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Federal Budget 2013: 'Tax cuts to go' because of carbon price

Tax cuts worth $1.4 billion linked to the carbon tax will be dumped in next week's budget because a slump in the European carbon price has forced a revision of revenue forecasts.

Despite previously ruling out dumping the 2015 tax cuts, Fairfax reports Treasurer Wayne Swan will next Tuesday announce the budget savings measure, the latest in a series of broken promises caused by plummeting revenues.

Full coverage: Everything you want to know about Federal Budget 2013-14

The tax cut was part of household assistance packages linked to the carbon tax, with the tax-free threshold slated to increase from $18,200 to $19,400 in 2015.

The backflip follows a decision to scrap a planned increase in the Family Tax Benefit Part A worth $1.8 billion, after the government confirmed the revenues for this financial year had plummeted by $17 billion.

Treasury had forecast a carbon price of $29 a tonne in 2015 when the local emissions trading scheme is linked to the European ETS, but was forced to halve that to $15 after a price collapse in Europe.

Opposition climate action spokesman Greg Hunt said the carbon tax was "in chaos" and taxpayers were facing a "budget black hole" of up to $8 billion because of the link to the European carbon price.

"The government gets the revenue numbers wrong, and it is Australian families and businesses which are picking up the bill," he said in a statement.

"What more broken promises will be in store in the budget next week?"

In a brief statement, a spokesman for Climate Change Minister Greg Combet neither confirmed nor denied the report.

Related: Budget hole 'could deepen to $80 billion'

"All the household assistance that has been delivered as part of the Clean Energy Future package is staying, even if there's a lower carbon price in the future," he said.

"Given the prolonged economic instability in European economies having a sustained impact on European carbon prices, it will also include a revised projection for the carbon price in 2015-16 - and any changes to revenue as a result will be offset by responsible savings," the spokesman said.

Fairfax also reported on Wednesday the government was planning cuts to clean-energy initiatives linked to the carbon tax.

Labor's Clean Energy Package includes funding for renewable energy projects and industry grants.

Coalition industry spokeswoman Sophie Mirabella said the government had abandoned all pretence of supporting manufacturers hit by the carbon tax.

"The clean technology programs were the only programs Labor specifically put in place to compensate manufacturing for the damage caused by the carbon tax, inadequate and incomplete as this compensation was," Ms Mirabella said in a statement.

"Labor's carbon tax was deliberately aimed at reducing industrial activity and hurting Australian manufacturing and jobs, and now they are planning to dump their inadequate and pathetic compensation for such damage."

Labor MP Richard Marles told Sky News "existing" household assistance would stay in place.

Full coverage: Everything you want to know about Federal Budget 2013-14

"If there are revenue write downs (because of the European price) ... then these will be offset," Mr Marles said.

"That is what is clear and we'll need to wait until next Tuesday's budget to see the way in which that's being done.

"But what guarantee has been made is that the existing household assistance package, or parts of the package which are in place, will remain."

The Greens called on the government to scrap its carbon capture and storage initiatives, after releasing costings from the Parliamentary Budget Office (PBO) showing they would cost $768 million over the next four years.

"It makes no sense to waste millions in taxpayer dollars promoting the illusion of clean coal," Greens Leader Christine Milne said in a statement.

"Capturing carbon dioxide and burying it in the ground does not work - despite the massive support it has received over the years."