While, typically of this government, Friday’s release of Treasury modelling on the impact on households of various carbon prices was unaccompanied by any apparent plan for explaining it, it provides some data around which to contextualise the effect of introducing a price on carbon.
Treasury modelled the impact of eight scenarios — carbon prices of $10, $20, $30 and $40 a tonne of CO2-equivalent, with a fuel rebate (as per the CPRS) and without. The impacts on households therefore varied widely. A $10 carbon price with a fuel rebate would be barely noticeable, costing $200 a year. The $40 carbon price, without any fuel concession, costs $1150 a year.
The $40 price is the best one for comparisons, because even if Labor and the Greens opt for an initial low price, it’s going to have to rise significantly if we’re to have any chance of meeting anything higher than the government’s paltry 5% 2020 emissions reduction target. With a fuel rebate, almost certain to be included in the carbon price scheme, that’s $15.60 a week, or $811 a year, including $286 in increased electricity costs.
As you’ll recall, Tony Abbott and Greg Hunt went through a phase of claiming that a $30 — not $40 — price on carbon would produce increased electricity costs of $1110 a year. This year, they quietly abandoned the $1100 figure and reverted to saying it would lift electricity prices by $300.
They’re in the ballpark — but for a $40 carbon price, not a $30 carbon price, which would raise electricity prices by less than $220 a year, even without the fuel rebate. Well done to John Quiggin, who suggested a $30 price would produce an electricity price rise of $200 a year back in early February when he demonstrated what rubbish Hunt was talking.
How do all these stack up against other items in the household budget?
For starters, it’s far less than the GST. If a carbon price is a great big new tax, Tony Abbott must’ve had an absolute conniption contemplating the GST back in 2000. According to last year’s Budget figures, in 2012 we’ll pay about $51 billion in GST. That’s on average — and remember we’re only ever dealing here with a mythical “average household” — just over $6000 a year, or $116 a week. As Treasury noted in another document released last week, the GST had about 3.5 times the cost impact that a $20 carbon price would have.
The Renewable Energy Target — the only climate change policy on which there is agreement right across the political parties — in its latest form increases electricity prices by $41 a year, according to Treasury. Ross Garnaut has argued that the RET should be dumped as soon as a carbon price is implemented. Garnaut also suggested continuing state ownership of electricity generators in NSW and Queensland was driving up network investment by much faster rates than necessary, although this wasn’t costed. But network investment costs dwarf the role the of the RET in rising power bills.
Once you start playing this game, there’s all sorts of perspectives you can bring to the cost of a carbon price. The ABS’s Household Expenditure Survey is now a little long in the tooth — the most recent one was 2003-04 — but it gives a sense of where a $15.60 a week carbon price bill would fit. It’s well below what the average household spends on alcohol, in current prices about $30 a week. It’s just over what the average household spent in 2003-04 on tobacco, but you’d imagine that has fallen significantly since then. It’s about twice what the average household spends on gambling, but well below the $22 a week we spent on average on toiletries and cosmetics. It’s about half what we spend on fast food every week and about two-thirds what we spend eating out, and a couple of dollars a week more than what we spend on sweets and chocolate.
According to figures quoted by AMP’s Shane Oliver, every $10 rise in the price of oil adds eight cents a litre to the cost of petrol locally, translating into an extra $3.60 a week for the average household
Alternatively, you can cast it in terms of other government policies. The Productivity Commission found we spend about $1.3 billion a year propping up 50,000-odd jobs in the automotive manufacturing sector, which amounts to $151 per household of taxes. The private health insurance rebate costs, in its recently revised form, $3.5 billion a year, or $437 per household in taxes. A levy to fund the national disability insurance scheme proposed in early February by the PC would cost just under $600 per household a year.
Or there’s Tony Abbott’s paid parental leave scheme, funded by a levy that, if passed through by businesses (the same way a carbon price would be), would have cost households on average $390 a year.
Lower-income households would plainly find it more difficult to find a lazy $800 a year than others. There’s a strong case for compensation for such households, given the incentive isn’t to raise revenue but change behaviour. But, based on these numbers, as household incomes rise, the case for compensation falls away. Middle income households face a non-trivial but hardly significant rise in household costs from even a $40 carbon price. The policy question is, is using carbon price revenue to compensate middle-income households the most effective use of that money, or would it be better directed at minimising the first-mover disadvantages facing investors in renewables technologies, or even at compensating industry rather than households?
