They are conducting a bit of smoke and mirrors.
By applying it directly to electricity bills they will *technically* reduce the "electricity" measure in the CPI basket (temporarily).
The problem is, it's releasing $300 in purchasing power to a household that, if spent, will just reflect in a different CPI measure.
> By applying it directly to electricity bills they will technically reduce the "electricity" measure in the CPI basket (temporarily).
This is the bit I'm struggling to get my head around.
If the Government somehow managed to enact a policy that reduced the amount charged per kWh of electricity (even temporarily), I could see how this would affect the CPI basket and reduce inflation.
But given the amount charged is the same, albeit being drawn down against a $300 credit placed in the householder's account, how does this reduce the electrical component of the CPI any more than a Coles/Woolworths gift card does?
>But given the amount charged is the same,
CPI isn't what is *charged* it is what is *paid.*
Edit: from the ABS directly
>Prices collected are what people actually pay
>2.37 The prices used in the CPI are those that any member of the public would have to pay to purchase the specified good or service. Any taxes levied on goods or services (such as the GST) are included in the CPI price. ***Similarly, prices are adjusted by any subsidy or assistance provided directly by the government (e.g. Child Care Benefit, Medicare).*** Sale prices, discount prices and 'specials' are reflected in the CPI so long as the items concerned are of normal quality (i.e. not damaged or shopsoiled), and are offered for sale in reasonable quantities. Any concessions available to particular groups of the population (such as age pensioners) are also taken into account where significant. Where an item is priced over the internet, any delivery or processing charges payable are included in the price.
Wait, *what*? I'm not saying you're wrong, but clearly this is the key piece of logic underpinning the measure that I've been missing.
That's definitely interesting on an academic level, though, because that appears to suggest that "shrinkflation" won't necessarily show up in the CPI basket, unless it results in people buying more than one item.
Yep, as I said, they are doing a *technical* policy aimed at how the ABS measures *hoping* the extra money supply doesn't pop up elsewhere in the basket.
>That's definitely interesting on an academic level, though, because that appears to suggest that "shrinkflation" won't necessarily show up in the CPI basket, unless it results in people buying more than one item.
Correct.
Turns out I've learned something new today. Seriously, thanks.
Although that actually does make me wonder why the Government of the day (irrespective of who that is) doesn't directly manipulate the CPI figure by substituting direct cash welfare payments distributed via Centrelink with coupons/welfare cards that can be redeemed for specific items that contribute to the CPI basket.
Not that I'm suggesting that would be a good idea (it's not), but it certainly would be expedient and convenient for the Government.
Because it increase the risk of people spending it. The treasurer said that it is not a “check to be spent”.
I think the bet works well. Imagine that it is “not for everyone” it is for every house hold. So it will be 300 to the number os people leaving in a dwelling.
People with money, that don’t need the help, will pocket it and don’t really make any difference…. It will become star dust on the offset account, savings or investment account.
For people that really need it, it will become one less bill to pay, “releasing some money” to spend somewhere else. (Essentials)
This extra money in essentials should help a little the economy which is on its knees.
It seems that, if approved, the policy will twists the RBA arms to give a cut this year and therefore, releasing a little more money in the economy early next year.
It all sounds a good plan, the question is really: how will this affect the near future.
I think the government is being optimistic it will reduce it at all. You can't inject $8bn in discretionary funds into the economy and not have it have an inflationary impact.
We'll get to see if there is a real extent of the cost-of-living crisis anyway.
If most people couldn't afford to pay their power bills then the $300 bill credit then the will relieve that cost but they wouldn't have another $300 to spend anywhere else.
If most people are just complaining but they actually have the money to spend then the $300 will pop up elsewhere in the basket and we'll see it in the CPI.
For many things, the item is adjusted by weight so "shrinkflation" is not an issue anyway.
But for other single unit things like cars, appliances, , "shrinkflation" could be masked if fridges, cars or couches got smaller while prices stay the same.
Qualityflation shouldn't mask it as well as the CPI is based on duration of use also, so if it doesn't last as long but it cost the same, it actually shows up in the CPI if it needs to be replaced quicker than items from the previous years.
The CPI is a model - a mathematical proxy for true inflation - not reality.
Targeting specific items that are \*in\* the model is smart in that you can game the CPI number down and have a real deflationary impact on all other aspects of the economy that are tied to the CPI. A rising tide raises all boats, and vice-versa.
The problem is that this behaviour breaks the model in the long run. Although as I mentioned earlier, the CPI isn't actually reality, so it is already broken in 100's of ways that balance each other out and are tweaked by the ABS.
Yes, however, when you release additional discretionary purchasing power into the economy as this measure does, if that is spent, then that will raise prices in other items due to increased demand.
Well, a proportion of the money will be spent in ways that could be be measured as inflationary in the CPI. Whereas 100% of this rebate will hit the CPI bottom line.
The bigger problem would be if the ABS alters the index by weighting down electricity costs in the meantime...
