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

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

2. Session Overview • What is Carbon Tax? • Who will it impact? • How will it impact? • What can clubs do?

3. What is Carbon Tax • Also known as carbon price • Is a payment made by companies that are relatively large polluters • Coal, petroleum, natural gas

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

5. How did it get here? • 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)

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

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

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

9. Where Does It Go • It is paid by these companies to the Federal government • 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

10. How Much Is The Tax • The starting price is $23 per tonne of carbon emissions • 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

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

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

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

14. 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. • Further government modelling provided a more detailed breakdown into 33 CPI subgroups

15. 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.” • In other words, the price impact is a best estimate but will fluctuate by supplier and product.

16. How much will Expenses increase? • 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 • Other goods and services are expected to increase by around 0.3%

17. How will it impact Clubs

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

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

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

21. 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 • Each supplier may have a differing need to increase costs, as their ability to absorb their own increased costs to remain competitive differs also

22. Can operating costs be reduced • 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 • Investigate energy efficiency initiatives for the club with a supporting business case

23. Increasing selling prices • 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 • This will require documented calculations to support the price increase being described in this way • Without this, businesses risk being penalised by the ACCC

24. Increasing selling prices • 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 • And calculations showing how these have been aggregated and apportioned to particular revenue lines

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

26. Increasing selling prices • 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 • Printed or online material must also be prepared carefully

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

28. Politics Politics Politics

29. Politics Politics Politics • 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” • 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

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

31. Points of Recovery

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

33. Contact details • Office: 9957 6700 • Email: greg.russell@russellcorporate.com.au • Mobile: 0405 100 463 • Website: www.russellcorporate.com.au