Thursday, 12 January 2012

Electricity versus Beer versus Mars Bars

It’s less than six months until the carbon tax comes into effect.  There already has been and no doubt will be a kerfuffle about the impact of pricing carbon on household budgets.  The best estimate from Treasury is that the carbon price will impose a one-off rise of 0.7 per cent in the Consumer Price Index (CPI).  In other words, for every $100 currently spent on household items, prices in total will rise by 70 cents. 

One of the popular and certainly headline grabbing ways that opponents of the price on carbon try to demonise the issue is to create an impression that there will be a huge impact on electricity prices and therefore household budgets will be under increasing pressure.  Spending patterns of the average household based on the weights in the CPI show that this issue is massively exaggerated given what else the average householder spends their money on.

When the facts are examined, it’s hard to see how the average Australian will “do it tough” when the price on carbon takes effect given what else we spend our money on.  The upcoming rise in electricity prices, which builds on what have already been large increases over the last few years, is small beer in the scheme of household expenses.

According to the weights and items in the CPI, spending on electricity accounts for 2.1 per cent of all household spending.  Sure, it is usually a one-off quarterly bill that makes most of us gasp, but did you know that the average household spends more on beer (2.2 per cent of all household spending) than they do on electricity?  Throw in wine and spirits, and total household spending on alcoholic beverages is 4.7 per cent of household spending – well over the double the amount we spend on electricity.

While some may jokingly argue that a few beers and the odd chardonnay are essential items, it puts in perspective the impost that the carbon price will impose on the household sector.  Most Australians face a First World Problem of having to pay a few dollars extra each week for their electricity, whilst simultaneously spending twice the amount they spend on electricity on a few beers and the odd gin and tonic.

But it’s not just beer that we spend more on than electricity.

The average household spends 2.3 per cent of their hard earned income on tobacco.  Give up the smokes and you can double your use of electricity and be financially better off!  I dare say spending on health would also decline. 

Again the electricity issue is put into some perspective given that “meals out and takeaway foods” account for a whopping (or is that a whopper?) 5.4 per cent of household spending.  In other words, the average household spends two and a half times more on restaurant and takeaway meals than they do on electricity.

In addition to that, 1.0 per cent of household expenditure is on “snacks and confectionary” with an additional 0.9 per cent spent on “waters, soft drinks and juices.”  Together, spending on mars bars, chips and bottled water account for almost as much as is spent on electricity.

Finally for now, 4.9 per cent of household expenditure is on holiday travel and accommodation, split roughly half between domestic adventures and overseas sojourns.  Another First World Problem it seems which again puts in context the rise in electricity prices and the overall price level when the price on carbon kicks in. 

I suspect the price of electricity generates an emotive response because prices have risen dramatically over the past 5 years or so.  What’s more, the electricity bill is a large one-off amount that creates a shock when it comes in unlike spending on beer, confectionary and the odd takeaway chicken tikka masala which is a few dollars here, a few dollars there, but spread out over time.  

Oh, of course there’s the compensation to most households that will be delivered as a result of the carbon tax.   The bulk of households will soon be getting an increase in their social security payments or cuts in tax rates, paid for by the revenue received from the carbon price.   This means that most households will in fact be better off when the carbon price comes in, even if spending patterns don’t change.  Imagine how much better off we all could be financially if we spent a little less on the booze, cigarettes, burgers and soft drink?  I wonder what all the fuss is about?


  1. Increases in social security payments, and cuts to the amount of tax people pay, both funded by the Carbon Tax are exactly why I oppose it.

    Not because I oppose increased social security (in some areas, its clear the aged pension needs a boost, as does the disability pension for those truly in need of it) or tax cuts (who doesn't like a good tax cut, particularly one focused in low income earners? OK, rich people, but I'm not part of the 1% to my knowledge), and not even because I oppose paying a bit extra to fund meaningful action on reducing our impact on the environment. I oppose it because the Federal Labor government sees fit to dress this tax up as something it is not - it is not primarily focused on environmental issues at all, because most of it will go towards buying off voters. And the Greens have either been party to this or duped by Labor on it - either way, its a damning indictment on them.

  2. Manaz, the vote buying as you call it is what sold me. I was ambivalent to the Carbon Pricing Scheme but knowing full well the situation around the rest of the globe that deflation is likely coming, a tax cut to hopefully increase aggregate demand is a wise move.

    We all know the 1% don't spend much of their money relatively speaking but we know the 99% do (so to speak) and anything at the macroeconomic level that can increase that spending is a good thing.

    Just ideally not carbon-intensive activities - where it gets treated more akin to a sin tax. That's an oversimplification of course.