Carbon Tax: Don’t get burned

Carbon Tax: Don’t get burned

The introduction of the carbon tax from 1 July 2012 will impact upon the building and construction industry even though builders may not have to pay the tax directly.

The effect of the carbon tax on the industry is due to impact on supply and demand of the building and construction industry. It is predicted that there will be an increase in supply costs as the emission-intensive suppliers of materials such as steel, cement and glass seek to recover or pass on the cost of the tax. On the demand side, it is likely that the uncertainty surrounding the actual impact of the carbon tax is likely to make people reluctant to invest in a building projects large or small.

The demand for building and construction services is closely related to income and economic growth both commercial and residential and as the carbon tax may reduce wages and depreciate the exchange rate it will reflect an overall cost increase in the Australian Therefore people will be unwilling or unable to afford to invest in the economy. 1 Therefore people will be unwilling or unable to afford to invest in the Price increases in the supply chain are inevitable. However the initial impact may not be a true reflection of the carbon tax as a result of compensation schemes provided by the Government and the initial impact of the carbon tax on the current practices of the industry. Future adjustments may be made by suppliers to cope with the tax such as seeking substitute materials from suppliers with lower emissions or to import supplies.

In the interim the government have ensured that the builders cannot blame the carbon tax for price increases and the ACCC has been directed to undertake a compliance and enforcement role in relation to the misrepresentation of the carbon tax in contracts and quotations provided by builder and businesses alike in the industry.

The ACCC states that claims made about the impact of the carbon price should be truthful and have a reasonable basis. It further states; “You are not generally required to justify or explain why your prices have increased – however if you chose to claim that the price increases are due to a particular cause, you should have confidence in your claim.” If the ACCC investigate and take against a business about a deceptive claim the business will be required to provide documents and information to substantiate their claim. Therefore builders will have to rely on the their suppliers to inform them what part of the price increase is relative to the carbon tax.

If the builder is notified of a price caused by the carbon tax, it is possible to pass this cost on to its client as a carbon tax increase provided that it is believed to be truthful and reasonable to do so (subject always to the terms of the contract). Caution must always be taken to ensure that there is consistency with the ACCC guidelines as it has the power to take legal action seeking court-imposed penalties of up to $1.1 million.

Contracts that have been signed before 1 July 2012 may be able to pass the cost on to clients provided that the contract includes a clause to accommodate for any increases as a result of a tax increase. However the same principles apply in that the ACCC can investigate such claims and the builder must be able to verify such claims in the case of the complaint.

  1. Centre for International Economics Canberra & Sydney, Effects of a carbon price on the building and construction industry report, Prepared for Master Builders Australia, October 2011 In any instance it advisable to seek professional legal advice if a builder intends to include and/or rely on a clause in a contract, pre or post 1 July 2012, which allows an increase in price is a consequence of the carbon tax.