“Carbon Tax: The Bottom Line” CMAA Regional Summit 12 June 2012 – Griffith NSW Greg Russell

Session 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 Tax Also known as carbon price Also known as carbon price Is a payment made by companies that are relatively large polluters Is a payment made by companies that are relatively large polluters Coal, petroleum, natural gas Coal, petroleum, natural gas

Carbon Tax v’s ETS What is the difference? What is the difference? What is better? What is better?

How did it get here? July 2011, the Federal government announced its Clean Energy Future climate change plan July 2011, the Federal government announced its Clean Energy Future climate change plan In November 2011, the legislation was passed in the Senate (36 to 32) In November 2011, the legislation was passed in the Senate (36 to 32)

Was it really worth it? The morning after pill The morning after pill

When Does It Commence Carbon pricing will commence in Australia on 1 July 2012 Carbon pricing will commence in Australia on 1 July 2012

Who Pays It It will be paid by around 500 of Australia’s largest carbon emitting companies It will be paid by around 500 of Australia’s largest carbon emitting companies E.g. electricity and gas producers E.g. electricity and gas producers

Where Does It Go It is paid by these companies to the Federal government It is paid by these companies to the Federal government Used to encourage investment in clean energy activities Used to encourage investment in clean energy activities Used to provide assistance to reduce the cost impact to other businesses and consumers of its implementation Used to provide assistance to reduce the cost impact to other businesses and consumers of its implementation

How Much Is The Tax The starting price is $23 per tonne of carbon emissions The starting price is $23 per tonne of carbon emissions This will increase by 2.5% plus inflation per annum until July 2015 This will increase by 2.5% plus inflation per annum until July 2015 From July 2015, the fixed-price converts to a flexible price, switching to an international emissions trading scheme From July 2015, the fixed-price converts to a flexible price, switching to an international emissions trading scheme

How will those companies paying afford it? They will be able to increase their prices They will be able to increase their prices Reduce operating costs Reduce operating costs Reduce emissions Reduce emissions

How will it impact others Consumers Consumers –Increased expenses –Possible increase in government assistance Businesses Businesses –Increased expenses –Possible government assistance for energy efficiency initiatives

How much will Expenses increase? Increases in electricity and gas expenses are expected to be the highest increases Increases in electricity and gas expenses are expected to be the highest increases Very difficult to predict how much Very difficult to predict how much Less than one month to go, and many businesses are still working it out! Less than one month to go, and many businesses are still working it out!

How much will Expenses increase? Initial government estimates were that 2012–13 increases in household expenditure over and above inflation would be 0.7%, with another 0.2% predicted for 2015–16. Initial government estimates were that 2012–13 increases in household expenditure over and above inflation would be 0.7%, with another 0.2% predicted for 2015–16. Further government modelling provided a more detailed breakdown into 33 CPI subgroups Further government modelling provided a more detailed breakdown into 33 CPI subgroups

How much will Expenses increase? This came with a qualifying statement: “price impacts for specific items will depend on aspects particular to the product, such as the degree of price pass through, the location, and the extent to which production processes and transportation required differ from the average across the CPI subgroup.” This came with a qualifying statement: “price impacts for specific items will depend on aspects particular to the product, such as the degree of price pass through, the location, and the extent to which production processes and transportation required differ from the average across the CPI subgroup.” In other words, the price impact is a best estimate but will fluctuate by supplier and product. In other words, the price impact is a best estimate but will fluctuate by supplier and product.

How much will Expenses increase? These estimates include 10% for electricity and 9% for gas, for households These estimates include 10% for electricity and 9% for gas, for households It has been reported that businesses will pay more, with some estimates for electricity at 15% or more It has been reported that businesses will pay more, with some estimates for electricity at 15% or more Other goods and services are expected to increase by around 0.3% Other goods and services are expected to increase by around 0.3%

How will it impact Clubs

Increased expenses Increased expenses Lower income due to lower consumer discretionary spending Lower income due to lower consumer discretionary spending Resulting in lower profit and cashflow, unless other initiatives implemented to reduce the impact Resulting in lower profit and cashflow, unless other initiatives implemented to reduce the impact Effects wil be felt quickly Effects wil be felt quickly

What Can a Club Do to Reduce its Impact Budget for cost increases Budget for cost increases Try to reduce operating costs Try to reduce operating costs Increase prices where possible, and have a related staff education & customer communication strategy Increase prices where possible, and have a related staff education & customer communication strategy Introduce a gaming yield strategy Introduce a gaming yield strategy Work with a ROI criteria Work with a ROI criteria

