Mr Rudd's decision to move from a carbon tax to an ETS on July 1, 2014 will cost the budget about $3.8 billion over the next four years, the government says. Prime Minister Kevin Rudd, pictured with Chris Bowen and Mark Butler, says the early move to an emissions trading scheme will save an average household around $380 next financial year. Credit:Leigh Turner/Getty Under the previous arrangements, the carbon price was to be $25.40 per tonne next July. Under a floating price, the figure is expected to be around $6 a tonne. ''The government has decided to terminate the carbon tax, to help cost of living pressures for families and to reduce costs for small business,'' Mr Rudd said in a Townsville press conference on Tuesday morning with Treasurer Chris Bowen and Climate Change Minister Mark Butler. Despite cuts to environmental and clean energy programs to fund his promise, Mr Rudd insisted that this was a ''good day for the environment''.

The claim angered Greens leader Christine Milne. ''Mr Rudd, you don't protect the environment by cutting environment programs,'' she said. Treasury modelling shows that in the 2014-15 financial year an average family will be $380 a year better off due to the decision to move sooner from a carbon tax to an ETS, Mr Rudd said. The government said the move would save the average household about $3 a week, or over $150 in the year, on its electricity bills and about $1.10 per week, or $57 over the year, on its gas bills. The Prime Minister has promised his decision will be "budget neutral" – meaning his cabinet has been searching over the past weeks for spending cuts to fill the $3.8 billion gap.

The government's cuts include: Tightening the car fringe benefits tax with savings of $1.8 billion over the forward estimates; Reforms to Australian public service management structure and more efficient procurement of agency software ($248 million in savings for as many as 800 public service job cuts in Canberra). Ending the Energy Security Fund two years early with savings of $770 million over the forward estimates;

Trimming the Coal Sector Jobs package allocation in 2014/15 ($186 million in savings); A deferral of $200 million of funding from the Carbon Capture and Storage program and the return of $24 million to the budget; Return of unallocated funding from the Biodiversity Fund to the budget ($213 million over the forward estimates); Return of $143 million of unallocated funding from the Carbon Farming Futures program to the budget; Savings of $200 million of funding from the Clean Technology Program and return of $162 million of unallocated funding to the budget.

Explaining the detail of the cuts, Mr Bowen said the household assistance package associated with the carbon tax would not be affected. Car industry warns decision will have 'dire consequences' Mr Bowen suggested the most difficult cut made by the government was the decision to abolish the formula that allows people to claim fringe benefits tax on cars they use for work. The current formula allows people who are claiming fringe benefits on their cars to nominate a figure of 20 per cent and ''not justify that claim'', Mr Bowen said. The Treasurer admitted that as many as 320,000 Australians would be affected by the $1.8 billion in ''savings'' on the car fringe benefits tax.

It will affect those on new contracts from April 2014. Those on existing contracts are not affected, unless their contract is substantially modified. The car industry reacted immediately to the change, urging the government to reconsider its decision. The Federal Chamber of Automotive Industries (FCAI) said removing the tax concession on vehicles will have dire consequences, affecting both imported and domestically manufactured car sales. ''The effects will flow right through the industry, including to dealerships and service centres,'' FCAI chief executive Tony Weber said in a statement. Rudd challenges Abbott to carbon tax debate

In announcing the cuts, Mr Rudd on Tuesday morning challenged Opposition Leader Tony Abbott to a debate on the carbon tax at the National Press Club next week. This comes after Mr Abbott last week refused to join Mr Rudd for a debate on the economy, with the Prime Minister attending the event alone. ''Mr Abbott, you didn't want to debate me on debt and deficit at the National Press Club, even though that forms a large part of your political ads on television at the moment,'' Mr Rudd said. ''Here is the challenge. You pick the day next week at the National Press Club to debate the carbon price. The emissions trading scheme under this government versus your scheme and let the people decide through that debate whether we have the facts supporting our case or yours. ''Any day next week.''

Mr Abbott, holding a press conference in Tasmania shortly after Mr Rudd's announcement, played down the significance of the Prime Minister's accelerated switch to an emissions trading scheme. He also would not comment on the specific cuts Mr Rudd had announced to pay for the $3.8 billion hole left in the budget by the move to an ETS in July next year. ''What Mr Rudd has announced today is not the abolition of the carbon tax,'' Mr Abbott said. ''All he's done is simply brought forward Julia Gillard's carbon tax changes by 12 months.'' Responding to Mr Rudd's claims that he had ''terminated'' the carbon tax, Mr Abbott said: ''He's not the terminator; he's the exaggerator. He's not the terminator; he's the fabricator.

''He's changed its name but he hasn't abolished the tax.'' Senator Milne said by bringing emissions trading forward by one year, Mr Rudd was trying to ''make a political point'' and was ''making it cheaper for polluters to pollute''. ''What we're hearing from Prime Minister Rudd is a lot of talk about the environment but when it comes to action he's actually slashing environmental support programs," she said. Australian Chamber of Commerce and Industry chief executive said the decision to move to an ETS earlier won't give business added certainty. Mr Evans said the move to an ETS was a short term fix and the price could quickly rise to around $24.

''The government is heralding the benefits of a lower price in 2014 but this is far from locked in and it is reckless to make such predictions where historic prices have been so volatile,'' Mr Evans said. Mr Evans was also concerned about the $1.8 billion of fringe benefit tax changes relating to motor vehicles because it would be a new and significant compliance burden for business. Loading with AAP Follow the National Times on Twitter