Labour, National squabble over farmers carbon charge plan

National and Labour differ on the impact a carbon charge would have on dairy prices. Photo / Sarah Ivey

Prime Minister John Key is being dishonest in suggesting Labour's plan to slap farmers with a carbon charge early to fund tax breaks for research and development would drive up consumers' dairy prices, says leader Phil Goff.

But Mr Key warns Labour's plan is flawed, unrealistic, will damage the farming sector, and even suggested his Government would think hard before hitting farmers with the emissions trading scheme (ETS) in 2015 as currently planned.

Mr Key yesterday savaged Labour's election promise to force farmers into the ETS two years early in 2013 and use the $800 million raised to fund five years worth of tax breaks on research and development. He also repeated his warning that another Labour policy - lifting the minimum wage to $15 an hour - could force about 6000 New Zealanders out of work.

Under Labour's ETS plan said Mr Key, New Zealand would have the only agricultural sector in the world in an ETS, "and the only impact of that will be to make our biggest exporter uncompetitive on a world scale and ultimately make New Zealanders pay more for milk, butter, cheese, meat and all the staples of a New Zealand diet".

However that was "a dishonest comment", said Mr Goff.

Mr Goff yesterday met with Fonterra chief executive Andrew Ferrier who told him the introduction of the ETS would not affect domestic prices for milk and other dairy goods which were in fact set on international markets.

That was a view supported by executive director of the Sustainability Council Simon Terry.

But Mr Goff was also facing heat from both the Prime Minister and reporters about Labour's R&D tax credit proposal.

The scheme would enable firms to reduce their tax bill by an amount equal to one eighth or 12.5 per cent of their spending on R&D.

Mr Goff was unable to provide reporters with details on whether overseas owned companies could claim the tax break or how it could be limited to Labour's estimate of $800 million over five years. Labour staff later said overseas owned companies who paid tax in New Zealand would qualify, and the cost of the scheme could be limited by tightening criteria if necessary.

But Mr Key said the scheme would cost almost double what Labour suggested.

He said "cursory analysis" showed it would cost about $1.5 billion.

"They're $1.2 billion short of what they need and that's typical of their programmes."

He also questioned the use of the ETS to fund the scheme.

"Labour is simply saying I'm going to put a big fat tax on farming early and I'm going to use it to fund something else which is independent. That's not the right correlation even if they got their numbers right."

National didn't see the ETS as a money making scheme but a way of changing behaviour and of meeting New Zealand's international obligations

Furthemore, it was more difficult for farmers to reduce emissons than it was for households or businesses.

"If you're going to put an ETS on them for the emission of methane and nitrate gases that come from the burping and farting of animals, when there is no other option, that's pretty tough on them," he said.

Mr Key said National intended to bring agriculture fully into the ETS only if other countries were doing the same.

"At this point we're not seeing a lot of movement from other countries."

Just a few days after Labour suggested dairy farmers may not be paying their fairr share of tax, Mr Goff yesterday said farmers were currently receiving good prices for their products, and were in a position to meet the cost of the ETS.

"What we're saying is agriculture causes half the emissions, they've got to stand on their own two feet, they've got pay their fair share, no more, no less."

The cost of Labour's R&D scheme over 5 years:

Labour says:

2012/2013: $30m
2013/2014: $160m
2015/2016: $170m
2016/2017: $170m
2017/2018: $200m
Total: $730m

* figures include savings from axing National's R&D policy

National says the scheme will cost $310m each year right from the start for a total of $1.55b