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Small Business to Suffer

October 12, 2011

Independent Research: Small Business Profitability to drop under Carbon Tax

Statement by ACCI Chief Executive Peter Anderson

New, independent research shows that small and medium business people and their employees are likely to suffer the most under the carbon tax.

The research, from global economic and strategic consultants Castalia, finds that energy intensive SMEs are likely to suffer a cut in profitability of between 10% and 20% under the proposed carbon tax.

The Australian Chamber of Commerce and Industry (ACCI), Australia’s largest and most representative business organisation, is releasing this research on the eve of the crucial vote on the carbon tax in the House of Representatives on behalf of the more than 280,000 small and medium enterprises that are part of its membership base.

ACCI Chief Executive Peter Anderson said:

"The research points to small and medium businesses being significant losers under the carbon tax. They are unfairly squeezed by having costs passed down the supply chain but are less able than larger businesses to pass those costs onto consumers because of competitive pressures. And they don’t get the government compensation that larger businesses or households are promised."

The research demolishes the idea that only 500 big companies pay the tax. It finds "a material impact on the profitability of SMEs with consequent flow-on effects for investment and employment", due to higher energy prices and a loss of competitiveness.

"Higher costs and lower competitiveness mean reduced profitability. For energy intensive SMEs, a profitability reduction of 10% or 20% is a blow to viability for no environmental or economic gain" Mr Anderson said.

"Armed with this research all parliamentarians should think again before burdening small business with the carbon tax, and giving them no way around it. Lower House members of parliament have on average between 5,000 and 15,000 SMEs in their electorates."

The research concludes that short term impacts on energy intensive SMEs fall disproportionately on jobs and create "a permanent loss of competitiveness", with medium term impacts spread across investment and employment.

The energy intensive SME sectors assessed by the research were in plastics manufacturing, food processing and chemicals manufacturing.

SME impacts are not uniform, but almost always adverse. In other non-manufacturing SME sectors the research finds that SMEs not exporting still compete with imports, and that "almost 80% of our imports come from countries that do not have a direct price on carbon."

The finding of a 10% to 20% reduction in profitability for energy intensive SMEs is across the three years of the fixed carbon price (2012-2015). The outcome would be higher or lower depending on floating price movements.

"The research finds that if the carbon price rose to $45 a tonne, which it says may be necessary to meet the 5% reduction target by 2020, the impact on these SMEs would reduce profitability between 20% and 50%" Mr Anderson said.

"It concludes with a sobering warning: 'The SME sector of the Australian economy has been largely ignored in the debate on the proposed carbon price. Australia’s economic well-being is supported by the production of goods and services and continued investment by the SME sector – the very industries whose competitiveness will be hard hit by the carbon price'."

The Castalia research, which updates analysis originally conducted for ACCI in 2009, can be found here:

October 2011 - Castalia Report to ACCI on Carbon Tax

For more Information:

Chief Executive Peter Anderson
02 6270 2311
Mobile: 0417 264 862

Economics Director Greg Evans
02 6273 2312
Mobile: 0417 204 559

Communications Director, David Turnbull
02 6273 2311
Mobile: 0419 272 802

Castalia Strategic Advisors, Executive Director, Alex Sundakov
Mobile: 0433 043 337

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Copyright © 2011 - Australian Chamber of Commerce and Industry