Australian Securities & Investments Commission reports record company closures, many blame carbon tax

Steve Lewis and Phil Jacob
March 18, 2013
Daily Telegraph

THE carbon tax is contributing to a record number of firms going to the wall with thousands of employees being laid off and companies forced to close factories that have stood for generations.

Soaring energy bills caused by the Government’s climate change scheme have been called the “straw that broke the camel’s back” by company executives and corporate rescue doctors who are trying to save ailing firms.

New data from the corporate regulator reveals insolvencies have hit a record high over the past 12 months, led by widespread failures in manufacturing and construction, which accounted for almost one-fifth of collapses.

The Australian Securities & Investments Commission reports there were 10,632 company collapses for the 12 months to March 1 – averaging 886 a month – with the number of firms being placed in administration more than 12 per cent higher than during the global financial crisis.

While the high Australian dollar is seen as the main factor behind manufacturing closures, experts say the carbon tax is adding to increasing cost burdens for many firms struggling to stay afloat.

Peter Macks, principal of Adelaide-based insolvency firm Macks Advisory, said the carbon tax was “quite debilitating” for a number of hotel operators who he said had been “struggling for a long time”.
“It is very tough operating at a profit,” Mr Macks said.

Todd Gammel, a partner with HLB Mann Judd, likened the carbon tax to pulling a leg out from underneath a chair.

“For companies which have exposure to energy, and other factors which are affected by the carbon tax in a significant way, the carbon tax and the costs related to it are having a significant impact on the ability of these companies to continue,” Mr Gammel said.

His firm was brought into help rescue Grain Products Australia, which called in the administrators late last year before being liquidated.

Around half of the firm’s 68 employees will lose their jobs and GPA’s former managing director Rob Lowndes said the carbon tax and other environmental levies had added “significant” costs, of around $500,000 a year.

Mr Lowndes said the company which exported wheat gluten to Japan and other markets had suffered from increased costs for wheat and electricity.

The carbon tax, he said, was not the “primary factor” why GPA went belly-up but it was “certainly an added cost” which was making it hard for manufacturing to survive in Australia.

While the carbon tax adds around 10 per cent to the price of electricity for most families, the impact on many small businesses and energy-intensive firms can be significantly higher.

“There’s no doubt the carbon tax is driving higher electricity prices for businesses across the state,” said NSW Treasurer Mike Baird. “NSW Treasury analysis for this financial year shows that NSW electricity customers including small businesses and households will be hit with a bill worth an estimated $580 million due to higher power prices as a direct result of this disastrous tax.”

Australian Chamber of Commerce and Industry chief economist Greg Evans said: “Rapidly escalating energy prices caused by the carbon tax and other green programs are taking their toll on many Australian businesses.

“In energy reliant industries it is already showing up in job losses, deferred investment and in the worst cases, business closures,” Mr Evans said.

“These are the enterprises that are energy reliant, face competition from larger players or overseas, yet received zero compensation from government when the onerous tax was introduced.

“We accept business is under pressure a number of fronts including the impact of a high exchange rate, however what business operators find hard to deal with is deliberate policy actions of government designed to increase the cost of doing business,” Mr Evans said.

“It defies logic to adopt a policy which even the Treasury acknowledge will lower our standard of living and be harmful to national productivity.

AMP Capital chief economist Dr Shane Oliver said the carbon tax was contributing to the demise of firms across the economy.

“The mining sector has for so long hidden the truth about how companies are actually doing and the carbon tax is clearly having a toll,” he said.Another victim of sluggish trading conditions is Penrice Soda.

The Adelaide-based firm will shut its factory which has made soda ash for the past 70 years in a few months.Guy Roberts, the company’s CEO, says up to 70 jobs will be lost, with the firm deciding it will import soda ash used in the production of glass and detergents rather than continuing to make the chemical.

“We are replacing a factory with a shed,” he laments.Penrice Soda had negotiated a deal with the Government to reduce its carbon tax bill from $8 million a year to $1 million but Mr Roberts said that was “still effectively the straw that broke the camel’s back”.

“It’s a million dollar hit to our business overall. You can argue that the carbon tax pushed us into the red I would argue that the carbon tax contributed materially to the loss in the first half,” he said.
In February, Prime Minister Julia Gillard was quizzed about Penrice Soda’s decision to close its factory, and said the carbon tax impact was “very, very, very, very modest indeed”.

An angry Mr Roberts said he feels “let down” by Ms Gillard’s comments.”Whether you agree with the policy or not, the timing is excruciatingly poor,” he added.

Campbell Jaski, a partner at PPB Advisory and head of its Resources Group, said the carbon tax “has definitely added an additional layer of cost and burden”.

The carbon tax – and mining tax – were also showing up as “sovereign risk” issues in discussions with foreign investors.

“It’s on the minds of investors – whether it is hedge funds, or Chinese investors looking for resource opportunities, it’s always a comment that is made in terms of Australia’s sovereign risk profile,” Mr Jaski said.

A spokesman for Industry Minister Greg Combet, who is also the Climate Change Minister, said the government was “acutely conscious of the pressures on parts of Australian manufacturing … due mainly to the high value of the dollar and intense competition on world markets.

“That is why the Government has announced its $1 billion Jobs Plan which will deliver more work for local firms on major projects and stronger protection for manufacturers from goods being unfairly dumped into Australia by foreign producers.

“The government is using carbon price revenue to assist manufacturers to reduce energy costs and become more competitive by investing in energy efficient.”