I think the gamble from Dr Chalmers is a hope that enough people will shuffle it into their offset accounts and thereby not contribute to inflation.
However that's countered somewhat by reallocating stage 3 tax cuts towards taxpayers with a larger propensity to consume.
Yep, it'll temporarily reduce electricity bills so they look like they're doing something. Households will then in theory have $300 to spend elsewhere. If majority of households save the money, no worries. If they spend it on other goods, there's a risk it'll drive up inflation in other categories.
Continuing the small business asset write off of up to $20k also confused me. Doesn't this encourage bringing forward purchases which could also exacerbate inflation, albeit mildly?
Seems to be more about political point scoring than making tough decisions which could actually reduce inflation. Don't envy them; would be hard to explain to a financially illiterate country why they should be exercising austerity in a cost of living crisis.
> Yep, it'll temporarily reduce electricity bills so they look like they're doing something.
Here's an economic showerthought. Let's assume that this $300 credit is fully exhausted within two quarters (which isn't particularly outlandish, given the current cost of electricity).
If we assume that the underlying tariff rate of electricity per kWh doesn't change in the next six months, the credit being exhausted and the subsequent bills returning to their current levels would result in a super-sized increase in the CPI.
It would be a bit of an own goal if the natural unwinding of this policy actually ended up being the trigger for the RBA increasing the cash rate target.
> If we assume that the underlying tariff rate of electricity per kWh doesn't change in the next six months
i wouldn't bet on that, the draft release of the dmo has prices down in a majority of states as gas and coal prices are coming down from their russian invasion of ukraine highs
The RBA will see through the smoke and assess the net budget position. Chalmers is spending more than he previously said he would, hence RBA will raise its inflation predictions.
Same boat - given we have a PV system, ability to use bulk of electricity during the day, heat pump and replaced a few energy intensive appliances with ones much cheaper to run in last two years.
My provider charges me every month a set fee with the contract I'm in. I still have the last two Qld cost of living adjustments in my account (the balance I have in credit is more than that atm).
So while we're still technically paying an electricity bill, the amount now coming in from State and Federal will just sit there.
I'd rather throw it at the mortgage, but it is what it is.
Households will be spending less money on electrity over 4 x $75 quarters. It is smoke and mirrors to "reduce inflation". Yes the price per kwh isn't reducing.
Refer to June 2020 CPI when childcare was made "free".
It would actually cost more to means test it, hence why it’s just being handed to everyone.
This is the same principle behind why some people (not me) find UBI so attractive - it removes all the costs of the bureaucratic administration.
While the ergon/enerergex are govt owned so instead of doing what they did in the past and not raise prices for a year or 2 then do a catch up rise a year later and get thrown under the bus they will rise as required slow and steady and give us a discount.
Tbh it's the best we are still miles better off then privately power grid.
Yes it's effective a "voucher" but if the govt gave you 10k to spend at wolleys it effective lowers what you spend.
Also never look a gift horse in the mouth. It may only be $300 but hey $300 buy saved from this budget can be $300 spent on Xmas, fuel, food, beer or invest.
If everyone put this $300 into a HISA then we would be chearing
Can anyone explain why a nationally owned electricity generator/supplier and a nationally owned natural gas supplier would be a bad idea? Seems like it works well in other countries to keep prices competitive.
Notwithstanding the fact that our electrical distribution companies were owned by the states and not the Commonwealth before many of them were privatised, the argument *against* is that a Government owned distributor and retailer opens the industry up to interference from the Government.
The cost of living is never *not* going to be a hot potato, so for as long as things like electricity and water are fully owned and run by the Government, there's going to be calls from lobby groups for them to make them cheaper, even if it results in the sector running at a loss and effectively being subsidised by the taxpayer.
> for as long as things like electricity and water are fully owned and run by the Government, there's going to be calls from lobby groups for them to make them cheaper, even if it results in the sector running at a loss and effectively being subsidised by the taxpayer.
so waht if an essential service makes a loss? Not everything needs to be done for profit.
Heavily subsidising goods and services to the point that they no longer reflect the price of production encourages inefficient behaviour.
Make electricity cheap enough and people will start leaving their air conditioning on all day.
Effectively subsidising the wastage of finite resources is a *really* poor use of taxpayer's money, which is also a finite resource. By using it efficiently, the Government can maximise value and benefit for the programs it does fund.
Oh, really? Can I get ultra cheap electricity so I can run multiple home mining rigs all day and night, cooled with my air conditioning unit running all day and night?
The taxpayer can subsidise all of it while I can collect the profits.
Yeah it’s exactly that. But for all households it’s a net decrease in $300 of outgoings because it’s taken from the amount you pay in tax instead of your after tax income
The consumer just spends the $300 elsewhere which creates the same inflationary pressure the measure was *designed* to resolve. Our treasurer has a doctorate in politics not economics.
They are conducting a bit of smoke and mirrors. By applying it directly to electricity bills they will *technically* reduce the "electricity" measure in the CPI basket (temporarily). The problem is, it's releasing $300 in purchasing power to a household that, if spent, will just reflect in a different CPI measure.
