Abolishing the carbon price will result in a $7.4bn deterioration in the budget position over the next four years, with the federal government setting aside more than $2bn in 2013-14 to buy back "free permits" allocated to Australia’s heavy emitters.

The Coalition has pitched its long-running political campaign against carbon pricing squarely in a cost-of-living frame – arguing the "carbon tax” regime drives up consumer prices.

But the mid-year economic forecast released on Tuesday confirm that abolishing Labor's clean energy package will have only a tiny impact on inflation.

Treasury estimates a carbon price repeal will reduce headline and underlying inflation by less than one quarter of a percentage point in 2014-15.

The forecasts indicate that repeal is "expected to support household consumption growth in the short term and make a small contribution to national income growth over the longer term".

The mid-year forecast also confirms an expected increase in government payments to buy back free permits in 2013-14, as well as "abolishing the equivalent carbon tax applied to liquid and gaseous fuels through reductions in entitlements to fuel tax credits".

These measures affect the budget by $2.8bn over four years, and by $2.1bn in 2013-14.

Abolishing the Clean Energy Finance Corporation – which was booked by the Coalition as a savings measure pre-election – will also actually deprive Commonwealth coffers of $439m in revenue over the four-year budget cycle.

The CEFC is a green bank which works with private investors to fund renewable energy and low-emissions technology projects.

The treasurer, Joe Hockey, conceded at the National Press Club that perhaps the CEFC did make money but he argued this was because the organisation did not have to factor in the budget that was provided to it by taxpayers. “Maybe it does make money. But they don’t have to account for the $10bn that goes into it. Our view is you shouldn’t be borrowing money to lend money,” Hockey said.

Free permits for high-intensity carbon emitters, such as power generators and industries exposed to trade competition, were part of the generous industry assistance provided when the carbon price was introduced. Free permits are a form of industry compensation, designed to get carbon-intensive businesses through the economic transition to carbon constraint.

An industry analysis published in October suggested the cost to taxpayers of the Coalition’s early carbon price repeal could top $2bn – and create windfall gains for a range of businesses as the government was forced to buy back permits.

The mid-year forecast confirms that industry estimate was broadly on the money.

Hockey said most of the short-term costs associated with repealing the clean energy package were connected to the Coalition’s decision to keep the compensation provided to households, including pension increases and tax cuts. Hockey said the compensation was an important buffer for households – particularly given the economic outlook.

Despite the new forecasts downgrading economic growth from the figures revealed in the pre-election fiscal outlook, Hockey said a repeal would be a boost to economic activity. “Abolishing the carbon tax is going to increase economic growth, no doubt about it,” the treasurer said.

He said the costs associated with the repeal of the clean energy package were fully offset. “It won’t cost anything in the short term because it is fully offset with other savings,’ he said.