The introduction of the carbon tax on 1 July, 2012 will impact the building and construction industry even though builders may not have to pay the tax directly.
The effect of the carbon tax on the building and construction industry is due to its impact on supply and demand. It is predicted that there will be an increase in supply costs as the emission-intensive suppliers of materials such as steel, cement and glass seek to recover or pass on the cost of the tax. On the demand side, it is likely that the uncertainty surrounding the actual impact of the carbon tax will make people reluctant to invest in building projects large or small.
The demand for building and construction services is closely related to income and economic growth – both commercial and residential – and as the carbon tax may reduce wages and depreciate the exchange rate, it will reflect an overall cost increase in the Australian economy1. Therefore, people will be less willing or less able to afford to invest in the building sector.
Price increases in the supply chain are inevitable. However, the initial impact may not be a true reflection of the carbon tax due to compensation schemes provided by the government. Future adjustments may be made by suppliers to cope with the tax, such as seeking substitute materials from suppliers with lower emissions importing supplies. In the interim, the government has ensured that builders cannot blame the carbon tax for price increases and the ACCC has been directed to undertake a compliance and enforcement role in relation to the misrepresentation of the carbon tax in contracts and quotations provided by builder and businesses alike in the industry.
The ACCC states that claims made about the impact of the carbon price should be truthful and have a reasonable basis. It further states that builders “are not generally required to justify or explain why your prices have increased – however if you chose to claim that the price increases are due to a particular cause, you should have confidence in your claim.”
If the ACCC investigates and takes action against a business regarding a deceptive claim, the business will be required to provide documents and information to substantiate their claim. Therefore, builders will have to rely on the their suppliers to inform them what part of the price increase is related to the carbon tax.
If a builder is notified of a price caused by the carbon tax, it is possible to pass this cost on to its client as a carbon tax increase provided that it is believed to be truthful and reasonable to do so (subject always to the terms of the contract). Caution must always be taken to ensure there is consistency with the ACCC guidelines as it has the power to take legal action seeking court-imposed penalties of up to $1.1 million.
Contracts that have been signed before 1 July, 2012 may be able to pass the cost on to clients provided the contract includes a clause to accommodate for any increases as a result of a tax increase. However, the same principles apply in that the ACCC can investigate such claims and the builder must be able to verify such claims in the case of the complaint.