Families slugged by NewsCorp Innumeracy #NewsCorpFail

According to Steve Lewis in the Daily Telegraph

CONSUMERS will be slugged with price rises on everyday items like milk, cheese, chocolate and pizza’s as the carbon tax puts the squeeze on retailers and producers

(the apostrophe in pizza’s suggests News may have cut the subediting budget a bit too far). He illustrates with a picture of a mother of three who is currently paying $300 a fortnight for groceries.

Steve can’t say how much, and neither can his sources, though they are happy to give scary quotes. So, instead he quotes some big-sounding numbers derived from the Dept of Climate Change analysis. Woolworths, for example, will pay around $73 million a year in higher electricity costs. That certainly sounds like it would put a dent in the household budget. As the old saying has it, a million here, a million there, pretty soon you’re spending real money. That’s where Lewis leaves the story

But those of us capable of primary school arithmetic can take things a little bit further. There are 20 million or so people in Australia, so the cost amounts to aroun $3.50 a year, or 7 cents a week for us. For the archetypal (if unrepresentative family of four) that’s around 30 cents a week or 60 cents a fortnight (an increase of 0.4 per cent for the mother in the example). Looking at the illustrative photo, that’s rather less than the difference between the Kleenex tissues in the shopping trolley and the home brand alternative.

For a validity check on the impact, we could look at Woolies’ total sales of around $18 billion a year. A cost increase of $73 million is approximately 0.4 per cent. Of course, this doesn’t really get to the right answer either, because it doesn’t take account of changes in the wholesale cost of goods (so-called Scope 3 emissions).

But doing the analysis at an aggregate level fixes this pretty well. A tax at $26/tonne will raise around $10-$12 billion, depending on exemptions and particularly on the treatment of petrol. That’s about 2.5 per cent of total household expenditure on goods services, meaning that the gross impact of the carbon tax will be about a quarter that of the GST (note however, that the GST was offset, for goods, by the removal of Wholesale Sales Tax). The increase will be greater than this for energy services (electricity, gas and so on), and therefore must be less on non-energy goods. Overall, it’s safe to predict that the impact on grocery bills and similar items will be around 1 per cent.

Over the fold, I’ll do the cents per week exercise for all of Lewis’ examples when I get a moment

58 thoughts on “Families slugged by NewsCorp Innumeracy #NewsCorpFail

  1. Yes, and even all of that assumes that Woollies doesn’t respond by making efficiencies in its energy consumption, as the tax is intended to encourage.

  2. I wouldn’t bother doing the calculations, John. Anyone who writes for the Daily terror, even more than most Murdoch rags, immediately labels themselves as a bullsh*tter. Correcting their facts is pointless because they really don’t care about fact.

  3. remember when the “native title act” was in the works and we were all going to find our back yards under claim?

    and the mining tax was going to cripple those “poor hard done by’ corporations to the point where they were going to have to pick up their holes in the ground and go home.
    and they had to reach into the petty cash to inform the rest of us of the dangerous “soveriegn risks “of having to share the loot.

    definition of agnotolgy?

    lies,damned lies and public relations.

  4. This is not the same Lewis of Grech and Abetz fame is it,after that fiasco why would you believe anything he says

  5. Pr Q said:

    A tax at $26/tonne will raise around $10-$12 billion, depending on exemptions and particularly on the treatment of petrol. That’s about 2.5 per cent of total household expenditure on goods services, meaning that the gross impact of the carbon tax will be about a quarter that of the GST (note however, that the GST was offset, for goods, by the removal of Wholesale Sales Tax).

    Thats being too generous to the carbon tax panic merchants by half. Under the ALP’s much-touted but shrouded in secrecy policy, low- and middle-income households subjected to the “CST” [1] will also be entitled to means-tested compensation, which will further soften the impact. The Age reports on the incidence of the tax (which accords with Pr Q’s BotE calculations) and the scale of compensation:

    LABOR is preparing a multibillion-dollar carbon tax compensation package that could leave up to 2.6 million low-income households better off and a further 1.7 million middle-income households no worse off.

