Interpac Business and Migration Solutions Melbourne Australia

(Aug.2)

THE tax that Opposition Leader Tony Abbott said would turn Whyalla into a ''ghost town'' will improve profits at the steel-making town's major employer, according to new analysis of the Gillard government's carbon tax package.

Claims by corporate research firm MSCI that Australia's two biggest steel makers will be better off under the carbon plan comes as OneSteel completes a $65 million upgrade of its Whyalla blast furnace to extend its working life ''beyond 2020''.

In a research note released yesterday, MSCI said OneSteel and rival BlueScope could enjoy earnings improvements of 2.1 per cent and 2.4 per cent respectively in the first year of the carbon tax.

The forecast - which is at odds with claims the tax could kill off the local steel industry - is based on the companies' eligibility for free carbon permits as ''trade-exposed'' businesses, plus a special $300 million support fund that will be given exclusively to the steel sector.

While the steel makers could be more susceptible to the tax once that four-year support fund expires, the government has flagged further temporary support measures could be delivered in the 2016-2017 financial year.

Those measures could then become permanent if approved by a Productivity Commission review.

The MSCI forecasts come after a long campaign against the carbon tax by the steel makers, who consume large amounts of electricity and are limited in their ability to pass on costs to customers because their foreign competitors are not subject to a carbon tax.

Both companies became less combative once the support measures were released on July 11. OneSteel spokesman Steve Ashe said yesterday it was unclear whether the company would have its profits improved by the tax and final results could fluctuate depending on the amount of emissions in a given year and the exact details of the support packages.

Bluescope spokesman Michael Reay rejected suggestions the company would be over-compensated, saying the support measures would ''make a contribution towards covering some of, but not all of, the carbon costs BlueScope will face''.

He said external analysts needed to be more mindful of the carbon costs that will be passed on to Bluescope by suppliers.

The MSCI forecasts are also at odds with highly publicised comments by Mr Abbott during a visit to Whyalla in April, when he warned the tax would have a ''dramatic impact'' on the profitability of OneSteel's Whyalla plant, and the town in general.

''Whyalla risks becoming a ghost town, an economic wasteland, if this tax goes ahead … It's absolutely certain that jobs will be lost if the carbon tax goes ahead,'' he said.

Weeks later in May, OneSteel approved a $65 million upgrading of its Whyalla blast furnace. The works were completed last week.