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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