Australia: The repeal of the carbon tax...and so it begins

The new Federal Government has recently released exposure drafts of the legislation designed to repeal the carbon tax for public consultation. The Government has promised it will introduce the carbon tax repeal bills as the first item of legislative business of the 44th Parliament when it commences on 12 November 2013.

What are the key elements of the draft carbon tax repeal legislation?

The key elements of the draft legislation are:

• 2013/14 will be the last financial year that the carbon tax will apply (i.e. the carbon tax will continue to operate until the end of the current compliance year on 30 June 2014);
• Liable businesses and other entities must pay all carbon tax liabilities incurred up to 30 June 2014 under the carbon pricing mechanism, the fuel tax credits system, excise or excise-equivalent customs duties, or synthetic greenhouse gas levies;
• Liable businesses and other entities must pay their final carbon tax compliance obligations at the next payment time under the current legislated arrangements;
• Industry assistance provided under the Jobs & Competitiveness Program and the Energy Security Fund will continue in 2013/14 for the purpose of meeting carbon tax liabilities;
• Included as amendments to the Competition and Consumer Act 2010 (Cth) (CCA), the Australian Competition & Consumer Commission (ACCC) will have new time-limited powers to monitor prices and take action against businesses that attempt to exploit other businesses and consumers by charging unreasonably high prices or making false or misleading claims about the effect of the carbon tax repeal on prices. These new measures aim to ensure businesses are quick to pass on any price reductions to consumers following repeal. More specifically, these amendments to the CCA include:
  
  
  • a new prohibition that prevents businesses from engaging in carbon tax related price exploitation with respect to certain regulated goods (currently electricity, natural gas, synthetic greenhouse gases, synthetic greenhouse gas equipment and other goods specified by regulations), applying for one year following the carbon tax repeal;
  • a specific prohibition on a corporation making false or misleading representations about the effect of the carbon tax repeal on the price for the supply of goods or services, applying for one year following the carbon tax repeal; and
  • a new power for the ACCC to monitor prices charged by corporations to assess the general effect of the carbon tax repeal, which will apply for six months before the repeal and for one year afterwards.
• Businesses with a carbon tax liability are obliged to comply with current carbon tax compliance and reporting arrangements. Compliance obligations will continue after 1 July 2014. For entities subject to the carbon pricing mechanism, compliance obligations will continue up to 2 February 2015, which is the final date by which liabilities must be paid under the carbon tax before unit shortfall charges apply (i.e. the permit surrender in February 2015 for the 2013/14 compliance year). An entity has to pay shortfall charges if it does not have enough carbon credit units to surrender to meet its liability;
• Once final commitments are met, refunds will be provided for any auctioned units, carbon units still in existence after the final compliance date will be cancelled and over-surrendered Australian Carbon Credit Units (ACCUs) issued under the "Carbon Farming Initiative" will be re-credited.
• The government denies that the repeal of the carbon tax amounts to an "acquisition of property" other than on just terms under the Constitution. If it does, legislative provisions are included to pay a reasonable amount of compensation to ensure the repeal legislation remains constitutionally valid.
• The Clean Energy Regulator, the Australian Taxation Office, the Australian Customs & Border Protection Service and the Department of the Environment will be able to enforce any outstanding carbon tax liabilities for 2012-13 and 2013-14 for as long as is necessary;
• The Climate Change Authority will be abolished. Instead, the performance of the Renewable Energy Target, the Carbon Farming Initiative and the National Greenhouse & Energy Reporting Scheme will be reviewed by the Government's own Department of the Environment;
• The references to the carbon pollution cap will be removed;
• The Government will consult separately on other elements of the Direction Action Plan, including the Emissions Reduction Fund;
• The income tax cuts scheduled for 2015/2016 to compensate Australians for the shift to an emissions trading scheme on 1 July 2015 will be abolished; and
• Some parts of the carbon-related legislation will be retained to support ongoing policy and the Government's Direct Action Plan. This includes the reporting scheme (operating under the National Greenhouse and Energy Reporting Act 2007) (Cth), the national register for carbon and emission units (operating under the Australian National Registry of Emissions Act 2011) and the Carbon Farming Initiative (operating under the Carbon Credits (Carbon Farming Initiative) Act 2011).