    Assuming a likely carbon price of $26 a tonne, the tax could raise as much as $11.8 billion a year if broadly applied….Treasury has estimated that Labor’s abandoned emissions trading scheme would have raised living costs by about 1.1 per cent in the two years after its introduction.

    The compensation package will be aimed at low and middle- income households. A typical family with two children is considered low-income if the combined wage is less than $60,000. Those earning between $65,000 and $160,000 are deemed middle income.
    However, under the scheme, households earning more than $120,000 would receive limited or no compensation.

    Treasury figures indicate a two-child family earning $120,000 a year would be about $1055 a year worse off before compensation. A single person earning $70,000 a year would be about $602 worse off before compensation, while someone earning $160,000 a year would be $1217 a year worse off, with no compensation likely.

    That suggests all low-income households will be compensated, with 90 per cent, or 2.6 million, getting assistance worth more than the likely cost rises. About 97 per cent of middle-income households would get some assistance, with 50 per cent, or 1.7 million, fully compensated.

    So most middle-income households (two-earner, two-child) earning ~ $100 k pa would get fully compensated for the $1k pa (~1%) hit to their household budget. All they need to do is to buy green stuff and they will be better off.

    But the ALP seems to be unable to get this message across. There is something basically wrong with their politico-economic salesmanship – maybe Swan is the problem?

    [1] I vaguely remember coining this acronym back in 2008 when debating the dubious merits of an ETS with various authorities in the field, but can find no reference on-line.
    Its obvious that a Carbon Sales Tax (CST) should be levelled on consumption, rather than production, to prevent carbon leakage to poorly regulated jurisdictions and to forestall massive compensation handouts to the “greenhouse lobby”.

  6. David Horton has the nub of it.
    By analogy, it can be compared to living on welfare. It’s easier if you don’t smoke, do your own food, housekeeping, etc.
    All it requires is a little imagination, a phenomena populist politics in this country has been waging an unthinking culturalwar against, for thirty years.
    Those who watched the Dateline on Boeing in the US, a place with a similar mindset, have another example.

  7. I publicly challenge you to take on Christopher Monckton in a public debate and I will pay $500 out of my own pocket if you do so. You can keep the money or pay it to a charity. OK step up to the plate

  8. John Coochey at 9: Please explain how challenging Professor Quiggin to take on Christopher Monckton in a debate has anything to do with the subject.

  9. Great idea, John Coochy. Once Professor Q debates Monckton, he can move on to the esteemed, David Iche, whose claims that the world is being secretly ruled by shaping changing lizard aliens, has similar scientific creedence to Monckton’s.

  10. @John Coochey
    Happy to accept. Given you are posting in this thread, I assume you are happy with topic of Monckton’s claim “Carbon tax will bankrupt Australia”. Can do Brisbane 1-5 or 15-20 July, or Canberra 11-13 July.

    I am also happy to debate Monckton’s claim regarding a conspiracy to establish communist world government (with or without shape-changing lizardoid aliens).

    Please send your donation to Australian Conservation Foundation, and send me a copy of the receipt.

  11. Note that I have now fulfilled my side of your offer in taking on Lord M. Whether or not he’s willing to front up, your obligation to pay the $500 remains.

  12. I’d be very careful, Coochey did not say “Australian dollars”.

    Debating Monckton is like debating the Flat Earth Society.

  13. @John Quiggin
    I also challenge you to a debate, this time with Lyndon Larouche. The topic shall be “Is the British royal family responsible for the mysterious disappearance of unpaired socks that go into the washing machine?” I offer no money, but would very much like to attend such a debate anyway.

  14. By the way, JQ, it is good to finally see someone apply some believable quantitative evaluation to the carbon pricing issue. It astonishes me just how many people leapt to the defence of BHP and Comalco, and ignored the interests of the other 22 million Australians.

