The first days of the carbon tax – Wesfarmers chief warns of inevitable price rises

The carbon tax may only be two days old, but already business leaders are warning prices will start rising – and they better get used to it.

Wesfarmers chief executive Richard Goyder has warned it’s inevitable prices will rise as a result of the carbon tax, but says it will take some time for suppliers and larger businesses to start passing costs on.

And the Australian Industry Group has revealed 40% of manufacturing businesses, 40% of services and 44% of construction businesses will attempt to pass the costs of the carbon tax on to their customers in 2012.

The comments and speculation come as the Federal Government’s approval rating has fallen in the first days of the tax as consumers wait to see how they will be affected.

“We will have to deal with those as and when they come along. Where there are energy-intensive processes you would expect it to come through,” Goyder told The Australian Financial Review.

“It [price rises] is not surprising, given the fact that there is a compensation scheme in the expectation that some prices will go up,” he said.

And while Goyder said the company would be asking its suppliers to justify their increases, he also said, at some point, the company won’t be able to stop those prices from being passed on.

The comments come alongside similar statements from business leaders that prices will inevitably rise as the carbon tax comes into effect, with Myer even saying it would cost the business $4 million a year.

Prime Minister Julia Gillard and Treasurer Wayne Swan were on the defensive yesterday, speaking to voters about their compensation package and rebutting statements from Opposition Leader Tony Abbott that the Coalition would repeal the legislation if it gains power in 2013.

But, for now, businesses are adamant they’ll be passing on costs to consumers. For instance, 40% of manufacturing businesses say they’ll increase at least some prices and that, of these, half will raise pricing on all items, 27% will raise prices on less than half, and 22% will raise prices on more than half.

Breaking down the industry into various subsectors reveals construction is the most likely to raise prices, while businesses in food and beverage, printing and publishing and transport equipment were least likely to raise prices.

But 40% of services businesses are set to increase their prices as well, with 46% of those businesses planning to raise prices on less than half of their items, although 33% say they’ll raise prices for all of them.

Businesses in accommodation, cafes and restaurants, and finance and insurance, were the least likely to raise prices.

Finally, 44% of construction businesses say they intend to increase prices for some or all goods. And, as the AIG points out, the higher proportion of businesses saying they will do so “indicates that construction will be one of the activities that is most affected by carbon pricing”.

Of the 44% of construction businesses that intend to increase their prices, 40% plan to raise prices on all of their selling items, 27% intend to raise the price of more than half of their items and 33% plan price rises on less than half of their items.

“What the employer has done may not be strictly unlawful but it breaks an unspoken understanding of where reasonable and unreasonable intrusion lies.”

This article first appeared at SmartCompany.