The Government also released a Consultation Paper which called for submissions on the draft carbon tax repeal legislation. Public comment on the draft legislation closed at 5pm Monday 4 November 2013.

When will the carbon tax be repealed?

There is considerable uncertainty in relation to the passage of the draft legislation through Parliament in the short term. While the Government has a comfortable majority in the lower house to pass any proposed legislation to repeal the carbon tax, Labour and the Australian Greens could combine to oppose it in the Senate and thwart the Government's plans to repeal the carbon tax before 1 July 2014. Labor has said it is open to negotiations on the carbon tax repeal and the Government's Direct Action Plan if it incorporated or became a market based scheme with a floating carbon price from 1 July 2014. This would have the effect of reducing prices sooner given the proposed linking with the European Union emission trading scheme. This, however, remains an unacceptable alternative to the Government, as it is intent on repealing even a floating carbon price.

If the current Senate rejects the proposed legislation a first time (predicted to occur in late 2013), the Government may decide to wait until 1 July 2014 to try to repeal the carbon tax. The balance of power in the new Senate will be held by a handful of minority and independent senators, and it seems likely the Government will rely on securing the support of anti-carbon tax crossbenchers in the new Senate to ensure the legislation passes in the upper house. At the time of writing, the Palmer United Party has stated publicly it will reserve judgment on Government legislation to repeal the carbon tax to avoid undermining the current Senate and insists it was premature for it to take a stance on an issue it might not have to consider in parliament from 1 July 2014.

What if the carbon tax repeal legislation is not passed by 1 July 2014?

The draft repeal legislation does not specifically address the possibility that the legislation may not be passed until after 1 July 2014 when the new Senate composition takes effect and the Federal Government has refused to say if liable entities will still pay the carbon tax post 1 July 2014 if the repeal legislation is not passed by then. This means that if there are roadblocks in the Senate and the repeal legislation is passed only after a prolonged political process, entities may be liable to pay carbon tax for part of or all the 2014/15 financial year. In such circumstances, it is uncertain whether the Government repeal legislation would be amended to have retrospective application to backdate the repeal of the carbon tax from 1 July 2014. It appears this uncertainty in the draft legislation was partly intended by the Government as it continues to put public pressure on Labor and the newly-elected leader Bill Shorten to "do the right thing" by respecting the Government's mandate and pass the repeal legislation before 1 July 2014.

It remains possible that a combination of political factors could result in the Government's repeal measures failing. However, it is unclear whether the Government is willing to trigger a double dissolution election pursuant to section 57 of the Constitution, where the Governor-General dissolves both houses at once, to resolve the deadlock in the event that the Senate rejects the Government's proposed legislation to repeal the carbon tax a second time (after a three month interval).

What are the implications for you?

The regulatory environment will hopefully become much clearer in the next 12 months. In the meantime, liable businesses and other entities should continue to comply with all legal obligations imposed on them pursuant to the Clean Energy Act and associated legislation until the time that they no longer apply. However, businesses need to seriously consider how it plans to deal with the potential repeal of the carbon tax. The Government has stated it will not make transitional arrangements to deal with specific commercial arrangements, including contracts. Any renegotiation of commercial arrangements is a matter for the parties involved. It will therefore be necessary for businesses to carefully consider how any existing and proposed contractual pass-through arrangements deal with a potential repeal. Businesses should also be mindful of its potential exposure to breach of the new ACCC powers if the carbon tax is repealed. Given the political context, there is some uncertainty as to what the repeal legislation will look like if/when it is finally passed so businesses should closely monitor the progress of the repeal legislation through the Parliament.

We would be very happy to provide advice on the implications of the intended repeal of the carbon tax on your business.

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.