    On the last day of a recent trade show in Melbourne I had a long conversation with an interesting guy, older, my age, and the subject of the horrendous cost of the carbon “tax” came up fairly easily. This guy had been to a meeting at the Grattan Institute the night before. He had recently sold a business that he had built up over time, and was looking for a new challenge. As he expressed the view that the carbon tax would have been burdensome, I asked him what his electricity bill had been for his business. $2000 a month, $24,000 for the year, which sounded like a lot. So the next question had to be what was his turnover, 3 million. So his electricity bill was .8% of his gross turnover and the increase due to the carbon “tax” would have been perhaps .3%. “Oh” he said in contemplative tone. I asked “would that have caused you to increase your prices”. “Probably not” he replied.

  15. Come on you lot, why do want him to waste his time on these sorts of creeps?
    Let him get back to uni where he can supervise our brightest and best, who DO want know the truth and learn the metalanguages and techniques involved in its clear explication, based on fact.

  16. Good article MrQ. As a low income, single parent, part time student and full time employed person I am reading very carefully all the compensation details. Needless to say I fully support the impost of a carbon tax, although I hesitate to use the word tax, perhaps tariff is better. On thing that I have always failed to understand is; how come the power generators and the biggest power users have seemingly failed completely to plan for the carbon tariff? I mean it is not like it is new news or not seen coming. For instance in the industry I currently work in (printing), change is just part of the never ending planning landscape, not just technological change but materials usage along with a whole raft of others. The printing industry as far as I know has never asked for subsidy or financial compensation to deal with know n and forecast changes. It just seems inexplicable to me that taxpayers are going to finance and subsidies the major power users for change that they have known for years is coming and now it is here, they sing out ‘give me the money’.
    On the Labor party, well I am a lifelong swinging voter, primarily labor and democrats (god rest em), I have to say I think the biggest failing of this version of labor leadership is their complete and utter lack of getting the message out in a believable and consistent way. No matter if it is pink batts, immoral intervention, asylum seekers, carbon tax or whatever I just feel left out, ill informed and wondering what really is the plan and who is driving.

  17. Xevram,

    Good comments. On the industry planning, well this has all been adjusted for…twice now. IPART advise the industry on pricing and have scheduled electricity price increases to account for first the CPRS which went away so the price increase suddenly became “necessary adjustment for cost increases” and starting next month another round of price increases for a Carbon Price, again but with the rider that some of the increase is to allow for the cost of solar panels. Thsi second rider is their excuse to absorb the total increase so that they can again put the price up when a carbon price eventually hits. This is the biggest scam in the country’s history, and they are getting away with it with out any comment from the press. We will eventually wind up paying 3 times the amount necessary to achieve the changes necessary.

    But this

    “carbon tax or whatever I just feel left out, ill informed and wondering what really is the plan and who is driving”

    is a total gem. Beautifully worded and totally to the point.

  18. A maths professor once told our class that he had been contacted by one of those ACA/TT shows, who were doing a little report on the chances of winning the lotto. When he asked the producers how technical they wanted it, the producers replied, “simple as possible; our viewers are morons”.

    Hence the quality of reporting in the Telegraph. The editors may not be morons but they know that their readers are, by and large, morons (at least most of those who comment on the tele’s website are), and so no anti-Labor story is too moronic to push on the front page.

  19. Bilb, that is a classic about the business guy, who didn’t appreciate the true cost of something. Shows just what a scare campaign can do: convince people who are doing quite well that their world will cave in because of a tax on the electricity bill.

    Coochey, you got your wish 😛

  20. BilB, I think I am more discouraged; if your Grattanised businessman is too slow on the uptake to do his own sums, what does it say for the quality of the people he employees, or at least did.
    I mean really is it not so, that Mr Abbott would have have us put our faith in the market forces, the efficacy of the free market business model, the ever reliable trickle down of knowledge, skills and money, recognition etc etc.
    Where I live the power generator for instance has shown some remarkable planning for the carbon tariff; they have been rather excellent at informing us on how much more we are and will be paying. Of course our local media is all over the facts of the story, how much the evil carbon tax is going to cost us; as opposed to the fact that we have no feed in tariffs here. Well actually Alice Springs is on a 1:1 offer for the ‘Solar City’.
    I feel pretty let down and confused by traditional media, the reporting and story selection, the false application of emphasis. It just somehow jars and clashes with the reality of what I experience.
    Maybe the conundrum here, for me, is that I do know who is driving and I have little confidence in their plan.
    @gerard, daily tele sucks big time, rather dawdle my time on IHT.

