Entrepreneurs have been warned over carbon tax price gouging, after the Opposition wrote to thousands of small business owners warning them of the impact of the tax.
Federal Opposition Leader Tony Abbott, along with shadow small business minister Bruce Billson, wrote to 7,000 butchers, bakers, bottle shops and other small businesses in marginal Labor electorates.
The letter urges small business owners to place an accompanying flyer in their shop windows apologising to customers for price increases related to the carbon tax.
The flyer states: “The Federal Government estimates that the carbon tax will increase the cost of energy by 10% in its first year of operation.”
“It will also increase the cost of our suppliers. Higher electricity prices mean it will cost us more to keep our meat refrigerated.”
“We always strive to keep our prices at reasonable levels but because the carbon tax will make electricity more expensive, our prices will increase. We apologise for these price increases.”
Assistant Treasurer David Bradbury was quick to attack the move, accusing Abbott of exposing small business owners to fines of up to $1.1 million.
But according to the Australian Competition and Consumer Commission, the flyer does not raise concerns.
The ACCC said its role in relation to carbon pricing is to ensure claims are truthful and have a reasonable basis.
Ian Stewart, a partner at accounting and business advisory firm Pitcher Partners, says businesses will need to ask for price justifications from suppliers to avoid any unfair price rises.
According to Stewart, energy and off-road transport costs will be the main reasons for price increases.
He says suppliers should calculate the cost increases of the carbon price based on the benchmark of around 10% for energy and 4% for the loss of fuel tax credits.
“The main issue for most businesses is about price rises from suppliers and how to pass it on to customers,” Stewart says.
“In a tough economic environment, it may be difficult to achieve a pass-through of cost impacts. In this event, businesses will need to find other efficiencies or suffer a margin decline.”
“The first question businesses should ask of suppliers seeking price increases should be to establish what proportion, if any, of the materials are sourced locally.”
“Imported goods do not carry an additional carbon cost.”
Stewart says some of the price increases he has seen from clients have been “extraordinary”.
“For example, one supplier in the building industry asked for a 6% increase in selling prices on the basis of the carbon price,” he says.
“We couldn’t see that cost increases in energy or fuel credits could possibly reach these levels so there was no way this increase could be justified.”
“Our advice is to go back to the supplier and seek detailed justification of any price increases.”
Stewart says the carbon tax transition should be smooth and not as dramatic as the introduction of the GST, which caused distortion in the marketplace.
But overall, he says the carbon tax “will have an inflationary impact, and business will need to be alert to attempts at price gouging”.