Carbon Tax Will Have Considerable Impact

4 May 2005

Carbon Tax Will Have Considerable Impact on Business

Businesses need to act now

New Zealand businesses need to consider the impact of the carbon tax and should act quickly to minimise its effect on their bottom line, according to PricewaterhouseCoopers.

The Government announced its proposals for the implementation of the carbon tax today. The new tax is a key plank in meeting New Zealand’s international obligations under the Kyoto Protocol. It will be payable from 1 April 2007 at the rate of $15 per tonne of carbon dioxide (or equivalent). The carbon tax will be administered by the Inland Revenue Department and the Customs Service.

According to PricewaterhouseCoopers’ estimates, the Government can expect to collect approximately $600 million per annum from the carbon tax, with $240 million per annum earmarked for tax relief in the form of rebates and exemptions. This means net revenue collected is estimated to be $360 million per annum, and this is intended to be recycled into the economy via measures to be announced in the Budget.

The carbon tax will affect New Zealand’s international competitiveness. Major trade competitors such as China and Australia are not constrained by the Kyoto Protocol. “The reality is that this tax makes New Zealand less attractive as a destination for investment,” said Julia Hoare, leader of the PricewaterhouseCoopers Climate Change Services team.

Julia Hoare says there will be a considerable impact on businesses in New Zealand. “Companies operating in areas such as heavy industry, manufacturing and transport are going to bear the brunt of this new tax and should be prepared for increased prices for energy and fuel.”

For businesses whose international competitiveness will be at risk from the introduction of the carbon tax, relief may be available under the Government’s negotiated greenhouse agreement (NGA) policy. However this relief is only available to businesses prepared to meet world’s best practice in emission management.

Julia Hoare said the NGA process had proven to be complicated and costly. “Applications are being bogged down in the Government’s assessment processes and it is going to be extremely difficult for businesses to secure the necessary exemptions by April 2007 unless they begin the application process now.”

The NGA process is geared towards larger businesses. Smaller businesses may be eligible to participate in a pilot scheme which would see them receive grants to assist in reducing emissions. Julia Hoare said the $1.48 million per annum budgeted for these grants and the selection criteria will not go far to mitigate the cost of the carbon charge for most SMEs.

In a more macro view of New Zealand’s obligations, there are also some concerns in relation to the Government’s projections for New Zealand’s emissions and forest sinks. “They are very optimistic,” said Julia Hoare. “Since signing the Kyoto Protocol the Government estimates of surplus forest sinks over emissions

About PricewaterhouseCoopers: PricewaterhouseCoopers (www.pwc.com) is the world’s largest professional services organisation. Drawing on the knowledge and skills of more than 125,000 people in 142 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance. We source global knowledge but importantly we have a local presence. We build relationships by providing services based on quality and integrity.

(“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.)

ENDS

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