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Carbon Tax: Manufacturers affected and likely to raise prices

An Australian Industry (Ai) Group survey marking the start of the carbon tax has found a big proportion (42%) of businesses across the manufacturing, services and construction sectors will try to put up their prices immediately following the introduction of the scheme today.

In the period ahead Ai Group will be monitoring the impacts of the carbon tax on its members. Initially the monitoring is concentrating on the carbon cost burden.

In a survey of Ai Group members in the second half of June we asked businesses across the manufacturing, services and construction sectors about their plans to raise prices in response to cost increases related to the carbon tax.

Illustrating the competitive pressures facing many businesses, a 42% of the 621 respondents indicated they plan to try to recover their input cost increases by immediately raising their selling prices.

This included:

  • 40% of manufacturers;
  • 40% of service providers; and
  • 44% of businesses in the building and construction sector.

Plans to recover cost increases appear to be influenced by two broad considerations: the extent to which the business is trade exposed and the current market situation facing the business.

For instance, although building and construction is not trade exposed, the deep slump facing large parts of this industry is likely to inhibit the ability to pass through costs.

"Our monitoring of the carbon price burden will continue over coming months as the intentions of businesses to pass on cost increases are tested in the market," said Ai Group Chief Executive Innes Willox.

"There is considerable variation in the intentions of businesses in different parts of industry to attempt to pass through at least a proportion of their cost increases.

"In the manufacturing sector, the proportion of businesses that will try to raise their prices ranges from 60% among suppliers of construction materials to 11% of food and beverage manufacturers.

The survey also revealed a considerable range in the proportions of services businesses that will attempt to pass costs on to customers.

Communications services businesses (82%) are most likely to attempt to pass on cost increases from 1 July while businesses in the finance & insurance services and the accommodation, cafes and restaurants industries (both 22%) are far less likely to attempt to pass on their carbon-tax related cost increases.

"This survey also brings into focus the issues likely to face the ACCC in performing its role in relation to carbon tax cost pass-through. There is considerable confusion in the business community about the ACCC's role," said Wilcox.

"The Government has directed the ACCC to take a role in relation to claims made by commercial parties about the impact of the carbon price. The ACCC will seek to ensure that businesses do not make misleading claims about price increases as a result of the carbon price.

Critically, the ACCC does not have a role in formally monitoring, setting or restricting price increases linked to the carbon price and the ACCC has no power to prevent a business from putting up its prices as a result of the carbon price.

"In short, the ACCC's role is not about preventing legitimate cost flow-through but relates to misrepresentations about the impact on prices of carbon-tax related cost increases. Businesses need to take particular care not to overstate the impact of the carbon tax in negotiating price increases," Willox said.

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