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Confronted by a yawning revenue chasm as the high dollar hits company profits and forecast company tax payments, Treasurer Wayne Swan has been forced to axe tax cuts and spending to help present a credible last budget before the election. Photo: Alex Ellinghausen
Labor’s carbon package is in tatters, with $1.4 billion of tax cuts scheduled for 2015 to be dumped in next Tuesday’s budget, and cuts to clean-energy initiatives, because a slump in the European carbon price has forced Treasury to halve the revenue expected from the sale of carbon permits.
The dumping, or indefinite deferral, of a second round of tax cuts that were supposed to be funded by the carbon price will damage Labor’s attack on the Coalition over its plans to repeal all spending measures associated with the government’s clean-energy package, and all but one of the measures associated with the mining tax.
The government had previously ruled out dumping the 2015 tax cuts. But confronted by a yawning revenue chasm as the high dollar hits company profits and forecast company tax payments, Labor has been forced to axe spending and tax cuts to help present a credible last budget before the election.
The Greens are pressing the government to go further and dump funding for carbon capture and storage after the Parliamentary Budget Office found such a move would save $768 million.
The Australian Financial Review revealed on Monday a shortfall in forecast budget revenue of between $60 billion and $80 billion from now to 2016, forcing the government to dump $1.8 billion in family assistance linked to the mining tax.
Finance Minister Penny Wongconfirmed the report that the tax write-down in the current financial year will amount to $17 billion. The shortfall will rise to more than $20 billion in 2013-14.
When the government announced its controversial carbon price reforms in 2011, it outlined a package of household assistance that overcompensated low-income households for the expected impact of a carbon price.
The government sold the package as Henry Review-inspired tax reform and trebled the tax-free threshold to $18,200 in 2012.
It legislated for a further increase in the threshold to $19,400 in 2015, a move it said would improve the incentive to work at low incomes.
This measure was to be funded by an expected increase in the price of carbon when emissions trading began in 2015-16.
However, the collapse in the carbon price puts the move – estimated by Access Economics’ Chris Richardson to cost $1.4 billion a year – out of the government’s fiscal reach. Treasurer Wayne Swan was asked late last month whether the 2015 tax cuts would go ahead if the carbon price stayed low.
Significantly, he did not answer the question directly.
“Certainly the assistance, the household assistance package that we have put in place, stays, absolutely. We’ve made that very clear,” he told ABC’s Insiders program.
Senior sources said on Tuesday night that “the pension increases, family payment increases and tax cuts that have been delivered in the household assistance package aren’t going anywhere – we’re protecting them”.
“The only way the household assistance that’s been delivered will get turfed is if Tony Abbott wins on September 14.”