How we helped
Castalia estimated the indirect effects of the proposed carbon tax on manufacturing SMEs for the Australian Chamber of Commerce and Industry. We constructed a financial model for a representative firm in each sector, after surveying a sample of companies in the chemical and metals sectors that either export their products or compete with imports. Due to international trade, prices for the output of these businesses would remain unchanged after the tax, but their costs would go up. We assessed the effects of the carbon tax on the costs of inputs, and the effects of higher costs on the SMEs where they could not be passed to consumers. We concluded that the carbon tax would reduce the profitability of trade-exposed SMEs by up to a third, with the consequential effects on investment and employment.