““Carbon Tax: The Bottom Line”Carbon Tax: The Bottom Line”

CMAA Regional Summit CMAA Regional Summit 12 June 2012 – Griffith NSW 12 June 2012 – Griffith NSW

Greg RussellGreg Russell

Session OverviewSession Overview

• What is Carbon Tax?What is Carbon Tax?• Who will it impact?Who will it impact?• How will it impact?How will it impact?• What can clubs do?What can clubs do?

What is Carbon TaxWhat is Carbon Tax

• Also known as carbon priceAlso known as carbon price• Is a payment made by companies Is a payment made by companies

that are relatively large pollutersthat are relatively large polluters• Coal, petroleum, natural gasCoal, petroleum, natural gas

Carbon Tax v’s ETSCarbon Tax v’s ETS

• What is the difference?What is the difference?• What is better?What is better?

How did it get here?How did it get here?• July 2011, the Federal government July 2011, the Federal government

announced its announced its Clean Energy Future Clean Energy Future climate climate change planchange plan

• In November 2011, the legislation was In November 2011, the legislation was passed in the Senate (36 to 32)passed in the Senate (36 to 32)

Was it really worth it?Was it really worth it?

• The morning after pillThe morning after pill

When Does It CommenceWhen Does It Commence

• Carbon pricing will commence in Carbon pricing will commence in Australia on 1 July 2012Australia on 1 July 2012

Who Pays ItWho Pays It

• It will be paid by around 500 of It will be paid by around 500 of Australia’s largest carbon emitting Australia’s largest carbon emitting companiescompanies

• E.g. electricity and gas producersE.g. electricity and gas producers

Where Does It GoWhere Does It Go

• It is paid by these companies to the It is paid by these companies to the Federal governmentFederal government

• Used to encourage investment in Used to encourage investment in clean energy activitiesclean energy activities

• Used to provide assistance to reduce Used to provide assistance to reduce the cost impact to other businesses the cost impact to other businesses and consumers of its implementationand consumers of its implementation

How Much Is The TaxHow Much Is The Tax

• The starting price is $23 per tonne of The starting price is $23 per tonne of carbon emissionscarbon emissions

• This will increase by 2.5% plus inflation This will increase by 2.5% plus inflation per annum until July 2015per annum until July 2015

• From July 2015, the fixed-price converts From July 2015, the fixed-price converts to a flexible price, switching to an to a flexible price, switching to an international emissions trading schemeinternational emissions trading scheme

How will those companies How will those companies paying afford it?paying afford it?

• They will be able to increase their They will be able to increase their pricesprices

• Reduce operating costsReduce operating costs• Reduce emissionsReduce emissions

How will it impact others How will it impact others

• ConsumersConsumers– Increased expensesIncreased expenses– Possible increase in government Possible increase in government

assistanceassistance• BusinessesBusinesses

– Increased expensesIncreased expenses– Possible government assistance for Possible government assistance for

energy efficiency initiativesenergy efficiency initiatives

How much will Expenses How much will Expenses increase?increase?

• Increases in electricity and gas Increases in electricity and gas expenses are expected to be the expenses are expected to be the highest increaseshighest increases

• Very difficult to predict how muchVery difficult to predict how much• Less than one month to go, and Less than one month to go, and

many businesses are still working it many businesses are still working it out!out!

How much will Expenses How much will Expenses increase?increase?

• Initial government estimates were that Initial government estimates were that 2012–13 increases in household 2012–13 increases in household expenditure over and above inflation expenditure over and above inflation would be 0.7%, with another 0.2% would be 0.7%, with another 0.2% predicted for 2015–16.predicted for 2015–16.

• Further government modelling Further government modelling provided a more detailed breakdown provided a more detailed breakdown into 33 CPI subgroupsinto 33 CPI subgroups

How much will Expenses increase?How much will Expenses increase?• This came with a qualifying statement: This came with a qualifying statement:

“price impacts for specific items will “price impacts for specific items will depend on aspects particular to the depend on aspects particular to the product, such as the degree of price pass product, such as the degree of price pass through, the location, and the extent to through, the location, and the extent to which production processes and which production processes and transportation required differ from the transportation required differ from the average across the CPI subgroup.”average across the CPI subgroup.”

• In other words, the price impact is a best In other words, the price impact is a best estimate but will fluctuate by supplier and estimate but will fluctuate by supplier and product.product.

How much will Expenses How much will Expenses increase?increase?

• These estimates include 10% for These estimates include 10% for electricity and 9% for gas, for electricity and 9% for gas, for householdshouseholds

• It has been reported that businesses It has been reported that businesses will pay more, with some estimates for will pay more, with some estimates for electricity at 15% or moreelectricity at 15% or more

• Other goods and services are expected Other goods and services are expected to increase by around 0.3%to increase by around 0.3%

How will it impact Clubs How will it impact Clubs

How will it impact Clubs How will it impact Clubs

• Increased expensesIncreased expenses• Lower income due to lower consumer Lower income due to lower consumer

discretionary spendingdiscretionary spending• Resulting in lower profit and Resulting in lower profit and

cashflow, unless other initiatives cashflow, unless other initiatives implemented to reduce the impactimplemented to reduce the impact

• Effects wil be felt quicklyEffects wil be felt quickly

What Can a Club Do to Reduce What Can a Club Do to Reduce its Impact its Impact

• Budget for cost increasesBudget for cost increases• Try to reduce operating costsTry to reduce operating costs• Increase prices where possible, and Increase prices where possible, and

have a related staff education & have a related staff education & customer communication strategycustomer communication strategy

