By Richard Johnstone | 16 June 2013

Australia is to end its tax on carbon emissions from next July at a cost of AUS$3.8bn in government revenue, Prime Minister Kevin Rudd has announced.

Rudd said the scheme would be halted so that an Australian emissions trading scheme could be introduced in its place. This will mirror existing schemes, such as the one used in the European Union, which are designed to cut emissions through permits to produce carbon dioxide. These are purchased by companies, but can also be traded, and their number is cut over time.

Rudd revealed that, as a result of the decision to scrap the existing tax, the government would make savings worth AUS$3.9bn to cover the lost revenue.

Among the changes, a public service efficiency drive will lead to a 1% cut in senior government positions in Australia, with around 800 top posts set to go.

Rudd said the change from a tax to an emissions trading regime would cut energy costs for the average family by $380 per year, as bills fall due to a lower cost of carbon. The shift from a tax to an ETS would cut the price from AUS$25.40 a tonne to around AUS$6 a tonne, he indicated.

‘We'll make up for the lost revenue with savings in other government programmes. This is the fiscally responsible thing to do,’ Rudd said.

‘The nation's 370 biggest polluters will continue to pay for their carbon pollution but the cost will be reduced, meaning less pressure on consumers.

‘It's a balanced package. It's good for families. It's good for pensioners. It's good for small business.’

Treasurer Chris Bowen added that, in total, the government had decided to make $3.9bn worth of savings over the four-year budget period, meaning the net impact would be a reduction of more than AUS$100m.

The biggest single spending reduction will be the abolition of some reliefs on car taxation, which will save AUS$1.8bn.