The Carbon Price and the Cost of Living - The Climate Institute

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AECOM The Carbon Price and the Cost of Living 9 November 2011 iv Figure ES 3: Projected price impacts in historical context, 1990-2020 Annual inflation 9% 8% 7% 6% 5% 4% 3% Interestpaymetns andinsuranceservices 1.5% Transport (fuelpricerises) 0.7% GST (ANewTaxSystem) 2.5% Food (includingCycloneLarry) 0.8% Trade effects (mineralsboom/termsoftrade) 1.6% Food (includingfloods,CycloneYasi) 0.5% 0.6% Otherinflation observed projected Projected carbon priceimpacts (2012/13and2015/16) 0.1% 2% 1% 0% 1990 1995 2000 2005 2010 2015 2020 Financial Year(endingJune) Notes: Analysis of detailed ABS inflation data identifies the major expenditure categories that have driven inflation in each year with inflation of 3.5% or more since 1991. This identifies five primary contributions to inflation, ranging from 0.5% to 2.5%, with impacts of 1.5% or more occurring every five to seven years over the period. The analysis also identifies a ‘secondary contribution’ to inflation from increases in petrol prices, and includes one of these years as an additional comparison, although it was not a primary inflation driver and occurred in a year where inflation was below 3.5%. In this report the term inflation is used to include a one off impact on the price level but does not necessarily imply a change in the overall rate of inflation. The findings of the study suggest there will be no impact on the overall rate of inflation apart from the one off impacts identified in 2012/13 and 201516. Source: Calculated from ABS 2011a, with CSIRO and AECOM carbon price impacts, and GST impact from Treasury (2001) The impact of the carbon price on food prices is also smaller than historical variations in food prices, particularly the prices of meat, fruit and vegetables, which are influenced by weather events such as floods, storms and droughts – as shown in Figure ES 4 below. Figure ES 4: Historical and projected food prices, including carbon price impact, 1985-2015 priceindex (198990=100) 350 300 250 200 150 100 50 0 Food,all Beef,vealandlamb Fruit Vegetables Mealsoutandtakeawayfoods Otherfoodproducts resturants,take wayfood,and otherfoodproducts trackthetrendforallfood vegetablepricesrangebetween 10%aboveand20%belowthetrend forallfoodduetoseasonalvariations fruitpriceincrease, CycloneLarry (Mar2006) meatpriceincreases abovetrend withstrongexportpricesandreduced supplytomarketafterdrought (rebuildingonfarmstocknumbers) meatpriceeasing droughtdestocking (Sept2006) fruitandvegetable pricesimpacted byfloodsandCycloneYasi (Feb2011) historical data meatpricefalls asrainimproves cattleweightgain andstocknumbers (Dec2010) projections 1985 1990 1995 2000 2005 2010 2015 Source: Calculated from ABS (2011a), Adams (2011), and sources for Figure 10 in the main report.
AECOM The Carbon Price and the Cost of Living 9 November 2011 v Impacts on household cost of living Applying these price changes to the latest household expenditure data, from 2009-10, we estimate that the carbon price will result in an increase in expenditure of $9.10 per week in 2012-13 for an average Australian household. This is made up of increases of $3.20 in electricity and gas costs, $1.20 in food costs, and $4.70 in other costs. This overall impact is less than the official Government estimate of $9.90 per week, but a little more than the $8.90 per week estimated by NATSEM, as shown in Table ES 2 (The official Government estimates are based on 2003-04 expenditure data, which was the most recent available at the time and therefore may not fully reflect structural changes in household spending patterns since 2003-04.) Table ES 2: Summary of estimated average household impacts and assistance $ per week, 2012-13 AECOM and CSIRO Australian Government Phillips and Taylor (NATSEM) Electricity $2.80 $3.30 not reported Gas $0.40 $1.50 not reported Food $1.20 $0.80 not reported Other $4.70 $4.30 not reported Total impact $9.10 $9.90 $8.50 Financial assistance not estimated $10.10 $10.90 Source: AECOM and CSIRO calculations, Australian Government (2011a), Philips and Taylor (2011). The full report calculates impacts for low, moderate, middle and high income levels across four main household types: couples with dependent children, single parent families, couples without dependents, and single adults. Results are also presented for senior couples and senior singles, and for all household types by area. Areas are defined as capital cities and non capital cities (referred to as balance of Australia). Households with higher incomes and expenditure are estimated to face higher dollar increases in living costs, but lower impacts as a share of expenditure. This is because high income households spend a smaller share of their income on electricity and gas, while low income households spend a larger share of their income on electricity and gas, which have larger direct price impacts from the carbon price. Low income households also receive proportionally more assistance under the Government’s policy package, as discussed below. Figure ES 5: Impact of a carbon price on weekly expenditure (dollars) and impact as a share of expenditure (%), all households and relative income quintiles, 2012-13 $ 14.0 12.0 10.0 8.0 6.0 4.0 2.0 2.5% 2.0% 1.5% 1.0% 0.5% % 0.0 Average, all Q1 Q2 Q3 Q4 Q5 0.0% Electricity Mainsgas Food&nonalcoholicbeverages Other Impact(%) Notes: Quintiles divide households into five equal groups by equivalised income levels, with Q1 the 20% of households with the lowest household income, and Q5 the 20% with the highest income. Source: AECOM and CSIRO calculations.
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