ACOSS welcomes assurances on carbon price compensation

13 April 2011

ACOSS welcomes the assurances given today by the Minister for Climate Change and Energy Efficiency, Greg Combet, that assistance for low-income households will be a ‘priority’ of the Government’s carbon pricing plan.

“We have argued that as a matter of equity and fairness, low income households should be fully compensated to meet increases in the cost of living associated with pricing carbon pollution,” said CEO, Dr Cassandra Goldie.

“Modelling by Treasury and others suggests that the impact of a carbon price would be modest, if set in the range $20 to $30 per tonne of carbon pollution. Nevertheless, even modest increases in the prices of essential goods and services have an immediate and adverse impact on low income households.

“An increase in expenditure of $10 per week per household doesn’t seem a lot for the sake of the planet. That’s inexpensive insurance. Many low income households can’t afford any insurance. And if you’re living on $34 a day, every single dollar counts.

“The taxation and transfer systems provide the best and fairest means to channel assistance for households. This method also supports the purpose of a carbon price, sending signals to producers and consumers through changes in retail prices.

“However, the existing systems are inequitable and inefficient and, as far as possible, the design of a carbon price mechanism should not exaggerate these deficiencies.

“While ACOSS is supportive of structural reform of the income support and personal taxation systems, we are more immediately concerned by the punitively low rates of payment for people who are unemployed, single parents and students.

“A year ago the Henry Review recommended that Newstart and other allowances be increased by $50 per week. That hasn’t happened, and the 600,000 people who try to survive on $34 per day are, literally, much the poorer for this inaction.

“The CPRS proposed a simple method of assistance for households, effectively a per cent increase in pensions, allowances and tax benefits that tapered out as incomes rose. This is an administratively easy solution but it would come at a personal cost to millions of people in Australia.

“To use an illustration, say that a carbon price of $25/t is projected to have a 1.0% impact on the cost of living expenses of an average household or about $10 per week (assuming that fuel is excluded). Assistance proposed under the CPRS (modelled impact plus a ‘buffer’) was 2.5%.

“For a single adult pensioner who currently receives $335.45 per week, 2.5% is $8.38.

“For a single adult unemployed person in receipt of Newstart at $237.45 per week, 2.5% is $5.90.

“In both cases the assistance is less than modelled impact on expenditure of $10 per week. If assistance is based on household income rather than household expenditure, inequity in the transfer systems is perpetuated and exaggerated.

“ACOSS believes that ‘cash’ assistance should be in the form of a standard dollar rate rather than a percentage increase. The standard dollar rate should address the modelled impact and provide a buffer for unanticipated impacts, as occurred with the introduction of the GST.

“Cash assistance should address a range of household characteristics to a reasonable extent. It should be paid from mechanism commencement, and be indexed and adjusted annually. Compensation should address all cost impacts from carbon price, including retail energy prices and others like food.

“We look forward to continuing to work with the Government and others on the detail of the carbon price mechanism, including assistance for low income households,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155

Recent ACOSS releases on carbon pricing:
Community sector urges politicians to unite to find the right solution to reducing carbon pollution – 25 February 2011
ACOSS welcomes first steps towards price on carbon pollution – 24 February 2011

More on energy efficiency:
ACOSS notes that electricity prices have doubled over the last decade and will likely double again over the next few years. Low income households have little capacity to reduce consumption, little in the way of discretionary use. The best available responses are to help with capacity to pay (by increasing pensions and benefits) and to invest in energy efficiency.

There are currently no federally funded, federally mandated, federally consistent household energy efficiency schemes in operation. ACOSS has previously called for significant investments in improved energy efficiency to begin ahead of the introduction of a carbon price. Improving energy use efficiency in the household sector is a significant long term project to be realised over time. Initially and over time investments for low income households could be funded from one or more of several sources including consolidated revenue, carbon price mechanism revenue, a national energy savings initiative.

Some of the revenue generated through a carbon pricing mechanism should be invested in improving residential energy efficiency, particularly for low income households. Improved energy efficiency can improve well-being, contribute to the carbon pollution mitigation effort, can in effect be adaptive to climate change, and can save occupants money by minimising energy consumption and expenditure on bills. In addition to beneficial outcome for householders such an investment has the potential to grow enterprises and jobs.