Prime Minister Julia Gillard has unveiled the highly-anticipated carbon tax plan, making the low and middle-income families, single pensioners and other welfare recipients the biggest winners from the carbon price.
Launched at midday, Julia Gillard announced a package of $15 billion in tax cuts and increased benefits that will give six million households more in compensation that the carbon tax will add to their cost of living.
The households' costs of living will jump by about $10 a week or $515 a year, with electricity prices rising by an estimated 10 per cent or $3.30 a week.
Gas bills will go up by $1.50 a week and food bills by an average 0.80c a week.
The average assistance will be $10.10 a week, or $525 a year.
These increases to the cost of living, estimated to be 0.7 per cent, will result from the nation's top 500 polluters passing on their costs of having to pay for the carbon they emit.
"We will require 500 polluters to pay the price for every tonne of pollution they release into our air. Some of the costs that will be incurred by businesses will be passed through to households. This will enable six million households to get enough to enable them to meet the average cost of carbon prices," Gillard announced.
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The 0.7 impact is smaller than the 2.5 per cent increase that was generated by the introduction of the GST in 2000.
"Nine out of 10 households will receive assistance through tax cuts, extra payments or both, “ Julia she said, adding, "Two out of three households, this assistance will be enough to cover their entire average price impact."
The scheme will operate as a fixed carbon price of $23 from July 1 next year, and move to a full emissions trading scheme three years later on July 1, 2015. By this time, market mechanism will determine the carbon price.
In 2013/14, the carbon price will rise to $24.15 per tonne and then to $24.50 in 2014/15 based on a 2.5 per cent increase each year plus inflation.
Gillard says her government's carbon price will reduce Australia's carbon footprint by 160 million tonnes by 2020.
It also shows that national employment is projected to increase by 1.6 million jobs by the end of the decade.
Tax changes described within package will lift the tax-free threshold from $600 to $18,200 on July 1, 2012, and to $19,400 in 2015.
This will prevent an extra one million people from having to pay tax and providing tax cuts to households earning up to $80,000 a year.
3.4m pensioners get carbon price compo
Australia's 3.4 million pensioners will receive compensation at least equal to cost of living price rises under the carbon price.
Australians on age pensions, disability pensions, carer payments, service pensions and the Seniors Supplement will all receive assistance as part of the government's $14.9 billion compensation package.
Pensioners will receive lump sum advance payments of up to $250 for a single pensioner before the carbon price begins in July 2012.
They will start receiving a new Clean Energy Supplement equal to a 1.7 per cent increase in the maximum pension rate from 2013. This supplement will be equal to an annual increase of up to $338 for singles and $510 for couples combined.
About 90 per cent of pensioner households will benefit from a buffer of at least 20 per cent above their expected average price rises from the carbon price, the government says.
The assistance will be permanent and will rise in line with the consumer price index.
About 280,000 self-funded retirees who hold Commonwealth Seniors Health Care Cards will get the same amount of assistance as age pensioners.
"Age pensioners and self-funded retirees have worked hard all their lives to build our nation, so the Gillard government is determined to provide cost of living help as we go about cutting carbon pollution," the government said in a statement.
Arrangements will be introduced to ensure compensation is shared fairly between aged care residents and providers.
Aged care providers that bear many costs for their residents - including electricity - will receive around half of the assistance paid through the age pension.
Pensioners in aged care will receive the remainder to help them with increases in their other living costs.
People who have high electricity costs due to their use of essential medical equipment such as dialysis machines or other life-support equipment, will be eligible for an annual cash paymentof $140 a year.
Public housing tenants will get the full benefit of assistance.
$13 billion pump for clean energy
The federal government will pump $13 billion into expanding Australia's clean and renewable energy sector as part of its carbon pricing policy.
The government says three measures announced as part of its policy on Sunday will create incentives for businesses to invest in low and zero emissions technologies.
The measures include a new Clean Energy Finance Corporation that will invest $10 billion in businesses seeking funds to get innovative clean energy proposals up and running.
It will also invest in the transformation of existing manufacturers to help them meet new demand in the clean energy sector for goods like wind turbine blades and solar panels.
Big polluters to get 9.2 billion assistance
The federal government will provide $9.2 billion in assistance to support jobs and industries affected by the introduction of a carbon price.
For manufacturing industries like aluminium smelting, steel making, flat glass making, zinc smelting, and most pulp and paper manufacturers, they will receive 94.5 per cent of industry average carbon costs.
Lower polluters, such as plastics and chemical manufacturing, tissue paper manufacturing and ethanol production will be eligible for permits to cover 66 per cent of carbon costs.
Liquefied natural gas projects will receive 50 per cent assistance.
Impact on inflation
Consumer price inflation is assumed to be 2.5 per cent, the mid-point of the Reserve Bank's two to three per cent target band.
"The price of most goods will increase by less than one half of one per cent as a result of a carbon price," the government said in a statement.
"That is less than half a cent in every dollar."
The Reserve Bank has already indicated that it would look through the impact of a carbon price on inflation when considering interest rates, as it did in the first year of w the GST
Treasury modelling shows incomes continue to increase substantially under a carbon tax, rising by 16 per cent by 2020, to be around $9000 higher in today's dollars.