Unknown and unforeseen costs of the carbon dioxide tax a ticking bomb waiting to go off


Reader Sean of Deer Park highlights what’s happening right now that could come back to bite a lot of people in the butt.

I have information from a builder in Australia, advising of wording (legal jargon) you will see in all new contracts. It is called a Carbon Tax Disclaimer that will appear in ALL, Tenders, Preliminary Sales Quotes and Contracts from this month (February 2012).

I will not name the company as it is not their fault and they are only doing what all others in the building industry are having to do right now to protect themselves from potential huge cost blowouts they would otherwise be responsible for over the Carbon Tax implementation period. Remember, it takes months to build/renovate. It is impossible for these companies to predict what the projected cost price will be for any works done with completion dates after 1st July when the Gillard government introduces its Carbon Tax. In short. Someone will have to pay.

The legal disclaimer inserted into all future contracts will read along these lines:

“xxxxxxxx has not appropriated any form of additional cost based on the Carbon Tax in the compilation of the xxxxx Tender of Contract. As of the first of July 2012 suppliers, manufacturers and third parties may commence to pass the cost of the Carbon Tax on to xxxxxxxx.
Contracts written prior to July 2012 may incur additional cost when constructed after the start of July 2012.
Where appropriate xxxxxxxx will inform the client of an intention to claim additional cost by variation to the original contract under the Carbon Tax Guidelines.”

No-one yet knows what the “variations” will cost.

Sean rightly points out that additional costs were relatively easy to roughly calculate before the introduction of the GST – just add 10% – but with $23/tonne placed on CO2 and with no substantial economic modelling so far carried out, who knows what kind of minefield millions of Australians will be thrown into?

Imagine for example a couple building their first new home. They apply for the first homeowners grant, get bank approval for a Mortgage based on today’s financial position at a contracted price. The home is at lock-up in September, for arguments sake. What happens if the cost blowout is more than what the purchaser can afford? Does the bank lend the couple more than originally limited on the Bank Note? Can the couple now afford the new repayments? If they can not, do the couple loose their deposit? Is their first home owner grant now deemed ‘claimed’ and not available to them ever again? What if the bank reneges on the deal based on the new information of costs?

The PM’s legal experience, career before politics, and career in politics suggest she’s a smart cookie.

But seriously, how frickin’ dumb is it to come out this week and spruce her economic creditials (and this post isn’t even looking at the deficit or debt) in light of the above information?

Related: And with the plan to move on to an ETS, it would be prudent to look at the effective failure of the European carbon trading market... And the Chicago carbon trading market for that matter.

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  1. Hi,
    Oh yes a minefield that is for sure. There are going to be implications in every corner.
    I honestly don’t think the Majority of the Labor Government is even aware of what the carbon tax will do, they seem to look outside the square. Honestly I hope people will think ahead before signing any new contracts, they may not even have a job, to pay for a mortgage.

    I wonder how those in the Liberal Party that walked the floor with Turnbull, to back Rudd for the ETS, are feeling now, I would really like to know the answer to that one.

    • Carpe Jugulum
    • February 15th, 2012

    Where i am we have factored in a 10% increase on our margins. This is not factoring in across the board price increases for materials, where that occours it will be covered in the interim by raising project preliminary amounts.

    What people havn’t seemed to grasp is this CO2 tax targets the major components of commercial building;

    Steel
    Concrete/cement
    Aluminium
    Glass

    !st July 2012 is going to be a major headache

    • J.M. Heinrichs
    • February 15th, 2012

    This is more fun than our Carbon Tax, which is assessed on the direct production of CO2 at the source producers. As yet, the idea that each commercial transaction requires an assessed Carbon component, has yet to be considered.

    Cheers

  2. Costs have consequences. There appears to be a mindset today that says costs do not impact prices – that the rich will pay and no one else will. That of course will never be the case. But once the cost does impact all, then the meme will be that the rich are gouging the poor (regardless of who the seller is).

    I understand the level of economic ignorance in the general populace, but for the government to be so ignorant is malfeasance at its worst.

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