  21. Xevram,

    For starters 1 to 1 solar grid energy exchange is the best option, that is all it takes to promote clean energy.

    What should really begetting you down is the escalation of lying by politicians to win at any cost.

    Abbott and Howard lied bare faced in the Latham election over health care for the aged when they thought that they were loosing hold, Gillard did the same when she thought that there was a negative sentiment to a carbon tax concept some years later. That is bad enough, but what is going on now from the Coalition is a tragedy for Australia and democracy. Blatant distortions of truth are full on lies and theat is now normal for those who would govern us if they could only get the chance.

    Sad,sad,sad.

  22. in todays fin are two articles.

    the one inside the back page talks about the benefit to the retired of the investment in a solar panel/battery domestic installation.

    the other one deals to the “solar panels are to blame for increased power costs” idea that is trying hard to become common knowlege.

    apparently the increased costs are mainly due to the rather large increase in domestic air conditioners.

    soh

    best bet?

    if you really can’t do without the air conditioner,go the whole hog and get a solar/battery installation.

    when the sun shines the cool air blows.

    disingenuous? moi?

  23. I’ve just watched a webcast of Wednesdays The Drum, Steve Cannane asserts that our Prime Minister Julia Gillard’s recent free fall in the polls is due to nothing other then the carbon tax.

    I don’t like it, but I’ve certainly changed my opinion of her via those numerous policy directions Labor has coughed up under her helm.

    Surely I’m not along in that.

  24. I’m not sure what you are saying, Christopher Dobbie. Are you saying that you are flip flopping in the political breeze?

  25. The carbon tax is a regressive tax, that can’t be denied. The very nature of it means that the poorer one is, the harder they’ll be hit. It’s certainly the type of tax socialist would’ve once probably rioted over. Yes, of course that doesn’t take into account compensation, however I don’t think it wise for a left-wing government to be playing with regressive taxes to begin with. I’m pretty certain it’ll all end in tears.

    In few years time the ALP will be standing their scratching their heads wondering how they ever fell into this political death trap. Did fighting workchoices teach them nothing? Sheer political madness. If the ALP were a person, somebody would’ve called an intervention long ago.

    The ALP might get very lucky and this tax doesn’t go through, however I don’t think their luck is in at the moment.

  26. I also wouldn’t be surprised if government revenue actually reduces. Compensation unforunately has the habit bringing some serious disincentives along with it. This tax isn’t going to be rivers of gold. Robbing Peter to pay Paul hasn’t ever worked, and it won’t work with this tax.

    Production drives consumption, consumption doesn’t drive production. Hurting production will in turn hurt consumption etc etc etc. This tax will soon work to prove this point beyond any doubt. A point that really shouldn’t need proving. I hope that some future good does come from it.

  27. Red,

    Have you just returned from another planet and are trying to catch up? Well let me help you. The Carbon Price is about preventing this country, and the whole world, from turning into an unliveable hell hole. It is about preventing unending drought, regular storms with 300 kph winds, and increased incidence of tornados (like the recent 3), it is about preventing unstoppable fire storms, sea level rise, hail storms with hail the size of grapfruit, and rain deluges that for m instant flash floods.

    Some of the essential things in life are regressive, like food for instance. And now the battle to retain something of what we have been able to take for granted for thousands of years, our liveable environment.

  28. red :
    The carbon tax is a regressive tax, that can’t be denied. The very nature of it means that the poorer one is, the harder they’ll be hit. It’s certainly the type of tax socialist would’ve once probably rioted over. Yes, of course that doesn’t take into account compensation, however I don’t think it wise for a left-wing government to be playing with regressive taxes to begin with. I’m pretty certain it’ll all end in tears.

