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Carbon tax timing to put the squeeze on contract negotiations

ATA pushes for changes to carbon tax, claiming industry won’t be given enough time to pass on fuel price rises

By Brad Gardner | August 24, 2011

The trucking lobby is seeking key changes to the carbon tax, claiming it will not give the industry enough time to pass on fuel price rises to its customers.

Operators will begin paying an extra 6.85 cents per litre for diesel from July 1, 2014 under the tax, which, based on draft legislation to be introduced this year, will adjust fuel prices every six months.

In a written submission to the Department of Climate Change and Energy, the Australian Trucking Association (ATA) says the measure will only give operators about three weeks to renegotiate new rates.

Under the government’s carbon tax, a regulator will adjust fuel prices on January 1 and July 1 and will announce the changes within seven days of the end of May and November respectively.

“Three weeks’ notice is not long enough for most trucking operators to change their freight rates or fuel surcharges,” ATA CEO Stuart St Clair says.

The group wants increases limited to once a year and to begin on July 1. St Clair says the regulator should also be required to give operators more notice.

“Businesses already expect tax changes to occur on July 1, and many contracts are renegotiated in the lead up to this date,” he says.

“The carbon regulator should be required to give three months – or preferably six months – notice of the change to the fuel tax credit rate, so businesses have time to pass on the change in their costs.”

With the fuel tax also adjusted annually to account for infrastructure expenditure, the ATA wants changes made to ensure it takes place at the same time as amendments to the carbon tax on fuel.

The submission says passing increases at the one time will prevent the need for operators to go through another round of negotiations with customers.

According to the ATA’s submission, imposing a three-week notification period “would create serious difficulties for trucking operators” trying to adjust freight rates.

The submission cites the livestock transport sector, claiming it needs ample notification of any fuel price increases.

“As primary producers are in a trade-exposed industry, livestock transporters can find it takes a lengthy period to persuade them to accept an adjustment in their rate,” the submission reads.

It goes on to say many companies from different sectors work on fixed price contracts that are negotiated once a year and require operators to forecast how costs will change over the period.

“Some contracts include clauses for varying prices, but there may be restrictions on how often this can occur. For example, some retail contracts only allow price changes every six months, so the retailer can offer its customers fixed prices for a foreseeable period of time,” the ATA says.

“Other contracts, such as the standard terms and conditions for a well-known hardware retailer, require 45 days notice of any price change and ban price changes during December-January.”

While the ATA says it is working on the premise the government will apply the carbon tax to the trucking industry, St Clair has reiterated his call for it to be exempt.

He says the vast majority of trucking companies are small businesses with fewer than five employees.

“They are entirely comparable to other small businesses that are exempt from the carbon tax, except they happen to operate trucks weighing more than 4.5 tonnes,” he says.

Modelling released by Treasury says transport produced about 14 percent of Australia’s greenhouse gas emissions in 2010, with road transport accounting for more than 85 percent of that figure.

The ATA has also sought an exemption on the basis trucking companies “face incredibly tough business conditions”.

“Freight rates are lower in real terms than they were in the 1970s, but business costs have increased substantially,” it says.

Furthermore, it has warned fuel increases will drive up the price of goods because the industry carries about 75 percent of the country’s domestic freight.

Prime Minister Julia Gillard previously announced a range of household compensation measures to offset price rises, including tax cuts and increased family benefit payments.

“These tax cuts and payment increases will be targeted at those who need them most: Pensioners, low-income earners and middle-income earners,” Gillard said earlier this year.

The ATA is also pushing for a slice of $40 million in information assistance grants to develop new standard contracts and invoices once the carbon tax begins.

“For example, if trucking businesses become subject to carbon pricing, the industry would need to develop a standard invoice that shows customers how much of their bill is due to the carbon tax,” St Clair says.

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