Prime Minister Kevin Rudd is under fire from unions, business and the Greens over his plan to start emissions trading in 2014, but insists it will help ease living costs while maintaining pollution reduction targets.
The $3.8 billion, four-year cost of moving from a fixed carbon price to a market-based emissions trading scheme (ETS) a year earlier than originally planned will be balanced by budget savings.
These will include public service job cuts, scrapping or winding back some clean energy programs and changes to fringe benefits tax breaks for business.
Mr Rudd said Labor's decision to "terminate" the fixed price would be budget neutral and leave the average family better off.
"This is the fiscally responsible thing to do," Mr Rudd told reporters in Townsville on Tuesday.
Under the plan, which would be legislated if Labor wins the federal election, the carbon price would fall from a fixed $25.40 a tonne in 2014-15 to about $6-$7 a tonne under the floating regime linked to the European ETS.
Treasurer Chris Bowen said the average household would initially save $380 in 2014-15 and keep existing compensation measures tied to the fixed carbon price regime.
The average household is expected to save $3 a week on electricity bills and around $1.10 per week on gas bills, the government said.
Opposition leader Tony Abbott said by bringing forward changes by 12 months, Mr Rudd hadn't actually terminated the carbon tax.
"He's not the terminator, he's the exaggerator," he said.
Some $1.8 billion of budget savings will come from removing a tax concession on the personal use of salary-sacrificed or employer-provided cars.
Industry reacted strongly to the proposal, saying it would increase compliance measures and impact local and imported car sales.
"I want to know if the government truly understand the consequences of this decision, and why the industry was not consulted on such a significant change," Federal Chamber of Automotive Industries FCAI chief executive Tony Weber said.
Unions were concerned about the plan to scrap about 800 public service jobs, saying it could affect services.
ACTU secretary Dave Oliver pointed to a $200 million change to the carbon technology investment program.
"While it is a modest cut against the $1.2 billion size of the scheme, the focus of this program to drive innovation in manufacturing is critical to our economy," Mr Oliver said.
Other savings will come from changes to carbon farming, clean technology and coal sector adjustment programs, prompting Australian Greens leader Christine Milne to question Labor's commitment to tackling global warming.
"They are going to cut $1 billion from programs that help to protect the environment," Senator Milne said.
Climate Change Minister Mark Butler said Australia would still be able to meet its commitment to cut its carbon emissions by 5 per cent by 2020.