    Sorry, clearly you are getting your Re mixed with your Pro. Acting now to contain further CO2 build up by means of a carbon tarriff makes sense from a purely humanistic point of view, let alone delving into the costs of NOT doing it. I venture to say that the impact on the poor of doing nothing would be even greater than sitting on our hands.

    In few years time the ALP will be standing their scratching their heads wondering how they ever fell into this political death trap. Did fighting workchoices teach them nothing? Sheer political madness. If the ALP were a person, somebody would’ve called an intervention long ago.

    Call an intervention, you mean as per the NT Indigenous one. I think that in a few years time the whole world will be looking back at the NT Indigenous Intervention and judging us very very badly, the UN already does for one, let alone myriad Indigenous agnecies.
    As for fighting Workchoices, what fight and what for, workers of any common sense wanted and needed Workchoices,(or a version of), and as far as I can see the debate about Workchoices, both public and Parliamentary had the right outcome.

    The ALP might get very lucky and this tax doesn’t go through, however I don’t think their luck is in at the moment.

  29. “Production drives consumption, consumption doesn’t drive production”

    red, if that were true there would be no such thing as unemployment.

  30. I’m not arguing about climate change.

    I’m pointing out the political problems this tax will cause. I’m also pointing out that it’s about as socialist as M Thatchers poll tax. It’s regressive plain and simple, and it’s about as crazy a political move by a left-wing government as the Republican Party going anti guns or some such. It will end in tears.

    It’s absurd and utterly delusional to think that one can attack their own voting base, and walk away being thanked. Ask John Howard about workchoices. My intervention crack was a smart arsed way of saying drug intervention. As in somebody being stopped from hurting themselves.

    The tax doesn’t seem a very good one, and I’m certain it won’t work. It’s all pain without any gain. Sheer madness for the ALP to go anywhere near it. They’ll learn, democracy has a habit of being a brutal teacher.

  31. “Production drives consumption, consumption doesn’t drive production”

    red, if that were true there would be no such thing as unemployment.

    Could you give me an example of what you mean?

  32. Red, if market signals were as reliable as traffic lights, then you might be right.

    In large parts of the developed world at the moment there is high unemployment with industrial capacity lying idle. I’m sure that the owners of the factories would hire tomorrow and start churning out more widgets if they could get an indication from consumers that more widgets were wanted.

    Your statement could be rephrased as “supply creates its own demand”, or “Say’s Law”, one of the foundations of classical economics, and which Keynes set out to disprove in his General Theory.

  33. @red

    “Production drives consumption, consumption doesn’t drive production”

    Following from John Armour…

    I know that this seems intuitive, but it is not correct. A real problem with macroeconomics is that many people misunderstand this and oppose demand side policies as a result. For example the U.S. is currently in a serious recession that could be treated effectively with more quantitative easing and a large stimulus package. Unfortunately this is politically infeasible as it is not well understood by the public that there is a lack of demand in their economy.

  34. Red,

    To say

    “It’s all pain without any gain”

    means that you have not thought this through at all. My observation, this is the typical Donald Duck response. When you calm down and learn a little more about it you will discover that the cost is minimal and the gains to employment are huge, far greater than any BAU model, and improved quality of life will be a pleasent by product.

  35. Nick, I absolutely agree with you about the need for more stimulus (increasing the deficit) in the US. And other places. But I’d probably quibble over QE. So far it doesn’t seem to have done much.

    QE seems to be based on a misunderstanding of how banks lend. They leverage off their capital base, not their reserves.

    The only reason banks are not lending is not a shortage of reserves, but a shortage of credit-worthy applicants for loans.

  36. “For example the U.S. is currently in a serious recession that could be treated effectively with more quantitative easing and a large stimulus package”.

    Money doesn’t act as neutral, and that is your problem.

    quantitative easing hasn’t worked in Japan, England, and it won’t work in the USA.

