Carmakers have warned of dire consequences for the automotive industry after the Federal Government proposed changing fringe benefits tax rules to help pay for scrapping the carbon tax.

The Government wants to move from a fixed carbon price of $24.15 a tonne to a floating price of about $6 by July 2014, a year earlier than planned.

This morning Prime Minister Kevin Rudd revealed the decision to "terminate" the carbon tax would cost the budget $3.8 billion over the next four years.

He said the cost will be offset by new savings measures, including $1.8 billion raised by changing the fringe benefits tax for employer-provided or salary-sacrificed cars.

Explainer: Car fringe benefits tax Tax applies to employer-provided car used for work and personal use, or a privately-owned, salary sacrificed car.

Tax applies to employer-provided car used for work and personal use, or a privately-owned, salary sacrificed car. Benefit currently calculated using operating cost method (log book) or statutory formula method.

Benefit currently calculated using operating cost method (log book) or statutory formula method. Operating cost method: cost of running car multiplied by proportion of personal use of car (recorded in log book).

cost of running car multiplied by proportion of personal use of car (recorded in log book). Statutory formula method: cost of car multiplied by 20 per cent, regardless of actual personal use of car.

cost of car multiplied by 20 per cent, regardless of actual personal use of car. Statutory formula automatically assumes significant proportion of use of the car is for business purposes.

Statutory formula automatically assumes significant proportion of use of the car is for business purposes. Removal of statutory formula method will apply to contracts entered into after July 16, 2013. It will be effective from April 1, 2014.

Removal of statutory formula method will apply to contracts entered into after July 16, 2013. It will be effective from April 1, 2014. Government says car log book apps now make operating cost method easier to calculate.

The Federal Chamber of Automotive Industries says that could spell disaster for the country's vehicle industry.

"This change affects all car sales in Australia, both imports and domestically manufactured. And the effects will flow right through the industry, including to dealerships and service centres," chief executive Tony Weber said in a statement.

"I want to know if the Government truly understands the consequences of this decision and why the industry was not consulted on such a significant change.

"The FCAI is yet to do precise calculations but we estimate, from today, this could impact on around a third of new car sales.

"I fear what this means for domestic manufacturing and I am urgently seeking meetings with the Government to encourage them to reconsider this decision."

But Industry Minister Kim Carr says the price of producing cars in Australia would come down under a floating carbon price system.

"This measure is part of our changes to the way in which we're pricing carbon," he said.

"We're going to an international price on carbon.

"The consequences of those changes will mean that on average the production costs for a motor car in Australia will be reduced by about $40 so there are swings and roundabouts on any measure of this type."

Yasser El Ansary from the Institute of Chartered Accountants believes the adjustments to the fringe benefit tax will affect more than 300,000 workers and make salary-sacrificing cars much less attractive.

Shares in McMillian Shakespeare, one of Australia's biggest providers of salary-sacrificing services, plunged by 15 per cent after the announcement before being placed in a trading halt.

Cuts to fund carbon price policy Abolishing statutory formula for fringe benefits tax on cars - $1.8 billion over forward estimates

Abolishing statutory formula for fringe benefits tax on cars - $1.8 billion over forward estimates Energy security fund: bringing forward free permits, then discontinuing program - $770 million over forward estimates

Energy security fund: bringing forward free permits, then discontinuing program - $770 million over forward estimates Changes to coal sector jobs package to adjust value to new carbon price - $186 million

Changes to coal sector jobs package to adjust value to new carbon price - $186 million Changes to clean technology program and carbon capture and storage program - $586 million over forward estimates

Changes to clean technology program and carbon capture and storage program - $586 million over forward estimates Return unallocated funds from biodiversity fund to budget - $213 million over forward estimates

Return unallocated funds from biodiversity fund to budget - $213 million over forward estimates Cuts to funding for carbon farming futures program - $143 million over forward estimates

Cuts to funding for carbon farming futures program - $143 million over forward estimates Changes to public service including 1 per cent cut in executive staff numbers - $248 million

The Government is also scaling back some environmental programs funded by the carbon tax and new savings measures are being imposed on the public service.

Under the revised scheme, households would continue to receive financial assistance and businesses would pay less for carbon permits.

But Australian Chamber of Commerce and Industry chief economist Greg Evans says the decision provides no policy solution, no added certainty and no guarantee of sustainable lower costs.

"It'll still be harmful to business, it's harmful for the economy and it's harmful to jobs," he said.

"Our solution as we've consistently explained should be the abolition of both the carbon tax and emissions trading scheme until there is a clear international agreement.

"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."

Opposition Leader Tony Abbott has disputed Mr Rudd's claim that he was "terminating" the carbon tax, saying: "He is not the terminator, he is the exaggerator, he is the fabricator, not the terminator.

"What Mr Rudd has announced today is not the abolition of the carbon tax, all he has done is simply brought forward Julia Gillard's carbon tax changes by 12 months.

Sorry, this video has expired Watch: Kevin Rudd outlines carbon change price tag

"He has changed its name but he hasn't abolished the tax. All he has done is given Australians one year only of very modest relief."

Greens leader Christine Milne says the cuts Mr Rudd has announced to fund the change would slash a $1 billion from environmental programs.

"Prime Minister Rudd is just doing the whatever it takes to get elected," she said.

"This is about Labor Party policy in the elections and the marginal seats and it's to the cost of the environment."