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Most shielded from carbon tax, say analysts

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The federal government has "more than compensated" low and middle Australia for the carbon tax in this year's budget, according to an academic body that last year found average households would be better off under the system.

While large businesses rather than individuals would directly pay the carbon tax, the flow-on effect would see householders pay through the tax's impact on petrol, gas and electricity prices.

Last October, the University of Canberra's National Centre for Social and Economic Modelling found Australian households will be an average $2.50 per week better off under the federal government's carbon package, which added $8.50 per week to costs.

NATSEM used 2009 Australian Bureau of Statistics expenditure data, rather than Treasury's 2004 data, which showed the carbon tax added $9.90 a week to household bills.

The federal government estimated food would go up by about $1 per week, the average household electricity bill up by $3.30 per week and the average gas bill up by $1.50 per week, all within the $9.90 weekly increase.

Last night, NATSEM principal researcher Ben Phillips said the additional announcements in Tuesday night's federal budget made the package "very generous" for low income earners.


The "cash splash" included a $600 boost to family tax payments, a one-off school children cash bonus up to $820 and up to $210 for the unemployed, single parents and young people.

"Not only will they be covered for the carbon price, but they will be covered well in excess of that carbon price," Mr Phillips said.

He said the government was reacting to the perception in the community that the cost of living was increasing very strongly.

"It is not necessarily borne out in the numbers, but most people are feeling the very strong pressure from higher electricity prices, and petrol prices," he said.

Mr Phillips said while the NATSEM had not yet "crunched the numbers" for the impact of Tuesday night's budget announcement, he said the budget helped low and middle income families.

"I think they have done very well out of it, and they will be very, very much compensated for the carbon price," he said.

"I think you will find that when the carbon price comes in it will hardly be noticed.

"There will no doubt be plenty of political talk around that carbon price, but it is only going to add a very small amount to most items."

Commonwealth Bank economist James McIntyre said the CBA estimated about 80 per cent of Australian families were shielded from the impact of the carbon tax.

The crucial point was the tax cuts for people with a taxable income of $80,000, he said.

Mr McIntyre said in the 2009-10 tax year, 83 per cent of the population had taxable income below $80,000.

People earning between $30,000 and $65,000 will get a tax cut of $303 – equivalent to about $6 a week – and smaller tax deductions remain up to $80,000.

Mr McIntyre said that was why the government targeted that income level for tax cuts.

He said the federal government payments "over-compensated" many families and adequately compensated most.

"I think it over-compensates around 33 per cent of households, 40 per cent of households get about two-thirds of the compensation," he said.

"And for the remaining households – above $80,000 – there is small compensation - but it covers around 15 to 20 per cent of the cost."

Mr McIntyre said this smaller compensation was because higher income earners received less in family tax payments and because the tax cuts were targeted towards low and middle Australia.

"Look 90 per cent of households receive something, but it's only about 80 per cent of households where most of their carbon tax costs are covered.

"The other 20 per cent pay."

Last year, the federal government estimated the carbon tax would add about 0.7 per cent to inflation about one-third of the impact on inflation of the goods and services tax.

However by February this year, retiring Reserve Bank board governor and BlueScope Steel chairman Graham Kraehe estimated the impact would be higher.

"My personal view is that is almost certainly understated. The impact of the carbon tax on inflation will be higher than forecast," Mr Kraehe said.

Details about payments to various recipients can be found in the fact sheets here.