Australia: What you need to know about passing the costs of Australia's carbon tax on to your customers

Competition and Trade Practices Alert: 10 Nov 2011
Last Updated: 13 November 2011

By Michele Muscillo, Partner;Brett Bolton,Special Counsel;Justin Byrne,Special Counsel

The Federal Government's carbon tax, which will commence on 1 July 2012, will affect the mining industry, electricity producers (particularly those using coal) and large industry throughout Australia.

However, it's not just the top 500 polluters who need to consider how the carbon tax will affect them. Smaller companies down the supply chain, who may find they are indirectly affected when the costs of raw, carbon intensive materials increase, might be considering how they can pass on potential cost increases to their customers.

The Australian Competition & Consumer Commission (ACCC) has been given responsibility to police the way in which businesses pass on the carbon tax and what they tell their customers about it. Here, partner Michele Muscillo and special counsel Brett Bolton outline what businesses need to know about passing on the costs of the carbon tax.

What should you be doing now?

Businesses across Australia need to start thinking now about how the carbon tax will affect them and what messages they are going to give to their customers. There are some key issues to consider:

  • What impact will a carbon tax have on the goods and services you produce?
  • Are you going to absorb the impact or pass on the cost to your customers?
  • Have you estimated the likely impact of the carbon tax on your prices, and how do your estimates compare with Treasury estimates?
  • What are you going to tell your customers? Are you going to (truthfully) attribute a price increase to the carbon tax or say nothing?
  • Do your staff members know what to say and not to say to the public if asked about the impact of the carbon tax on your prices?

The ACCC's role in policing carbon pricing

The Prime Minister and Treasurer have announced that, following the passage of the carbon pricing legislation, the ACCC will be given responsibility to prevent carbon price 'gouging' by businesses. Additional funding of approximately $13 million has been given to the ACCC for this purpose.

The ACCC will be responsible for ensuring that businesses do not use the carbon tax as an excuse to increase prices to their consumers. It's likely the commission will take its new role very seriously, if the similar role it played when the GST was introduced in 2000 is any guide.

Importantly, the ACCC will not have the power to investigate all price increases. It will not be able to investigate price rises if the business does not attribute the rise to the carbon tax. It is only where the business implements a price increase and attributes it to the carbon tax that the ACCC will have an investigatory role.

The Federal Government will not need to change Australia's consumer laws to equip the ACCC for this new role. It will be relying on the Australian Consumer Law (ACL) as the primary weapon in its armoury to police businesses making carbon pricing claims.

Section 18 of the ACL says that a "person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Section 29(1) of the ACL says that:

"A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

(i) Make a false or misleading representation with respect to the price of goods or services."

These laws are very broad in scope and apply to all Australian businesses, no matter how big or small.

Although the ACCC has the power to investigate businesses that attribute current price increases to the carbon tax, it is expected that the ACCC's 'carbon cop' role will subject the following conduct by businesses to close scrutiny:

  1. Representations by businesses about the future impact of the carbon tax on their prices.
  2. Exaggerations of the impact of the carbon tax on a business' pricing (eg where a business attributes a $10 price increase to the carbon tax when the true impact was only $3).
  3. False attributions of a price increase to the carbon tax when no part of the increase can be attributed (eg where a business selling a product exempt from the carbon tax attributes any price increase to it).

The first type of conduct is most likely to occur in the lead up to the introduction of the carbon tax on 1 July 2012, while the second and third types of conduct are more likely to occur after 1 July 2012. However, the penalties for a breach will be the same, no matter when the conduct occurs.

The ACL creates another problem for businesses engaging in the first type of conduct. Such conduct will almost invariably involve a claim being made about a future matter, such as the future impact of the carbon tax on that business' prices. The difficulty for businesses is that the ACL says that such future claims are assumed to be misleading, and the business will have to show that it has had a reasonable basis for them. Where the business' estimates significantly exceed the estimates published by Treasury of the likely effects of the carbon tax, the ACCC is likely to require the business to disclose a welter of information about its costings to justify its claims about the future impact on its prices of a carbon tax.

A high profile 'scalp'

The ACCC can be expected to 'dust off' its GST playbook as part of its new carbon price policing role. During the implementation of GST in 2000, the ACCC adopted an extremely aggressive approach and conducted a number of high profile investigations, most notably of Franklins Supermarkets. Franklins was found to have engaged in price exploitation by charging GST on a number of GST-free products, and suffered the embarrassment of national corrective advertising and being forced to sell the items in question at discounted prices across all its supermarkets for a three week period.

It is generally thought that the Franklins experience went a long way towards achieving general deterrence against price exploitation when the GST was introduced. The ACCC may well be looking for a similar high profile 'scalp' as part of its new carbon price policing role.

The impact of a breach on your business

The ACCC has a range of options at its disposal if it has concerns about any claim by a business that the carbon tax has or will increase its prices. The options the Commission chooses will be determined by its assessment of the severity of the issue or, perhaps, the 'blatancy' of the claim. Some of those options include:

  • issuing a Substantiation Notice requiring the business to back up its claims;
  • commencing a formal investigation by issuing notices compelling the business to produce information and/or documents;
  • issuing an infringement notice. Although the maximum amount which can be levied under an infringement notice for one breach of the ACL is $66,000, the ACCC will, in appropriate cases, issue multiple infringement notices for related breaches, thereby exposing the recipient of those notices to penalties considerably higher than $66,000; and
  • issuing a public warning about a business (the so-called 'name and shame' notice).

None of these options involves commencing formal legal proceedings. However, information obtained by the ACCC through one or more of these options could well lead to such proceedings. The Commission is likely to take legal action where it:

  • identifies conduct it considers is 'blatant';
  • wants to achieve general deterrence through obtaining a high-profile 'scalp'; or
  • wants to obtain a fine against the business (which can be up to $1.1 million) or an order disqualifying a director or manager from being involved in the business.

For more information on the carbon tax or passing on increased costs to your customers, please contact HopgoodGanim.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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