Such a question isn’t likely to be answered. The case for compensation of middle-income households is mostly political, and therefore entirely compelling for politicians.
But according to the ignorant ranters and their uniform screaming headlines we will all be rooned if we have to pay $800 a year more for stuff.
The government’s current position is like a dying blowfly, flat on its back, all spin and no direction. The strongest indication that the government has lost its way with so-called carbon tax is the statement that the poor will be compensated for the increase in prices as a consequence of the proposed tax measures. The government is wedged between the Greens on one hand and its traditional lower income constituency on the other and is in trying to have a bet each way. If our objective is to reduce carbon dioxide emissions by 20% from current levels, (to meet the 5% reduction from 2000 levels) in the absence of offsetting efficiencies, our standard of living will fall because we will have to reduce carbon-based energy consumption by 20% overallfrom existing levels.
Carbon-based energy is absorbed by virtually every product in the community including transport, food and housing, and sheltering the poor from this reality will only add to the burden of the middle classes in this country who will be effectively be paying carbon taxes on behalf the poor as an additional burden for their own consumption. If the current lie that everybody is to be compensated is true then the tax would have no value in reducing carbon dioxide output which is supposedly the objective. The substitution of expensive green power to meet Renewable Energy Targetsaway from cheap carbon-based power will only add to this conundrum. Overall there is an inverse correlation between saving the planet and your standard of living.
Furthermore the Gillard government’s hypocrisy is absolutely breathtaking when one considers that almost 90% of Australia’s coal production, leading to carbon dioxide discharge, is sold overseas. If Labor and the Greens were serious about saving the planet, they would also be cutting off the coal export supply completely. However Labor is unwilling to upset its union mates or its big business backers, nor upset the voters with the unpleasant truth that their standard of living must fall if the environment is to be protected. Disingenuity is the order of the day.
I am no lover of Tony Abbott, but Keane’s cheap criticism in relation to the $50 billion of GST is is beneath contempt. The GST was not a new tax, but was a substantial reorganisation of existing tax measures including but then exceptionally complicated Sales Tax, on a proclaimed revenue neutral basis. Abbott is a big enough target without adding this furphy.
@ shepherdmarilyn
You may not be rooned, but Mr & Mrs Average with family will be.
Cause it will be $800 in year one and more after that as the companies catch up.
Then more after that when the companies that export struggle and are forces to shed jobs
Just to come in here as a complete layman….If we do pay more tax for carbon emissions, whoever “we” are, is the reason for it to deter us from spending money on CO2 producing products and therefore reduce how much of this tax we pay? And if we are paying more tax because of this, where will the extra revenue that is generates be spent? All I hear is that if we put a price on producing carbon then the market will dictate us to become greener….or is there another message out there.
To me it seems as if we are looking to find a warm and fuzzy feeling about the whole issue without damaging well entrenched industries and habits that may offend any voter.
Can someone please give a general over view of what the hell this system is about and the strategies behind it for this dummy!
“Lower-income households would plainly find it more difficult to find a lazy $800 a year than others. There’s a strong case for compensation for such households, given the incentive isn’t to raise revenue but change behaviour.”
Funny how the hairy-chested eco-warriors are prepared to fight to the last middle-income earner to save the planet.
I note that BK doesn’t say that lower-income households would find it impossible to meet the cost of a carbon tax. Instead, it’s merely “more difficult”. Since the purpose of the tax is to change behaviour, why should they not be forced to comply, even if it is “more difficult”?
After all, if the alternative is the End Of Civilisation As We Know It, what excuse is there for lower-income households not to economise? When you get down to it, what life-threatening economies would they have to make? Giving up the fags? Cancelling the Foxtel? Not going to the club and playing the pokies? Giving up holidays? Throwing out the tv, radio and sound system? Not buying presents for the kiddies at Christmas?
Hard decisions, sure, but none of them is a life-threatening sacrifice, and no-one is surely going to suggest that they should be allowed to stand in the way of saving the planet.