    All malinvestments will one way or the other need to be liquidated. Printing more cash in the hopes banks trade themselves at of trouble isn’t a good idea, unless of course one is a speculator.

    “When you calm down and learn a little more about it you will discover that the cost is minimal and the gains to employment are huge, far greater than any BAU model, and improved quality of life will be a pleasent by product”.

    Australia enjoys a comparative advantage in the energy field already. It’s stupid not to mention pointless reinventing the wheel. Mark my words, it’ll end in tears for the ALP.

  37. @John Armour
    John I actually agree with you about QE but was just trying to illustrate the general principle. I recall Bernanke saying that he was ‘optimistic’ about QE2 (whatever that means) while Krugman seems to agree with you that the effects would be positive but small. Recently Christy Romer said that she thought the last round was a moderate success.

    Political considerations aside I think the optimal policy for the U.S. would be something like 500b in fiscal stimulus and another round of QE. I suspect the fiscal stuff would have to do most of the heavy lifting though.

    @Red
    Red your post is totally bizarre. Why would I advocate aggressive monetary policy if I thought money was neutral?

    Also why do you think it didn’t work in Japan? Is it because the Japanese have had problems? That is like saying that medicine doesn’t work because the people who are taking it are sick. There is an overwhelming literature on the effectiveness of monetary policy that looks to control for such factors and the conclusions are so strong and widely accepted that it is pointless to dispute them

  38. @Red
    Would you object in principle to a plan where one regressive tax was brought in, while another was lowered, so that neither overall regressivity, nor government revenue were affected?

    It seems to me compensation does not have to be offered as a lump sum. What would be wrong with bringing in a carbon tax which was offset by a reduction in payroll taxes and the GST? Making a tax system more pigouvian does not entail making it more burdensome on the poor.

  39. What would be wrong with bringing in a carbon tax which was offset by a reduction in payroll taxes and the GST?

    In principle I wouldn’t have a problem with that. My problem would be that a carbon tax is ineffecient and cumbersome – it’s a red tape nightmare. A carbon tax also tax production rather than solely taxing consumption. A very bad idea in my opinion.

    Unfortunately this tax is simply adding another tax in exchange for zip. It’s all pain without gain. There’s much better taxes available, even dare I say it, a poll tax. Economically it’s stupid, and politically the carbon tax is suicide.

    The workchoices crew believed as much in it as people do in carbon taxes. People will accept the pain because it’s in the national interest, even if against their interests. We know the result, and the same result will play out again. That’s democracy, love it or hate it.

  40. @Red
    To the contrary, in terms of administration this carbon tax would be very simple. After all, it only affects about 1000 large companies directly. It would be much easier to administrate than say the GST.

    You believe that putting a price on carbon is “economically stupid.” If this is true, you should be able to produce the names of a large number of respected academic Australian economists who agree with you. Name five.

  41. “You believe that putting a price on carbon is “economically stupid.” If this is true, you should be able to produce the names of a large number of respected academic Australian economists who agree with you. Name five”.

    I can honestly say I don’t care to even find out. I haven’t taken in financial leads from an academic since I was about twenty one. Jesus, how old are you?

    I can name plenty of business leaders who think it’s a bad idea though. You know the guys that run the companies, that bring in the dollars, that go toward paying for, you know, academics and stuff.

    It’s a cumbersome tax. It works against Australia’s comparitive advantage. It taxes production. And the net result will be it’ll slow down segments of the Australian economy resulting in much less revenue for the government than predicted.

    It’ll be gone not long after it begins or it’ll be balanced out to meaningless by the reduction of other taxes.

  42. Red, your earlier reference to comparative advantage had me guessing: I couldn’t work out what you were getting at. The context of your latest reference to CA however suggests you think a carbon tax might diminish our comparative advantage in energy goods exports ?

    I think you actually have in mind “absolute advantage”, and that you are confusing a term that in that trade theory has a different meaning from what you imagine ( pesky academic stuff).

    That aside, I really can’t imagine that a carbon tax of the magnitude being canvassed could possibly have any effect on energy exports, given current demand, Sadly.

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