July deadline looms for carbon tax repeal

The Abbott government is facing a scenario fraught with uncertainty and legal challenge if it doesn't manage to repeal the carbon tax by July 1.

It's not surprising the Abbott government is reluctant to discuss what could happen if it fails to get the carbon tax repealed through parliament before July 1 as promised.

The government wants to see if Labor will oppose its plan before speculating about the future which is fraught with confusion and uncertainty.

What it doesn't want to face is a potential legal and administrative minefield awaiting if the tax isn't scrapped by its self-imposed deadline.

The government wants a clean break from the carbon tax before another compliance period begins on July 1, in line with the new financial year.

Labor and the Greens could scuttle this timetable in the Senate, which is why the government is pressuring them to accept their election mandate and stand aside.

But the draft repeal laws released by the government this week state the carbon tax will be abolished from July 1 - even if parliament does not pass the legislation until after that time.

This implies that while the carbon tax could still be around on July 1, somehow companies won't have to pay for it.

This conflicts with advice lawyers are giving liable businesses trying to negotiate this puzzling situation.

Law firm Norton Rose Fulbright is telling its clients that as long as the carbon price remains law, they need to comply with the law.

The firm's head of climate change, Elisa de Wit, says business would keep passing on the cost to consumers if there was a carbon tax in place come July 1.

"They have no other real choice," she told AAP.

"Arguably they could say `we're not collecting it', but they are exposing themselves to a risk that I don't think any board would sign off on."

Businesses now want to know if the repeal laws are retrospective - that is will they be refunded for any carbon price payments made between July 1 and whenever the scheme is eventually scrapped?

The draft bill doesn't offer any real detail about how this would work, adding to the angst among the business community.

"There is a lot of concern," Ms de Wit said.

"Their number-one issue is how will this work if it's done retrospectively, and what are we meant to do in the intervening period?"

Ms de Wit said the government would need to clarify this in the final legislation, which is being worked on now in anticipation of being introduced to parliament in November.

The government could compensate companies for their payments until the legislation is finally repealed, but would forgo significant revenue in the process.

Alternatively, it could let the 2014/15 compliance year run its course, but break its election pledge to scrap the tax as soon as possible.

But the situation is further complicated when you consider the impact of the carbon tax as it's passed on to consumers.

For example, landfill operators may pay the carbon liability, but defer that cost to the waste collectors, who in turn charge producers.

Some businesses are wondering if they'll be obligated to refund customers who paid for a carbon tax that was eventually scrapped.

Ms de Wit said it would be "incredibly complicated" to remedy these scenarios where the cost had filtered through the supply chain.

"How do you then unwind it?" she said.

"One client yesterday said to me he's already getting pressure from his customer to confirm that there will be a price reduction from July 1."

Yet another challenge confronts the Abbott government if it can't convince the new Senate in July to quickly scrap the tax.

From July 1, brown coal generators and other high-emitting companies can start applying for millions of free carbon permits.

They can sell these back to the Clean Energy Regulator from September.

Energy advisory firm RepuTex warns this poses a real risk to government coffers, because, without a carbon liability to pay these, industries could gain a windfall when the carbon tax is ditched.

RepuTex head Hugh Grossman said it would be "almost impossible" for the government to recover this money once the permits are cashed.

Companies were within their commercial and legal right to continue on as normal until the tax was repealed, he added.

"The message we get from our customers is that the show will go on, and it will go on until it's repealed," he told AAP.

"Until that point, companies will continue to take the options available to them, namely the cashing in of free permits."

Ms de Wit said the environment minister could ask the regulator to stop buying any permits, but that would be breaking its statutory obligations and invite a "legal challenge".

Baker & McKenzie climate change lawyer Martijn Wilder said some of the larger companies could work through this problem with the government, but that wasn't guaranteed.

He said the government needed to negotiate a deal with the incoming Senate, as the "environment of uncertainty" would get worse the longer it took to repeal the tax after July 1.

"You would assume that they will be working with the independent senators to make sure they've got a deal before then," he told AAP.

Source AAP

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