dips 5 per cent of the total economy it is fundamentally lost," he said.

Ai Group chief executive Innes Willox said there were reasons for optimism. "The currency has come off about 15 per cent since April. If it is held down or falls further, those companies that have been able to stay afloat will be very globally competitive," he said. Manufacturing constitutes about 8 per cent of the economy.

The report finds that neither the Howard nor the Rudd and Gillard governments saved enough of the proceeds of the boom.

"Tax decreases and spending increases have been larger than Australia can afford in the long run," it says. "Some spending was justified by the response to the global financial crisis and some has been invested, but underlying budget deficits now need to be repaired in more difficult times."

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Productivity is more than industrial relations
 
It's not often that I agree with a unionist, especially one like ACTU Secretary Dave Oliver who has vocally advocated increased government intervention in the automotive industry. But Oliver's recent comments on productivity have some validity; specifically, the idea that productivity is more than just industrial relations.

While there are undoubtedly some issues that need addressing in industrial relations, focusing the productivity debate on unions and workers misses the biggest impediment to growth in this country - government.

It is not unions who have massively increased spending on recurrent, consumption programs at the expense of developing new infrastructure.

It is not workers who have introduced rafts of new environmental regulations and green tape that have impacted Australia's competitiveness.

It is not industrial relations that cause serious delays in the approval process for new projects.

The most recent Australian Chamber of Commerce and Industry quarterly survey of small business found that 'Business Taxes and Government Charges continues to constitute the top barrier to investment for small businesses for the ninth successive quarter.'

In addition, between August 2011 and May 2013, Federal Government Regulations and State Government Regulations each featured in the top 10 limitations for small and medium business no less than seven times.

Rich countries occasionally ignore productivity issues. They focus instead on redistributing wealth (because business should supposedly be taxed more to 'pay their share') or regulating behaviour (because corporations have 'corporate social responsibilities').

However if we want to maintain and increase our standard of living, wages and real economic growth in the future, government activity has to be better targeted and the share of GDP that government takes must be reduced. We must grow the pie, not just slice it more finely.

It brings to mind something else that Oliver said: 'Productivity growth matters. The main driver of real economic growth, it's how we keep improving the standard of living for working people.'

As we are proving in our TARGET30 campaign: the real debate about future prosperity in this country begins with the role of government.

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The cancer of government advertising strikes back

According to our Prime Minister Kevin Rudd, government advertising is a 'cancer on democracy,' but when an election is on the line, the cancer strikes back with a vengeance. 

Our government is spending tens of millions of taxpayer dollars on what can only be described as blatantly partisan advertising, or what is now dubbed 'information campaigns.' 

The issue came to a head this week with the government's $2.5 million advertising campaign supposedly to convince asylum seekers that they won't be resettled in Australia by targeting Australian readers of The Daily Telegraph.  

The cancer has metastasised and infected other parts of government spending.   

Around $5.5 million has been spent advertising the Schoolkids Bonus - a payment which you don't need to apply for because it is automatically paid to eligible parents - which in turn renders the advertising campaign pointless. 

Famously, the government is continuing to spend $8 million telling us the Child Care Rebate is not means tested and that millionaires can get an annual $7,500 subsidy on their out-of-pocket child care expenses. 

Another $10 million is being spent to 'ensure that businesses, research institutions, individual employers and employees are aware' of the government's plan 'for Australian jobs' - which is really just a cleverly disguised plan for more protectionism and corporate welfare.  

Apparently the government needs to spend $10 million on its Medicare for All campaign 'to inform Australians about the benefits of Medicare and health-related services, including Medicare Locals, Medicare rebates and safety nets.' 

You may have seen advertising for the Better Schools education reform package. Reports place the cost of that campaign at $50 million.  

On top of all this spending (which is by no means a comprehensive list), don't forget the millions spent advertising the government's new Clean Energy Payments, the carbon tax compensation package. 

Despite the tens of millions government is spending on these advertising campaigns, it is important to note this is just a fraction of the multi-billion dollar cost of the policies they are telling us about.   

This suggests that government advertising may not be the 'cancer on democracy' that Prime Minister Rudd said it is. Rather, it is merely a symptom of a greater and more troubling cancer - that of excessive and unsustainable government spending.

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