Carbon Tax - Beauty or Beast

Steve Wright, Executive Director, Franchise Council of Australia

Well, it is a big question for business owners in terms of carbon tax.

It is a question many retailers, including franchise retail and service companies, are asking themselves right now. Many are confused and a little frustrated at the uncertain impact. But is this beast insurmountable?

As I write this column, a major national retail food brand, Brumby’s, is taking serious steps to repair self-inflicted reputation damage after one of its senior executives referred too glibly to the opportunity for franchisees to raise prices and “let the carbon tax take the blame, after all your costs will be going up due to it.”

Whatever you think of the tax, the quick and assertive Brumby’s reaction was a big positive for the company – and for the franchise sector.

It is a very positive reflection on the franchising model that the head office of this multi-brand franchise system immediately realised the need to act swiftly and affirmatively to preserve brand integrity across the franchise network. It apologised to customers and to franchisees. It has embarked upon a media advertising campaign to ensure end customers are aware that the local brand partners, the franchisees, had nought to do with what was a solely head office faux pas. Hopefully the end result will be brand enhancement, as consumers give the business credit for realising and acknowledging its mistake and quickly setting about correcting it.

Official reaction to the incident was encouraging as well. The ACCC’s first reaction was to note that businesses are completely at liberty to put up prices whenever they see fit, carbon tax or no carbon tax. It is simply up to the individual businesses to ensure that if they make a claim to customers about pricing of any sort, they are able to justify that claim.

For many small business owners, there is a strong expectation that they are going to be hit by increased input costs (especially energy prices) and have difficulty passing the costs on to customers. The main reasons they feel hamstrung are the following:

1 Uncertainty about how much their costs are going up and therefore how much they can lift prices attributable to the carbon tax.

2 Their ability to increase prices and not suffer competitive disadvantage.

3 Fear of retribution, by the ACCC, or by customers, if their pricing claim is deemed to be misleading.

According to a number of small business commentators, the sum of these concerns is zero; i.e. the small business owner decides to take zero action – and wear the increased cost and accordingly reduced profit margin. The bad news about this is that margins in retail are already under strong pressure from diminished customer demand and the strongest ever consumer focus on getting value for money in their purchases. And things will get worse, at least in terms of carbon tax, as the pricing is only at stage one – it rises progressively through the next five years, meaning energy and other costs are going to continue to rise.

The underlying question for somebody considering a new venture is: ‘Is the carbon tax a deal-breaker? Should I let it get in the way of me setting up my business?’ The answer is simple: ‘no’.

You see, after the emotions and political overlay are stripped back, carbon pricing is just another input cost. Yes, it is a variable and of uncertain quantitative impact. But so are a lot of other factors, and some of them pack a good deal more competitive punch than carbon tax.

So don’t let it get in your way. When in business, if you like the tax, absorb it and tell your customers you are doing so. If you don’t like it, and you want to preserve profitability and business integrity, spend a little time to work out just how much it is costing you and consider how you can pass this on in a fair and transparent way. Your customers will respect this, whether they agree with the tax or not. And you will have no trouble with the ACCC.

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