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Rudd: Carbon tax is 'terminated'

Terminating the carbon tax will cost the budget $3.8 billion over the next four years, Prime Minister Kevin Rudd has confirmed.

Mr Rudd has released the details of his plan to switch to a European-style floating price system a year early, saying it will save an average family $380 a year after the nation moves to a floating price on carbon emissions from July 1.

He said households would continue to receive financial assistance but handouts to affected businesses would be cut when Australia moves to a floating price emission trading scheme next year.

The cost will be offset by new savings measures, including $1.8 billion raised by changing the fringe benefits tax for cars.

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"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," Mr Rudd said.

The change will ease cost-of-living pressure on families while ensuring Australia continues to play its part in reducing carbon pollution for the good of the environment, the Prime Minister says.

"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," Mr Rudd said.

Treasurer Chris Bowen said the Government was planning $3.9 billion worth of savings over the forward estimates.

He said that would equate to a contribution to the budget bottom line of $177 million over the next four years.

The Federal Government wants to move from a fixed carbon price of $24.15 a tonne to a floating price of about $6 by July 2014, a year earlier than planned.

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Treasury modeling shows that moving to a floating rate a year ahead of schedule will ease the cost of living by $7.20 a week per family.

The impact will be greatest on electricity and gas bills.

This move is expected to save the average household around $3 a week, or over $150 in the year, on its electricity bills and around $1.10 per week, or $57 over the year, on its gas bills, providing much needed cost of living relief to many households.

Households and pensioners will continue to receive payments calculated on a higher carbon price, providing additional support to meet cost of living pressures.  These benefits are permanent.

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Under the previous arrangements, the carbon price was to be $25.40 per tonne next July.

Under a floating price, the figure is expected to be around $6 a tonne.

Our change is fiscally responsible and will be budget neutral. It will also bring Australia into step with its major trading partners.

Key economies like China, Germany, France and the UK already use, or are introducing, emissions trading because it is environmentally effective and economically responsible.

From July 1, 2014, Australia’s carbon price will be the same as in 31 other nations covering a population of more than 500 million people.

Businesses have been asking for the early transition and the changes will reduce their input costs and boost their competitiveness.

For example, a large manufacturing business using 100 times the energy use of a typical household could see the carbon component of electricity costs fall from $15,000 to $4000 per year.

This will boost business competitiveness which will aid the transition from the mining investment boom toward a situation of more broad-based growth.

Government assistance to emissions-intensive trade-exposed industries will continue unchanged.

The Government says it will also maintain strong policies alongside the emissions trading scheme to drive clean investment through the Renewable Energy Target, the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.