THE federal government will fight back today against the scare campaign over a carbon price by promising that compensation payments will be permanent and that millions of low-income households will actually be better off.
In the strongest indication yet that compensation will be delivered as tax cuts and higher welfare payments, the Climate Change Minister, Greg Combet, will pledge that assisting pensioners and low- and middle-income households will be a priority.
Of the billions that will be raised by putting a price on carbon, more than half will be dedicated to compensating the less well-off for the impact on their power prices and cost of living in general, while the remainder will be used for assisting industry and covering other transitional costs.
In an address to the National Press Club, Mr Combet will put paid to a claim by the Opposition Leader, Tony Abbott, who has been warning that the price on carbon will be permanent but compensation measures will not.
''The tax will be permanent, the compensation will be temporary and that's why you can't trust the government on this point,'' Mr Abbott said recently.
But Mr Combet will say today the assistance will be permanent.
While the government is yet to announce what form the assistance will take, the Herald understands it will be passed on to low- and middle-income earners as a tax cut, and to others as pension increases or increases to payments such as the Family Tax Benefit.
These increases would become a permanent part of the welfare payments that are indexed annually.
Mr Combet's speech will also be an attempt to put the heat on the opposition, which has vowed that, if elected, it will scrap the carbon price and abolish the compensation. This means it will have to reduce pensions and increase taxes.
As with the compensation in the original Carbon Pollution Reduction Scheme, many low-income households will profit.
''Millions of households will be better off under the carbon price,'' Mr Combet will promise today.
While he will not announce any details, it is understood the numbers will be similar to the CPRS under which 89 per cent of low-income households - about 2.9 million homes - would have received assistance equal to 120 per cent or more of their cost of living increase.
Also under the old plans, about 60 per cent of middle-income households - about 2.4 million homes - would have been fully compensated for the cost of living increase, while 97 per cent of such households would receive some assistance.
It is almost certain, too, that petrol will be shielded from the scheme to ensure no net increase in the price of fuel.
It is hoped today's announcement will settle nerves among Labor MPs who feel the government is losing the argument over putting a price on carbon because it has yet to announce compensation details.
Treasury modelling made public over a week ago forecasts the cost of living under a $30 carbon price would rise by up to $860 a year, or about $16.60 a week.
Paying the compensation as tax cuts and pension increases is also a deliberate measure to dissociate the compensation from the price rises. If it were paid as subsidised energy bills, consumers would not receive the shock of a high power bill and be motivated to use less energy.
The full compensation package, as well as details of assistance for exposed industries, is not expected until about July.
Working with the Greens and independents, the government intends to start a scheme on July 1 next year, in which the price per tonne of carbon would be fixed for three to five years. This is in effect a carbon tax.
After that, the scheme would morph into an emissions trading scheme with the market setting the carbon price.
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