Despite $30 Billion Threat to Aussie Economy, Government to Retain Carbon Price

Australian Finance Minister Penny Wong said on Tuesday that the federal government would not change its proposed carbon price of $23 per tonne despite a report that said the carbon tax would negatively impact the country's economy by $30 billion.

The report, commissioned by the Minerals Council of Australia, said the proposed carbon price - the highest in the world - would have twice the impact on economic growth by 2018 compared if the government would peg the tax at international prices. It is part of the push by businesses to lower the carbon price to $10.

"We can grow our economy, we can grow jobs, we can grow our incomes and have a carbon price.... A carbon price will be the signal to investors to invest in the clean energy economy that provides jobs tomorrow," Ms Wong told ABC.

Ms Wong said that the European carbon price would eventually respond to the current financial situation in the continent. She pointed out that Australia's carbon price would initially be fixed but would eventually float. The minister said that is the right strategy for the times.

The Minerals Council based its report on a modeling by the Centre for International Economics that a $23 carbon price with a $15 floor price would have a larger influence on the broader Australian economy that pegging the carbon price at international levels.

However, the study also was critical of Opposition leader Tony Abbott's proposal to instead capture 85 million tonnes of carbon in soil by 2020. The report estimated that only between five and 20 million tonnes could be sequestered in soil within that period.

Besides refusing to budge on the carbon price, Ms Wong also said that the federal government would not promise a tax cut for small businesses by July 1, the same date that the carbon tax would start to be collected. The reduction is supposed to be funded by income from the planned minerals resource rent tax which is expected to be passed by the Australian parliament by the end of the third week of March.

Ms Wong said Parliament needs to pass first the mining tax before the federal government would consider cutting small business tax by 1 per cent on July 1, 2012 and another 1 per cent cut for big businesses on July 1, 2013.