Budgeting for cost increases Make sure you have a financial budget Make sure you have a financial budget Review and update it more often to reflect material changes in costs Review and update it more often to reflect material changes in costs Where actual price increases not yet known, make conservative estimates Where actual price increases not yet known, make conservative estimates Be proactive – keep in contact with suppliers to obtain more information Be proactive – keep in contact with suppliers to obtain more information

Budgeting for cost increases Increases will differ from club to club, as each has a different list of suppliers, contractual arrangements, and varying levels of energy consumption Increases will differ from club to club, as each has a different list of suppliers, contractual arrangements, and varying levels of energy consumption Each supplier may have a differing need to increase costs, as their ability to absorb their own increased costs to remain competitive differs also Each supplier may have a differing need to increase costs, as their ability to absorb their own increased costs to remain competitive differs also

Can operating costs be reduced Expected supply cost increases may be the catalyst for change Expected supply cost increases may be the catalyst for change Some suppliers may have already implemented more energy efficient operations that will reduce the impact of carbon tax on their business, and consequently charge you less Some suppliers may have already implemented more energy efficient operations that will reduce the impact of carbon tax on their business, and consequently charge you less Investigate energy efficiency initiatives for the club with a supporting business case Investigate energy efficiency initiatives for the club with a supporting business case

Increasing selling prices Businesses are allowed to increase prices as they always have Businesses are allowed to increase prices as they always have BUT if a price increase is described as being the result of the carbon tax, be careful BUT if a price increase is described as being the result of the carbon tax, be careful This will require documented calculations to support the price increase being described in this way This will require documented calculations to support the price increase being described in this way Without this, businesses risk being penalised by the ACCC Without this, businesses risk being penalised by the ACCC

Increasing selling prices The ACCC has stated that businesses should not make guesses, and that field officers will be deployed (remember the GST…?) The ACCC has stated that businesses should not make guesses, and that field officers will be deployed (remember the GST…?) Supporting calculations would need to specify which and by how much particular costs have increased directly as a result of the carbon tax Supporting calculations would need to specify which and by how much particular costs have increased directly as a result of the carbon tax And calculations showing how these have been aggregated and apportioned to particular revenue lines And calculations showing how these have been aggregated and apportioned to particular revenue lines

Increasing selling prices May leave a limited remaining revenue base May leave a limited remaining revenue base Competitive forces may limit price increases– have a pricing strategy Competitive forces may limit price increases– have a pricing strategy Prepare an updated competitor comparison document– pricing, facilities, point of difference, etc Prepare an updated competitor comparison document– pricing, facilities, point of difference, etc

Increasing selling prices A planned way of communicating any price increases to customers is important A planned way of communicating any price increases to customers is important Staff education is imperative to ensure any price increases are described in the correct manner Staff education is imperative to ensure any price increases are described in the correct manner Printed or online material must also be prepared carefully Printed or online material must also be prepared carefully

Be creative Gaming revenue – yield management strategies- caution required Gaming revenue – yield management strategies- caution required Membership loading say $3.00 per member Membership loading say $3.00 per member

Politics Politics Politics

Julia: “There will be no carbon tax under the government I lead” Julia: “There will be no carbon tax under the government I lead” Tony: “At the next election, I will seek a mandate from the Australian people to repeal this tax” Tony: “At the next election, I will seek a mandate from the Australian people to repeal this tax” What if…A Liberal Government, without support of Labor & Greens to repeal ? What if…A Liberal Government, without support of Labor & Greens to repeal ? Tony Abbott has said he would pursue a double dissolution election if necessary Tony Abbott has said he would pursue a double dissolution election if necessary

Points of Impact Cost of goods Cost of goods Freight Freight Electricity Electricity Gas Gas Waste Removal Waste Removal Stationery Stationery Laundry Laundry Capital equipment Capital equipment Council rates Council rates Telecommunication Telecommunication Decreased discretionary spending Decreased discretionary spending

Points of Recovery Point of RecoverySignificance Food pricing Beverage pricing Playing fees Gym fees Membership Gaming yield management Efficiency Relatively Minor Possibly Significant

Conclusion We know what Carbon Tax is We know what Carbon Tax is We know who it will impact We know who it will impact We know how it will impact them We know how it will impact them We know what clubs can do to reduce its impact We know what clubs can do to reduce its impact

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