• Introduce a gaming yield strategyIntroduce a gaming yield strategy• Work with a ROI criteriaWork with a ROI criteria

Budgeting for cost increasesBudgeting for cost increases

• Make sure you have a financial budgetMake sure you have a financial budget• Review and update it more often to Review and update it more often to

reflect material changes in costsreflect material changes in costs• Where actual price increases not yet Where actual price increases not yet

known, make conservative estimatesknown, make conservative estimates• Be proactive – keep in contact with Be proactive – keep in contact with

suppliers to obtain more informationsuppliers to obtain more information

Budgeting for cost increasesBudgeting for cost increases

• Increases will differ from club to club, as Increases will differ from club to club, as each has a different list of suppliers, each has a different list of suppliers, contractual arrangements, and varying contractual arrangements, and varying levels of energy consumptionlevels of energy consumption

• Each supplier may have a differing need to Each supplier may have a differing need to increase costs, as their ability to absorb increase costs, as their ability to absorb their own increased costs to remain their own increased costs to remain competitive differs alsocompetitive differs also

Can operating costs be reducedCan operating costs be reduced

• Expected supply cost increases may be the Expected supply cost increases may be the catalyst for changecatalyst for change

• Some suppliers may have already Some suppliers may have already implemented more energy efficient implemented more energy efficient operations that will reduce the impact of operations that will reduce the impact of carbon tax on their business, and carbon tax on their business, and consequently charge you lessconsequently charge you less

• Investigate energy efficiency initiatives for Investigate energy efficiency initiatives for the club with a supporting business casethe club with a supporting business case

Increasing selling pricesIncreasing selling prices• Businesses are allowed to increase prices Businesses are allowed to increase prices

as they always haveas they always have• BUT if a price increase is described as being BUT if a price increase is described as being

the result of the carbon tax, be carefulthe result of the carbon tax, be careful• This will require documented calculations to This will require documented calculations to

support the price increase being described support the price increase being described in this wayin this way

• Without this, businesses risk being Without this, businesses risk being penalised by the ACCCpenalised by the ACCC

Increasing selling pricesIncreasing selling prices• The ACCC has stated that businesses should The ACCC has stated that businesses should

not make guesses, and that field officers will not make guesses, and that field officers will be deployed (remember the GST…?)be deployed (remember the GST…?)

• Supporting calculations would need to Supporting calculations would need to specify which and by how much particular specify which and by how much particular costs have increased directly as a result of costs have increased directly as a result of the carbon taxthe carbon tax

• And calculations showing how these have And calculations showing how these have been aggregated and apportioned to been aggregated and apportioned to particular revenue linesparticular revenue lines

Increasing selling pricesIncreasing selling prices• May leave a limited remaining May leave a limited remaining

revenue baserevenue base• Competitive forces may limit price Competitive forces may limit price

increases– have a pricing strategyincreases– have a pricing strategy• Prepare an updated competitor Prepare an updated competitor

comparison document– pricing, comparison document– pricing, facilities, point of difference, etcfacilities, point of difference, etc

Increasing selling pricesIncreasing selling prices• A planned way of communicating any A planned way of communicating any

price increases to customers is price increases to customers is importantimportant

• Staff education is imperative to Staff education is imperative to ensure any price increases are ensure any price increases are described in the correct mannerdescribed in the correct manner

• Printed or online material must also Printed or online material must also be prepared carefullybe prepared carefully

Be creativeBe creative

• Gaming revenue – yield management Gaming revenue – yield management strategies- caution requiredstrategies- caution required

• Membership loading say $3.00 per Membership loading say $3.00 per membermember

Politics Politics PoliticsPolitics Politics Politics

Politics Politics PoliticsPolitics Politics Politics• Julia: “There will be no carbon tax under Julia: “There will be no carbon tax under

the government I lead”the government I lead”• Tony: “At the next election, I will seek a Tony: “At the next election, I will seek a

mandate from the Australian people to mandate from the Australian people to repeal this tax”repeal this tax”

• What if…A Liberal Government, without What if…A Liberal Government, without support of Labor & Greens to repeal ? support of Labor & Greens to repeal ?

• Tony Abbott has said he would pursue a Tony Abbott has said he would pursue a double dissolution election if necessarydouble dissolution election if necessary

Points of ImpactPoints of Impact

• Cost of goodsCost of goods• FreightFreight• ElectricityElectricity• GasGas• Waste RemovalWaste Removal• StationeryStationery

• LaundryLaundry• Capital equipmentCapital equipment• Council ratesCouncil rates• TelecommunicationTelecommunication• Decreased Decreased

discretionary discretionary spendingspending

Points of RecoveryPoints of RecoveryPoint of Recovery Significance

Food pricingBeverage pricingPlaying feesGym feesMembershipGaming yield managementEfficiency

Relatively MinorRelatively MinorRelatively MinorRelatively MinorRelatively MinorPossibly SignificantPossibly Significant

ConclusionConclusion• We knowWe know what Carbon Tax iswhat Carbon Tax is• We knowWe know who it will impactwho it will impact• We knowWe know how it will impact themhow it will impact them• We knowWe know what clubs can do to what clubs can do to

reducereduce its impactits impact

Contact detailsContact details

• Office: Office:

9957 67009957 6700• Email: Email: greg.russell@russellcorporate.com.au • Mobile: Mobile:

0405 100 4630405 100 463• Website: Website:

www.russellcorporate.com.au