Prices to grow 20 percent faster

Among the slogans that the Labor/Greens alliance will pound out over the next few weeks is that their coal tax is “low cost.” They don’t seem to understand the meaning of the CPI increase revealed by their own models. But worse, as far as I can see they don’t understand even basic household budgeting.

The imposition on consumer, they say, will be equal to only a 0.7% increase in the consumer price index. According to Ms Gillard’s press release:

The modelling also shows that the cost of living impacts of a $23 carbon price are modest, with an overall price increase of 0.7 per cent in 2012-13. That compares to a price increase of 2.5 per cent as a result of the GST.

But the overall CPI for the March quarter, as estimated by the ABS, is 3.3 percent. So a 0.7 percent increase is a twenty one percent hike in the rate at which consumer costs grow. The Treasury says that this is a “one-off” increase (followed by a further 0.2% hike in 2015). But that is based on their “blue-sky” assumption that households will switch consumption “low-emission goods”. Good luck with that; low-emission electricity and gas is not an option any time soon.

Ms Gillard also argues that the cost is modest because: “The price of most goods will increase by less than one half of one per cent as the result of a carbon price. That is less than half a cent in every dollar.”

It seems that the dummy who wrote or approved that sentence has never managed a household budget. It doesn’t matter, of course, that the average incidence is low. The fact that it hits almost every consumption item with a half-cent increase means that the overall impact is serious. Anyone who has seen a half-percent added to their mortgage knows that this claim of “low cost” is a fraud.

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