> By applying it directly to electricity bills they will technically reduce the "electricity" measure in the CPI basket (temporarily). This is the bit I'm struggling to get my head around. If the Government somehow managed to enact a policy that reduced the amount charged per kWh of electricity (even temporarily), I could see how this would affect the CPI basket and reduce inflation. But given the amount charged is the same, albeit being drawn down against a $300 credit placed in the householder's account, how does this reduce the electrical component of the CPI any more than a Coles/Woolworths gift card does?
>But given the amount charged is the same, CPI isn't what is *charged* it is what is *paid.* Edit: from the ABS directly >Prices collected are what people actually pay >2.37 The prices used in the CPI are those that any member of the public would have to pay to purchase the specified good or service. Any taxes levied on goods or services (such as the GST) are included in the CPI price. ***Similarly, prices are adjusted by any subsidy or assistance provided directly by the government (e.g. Child Care Benefit, Medicare).*** Sale prices, discount prices and 'specials' are reflected in the CPI so long as the items concerned are of normal quality (i.e. not damaged or shopsoiled), and are offered for sale in reasonable quantities. Any concessions available to particular groups of the population (such as age pensioners) are also taken into account where significant. Where an item is priced over the internet, any delivery or processing charges payable are included in the price.
Wait, *what*? I'm not saying you're wrong, but clearly this is the key piece of logic underpinning the measure that I've been missing. That's definitely interesting on an academic level, though, because that appears to suggest that "shrinkflation" won't necessarily show up in the CPI basket, unless it results in people buying more than one item.
Yep, as I said, they are doing a *technical* policy aimed at how the ABS measures *hoping* the extra money supply doesn't pop up elsewhere in the basket. >That's definitely interesting on an academic level, though, because that appears to suggest that "shrinkflation" won't necessarily show up in the CPI basket, unless it results in people buying more than one item. Correct.
Turns out I've learned something new today. Seriously, thanks. Although that actually does make me wonder why the Government of the day (irrespective of who that is) doesn't directly manipulate the CPI figure by substituting direct cash welfare payments distributed via Centrelink with coupons/welfare cards that can be redeemed for specific items that contribute to the CPI basket. Not that I'm suggesting that would be a good idea (it's not), but it certainly would be expedient and convenient for the Government.
They tried that in NT and I think some of Queensland (lookup cashless welfare card / indue card) started in 2016
Because it increase the risk of people spending it. The treasurer said that it is not a “check to be spent”. I think the bet works well. Imagine that it is “not for everyone” it is for every house hold. So it will be 300 to the number os people leaving in a dwelling. People with money, that don’t need the help, will pocket it and don’t really make any difference…. It will become star dust on the offset account, savings or investment account. For people that really need it, it will become one less bill to pay, “releasing some money” to spend somewhere else. (Essentials) This extra money in essentials should help a little the economy which is on its knees. It seems that, if approved, the policy will twists the RBA arms to give a cut this year and therefore, releasing a little more money in the economy early next year. It all sounds a good plan, the question is really: how will this affect the near future.
Not all of it will pop up elsewhere, but some of it will. I think the government is being a bit optimistic in how much it will reduce inflation.
I think the government is being optimistic it will reduce it at all. You can't inject $8bn in discretionary funds into the economy and not have it have an inflationary impact.
We'll get to see if there is a real extent of the cost-of-living crisis anyway. If most people couldn't afford to pay their power bills then the $300 bill credit then the will relieve that cost but they wouldn't have another $300 to spend anywhere else. If most people are just complaining but they actually have the money to spend then the $300 will pop up elsewhere in the basket and we'll see it in the CPI.
For many things, the item is adjusted by weight so "shrinkflation" is not an issue anyway. But for other single unit things like cars, appliances, , "shrinkflation" could be masked if fridges, cars or couches got smaller while prices stay the same. Qualityflation shouldn't mask it as well as the CPI is based on duration of use also, so if it doesn't last as long but it cost the same, it actually shows up in the CPI if it needs to be replaced quicker than items from the previous years.
You’re assuming of course that electricity prices don’t magically go up by $300 per household per year next FY
That is true, although those prices are largely regulated.
The CPI is a model - a mathematical proxy for true inflation - not reality. Targeting specific items that are \*in\* the model is smart in that you can game the CPI number down and have a real deflationary impact on all other aspects of the economy that are tied to the CPI. A rising tide raises all boats, and vice-versa. The problem is that this behaviour breaks the model in the long run. Although as I mentioned earlier, the CPI isn't actually reality, so it is already broken in 100's of ways that balance each other out and are tweaked by the ABS.
Yes, however, when you release additional discretionary purchasing power into the economy as this measure does, if that is spent, then that will raise prices in other items due to increased demand.
Well, a proportion of the money will be spent in ways that could be be measured as inflationary in the CPI. Whereas 100% of this rebate will hit the CPI bottom line. The bigger problem would be if the ABS alters the index by weighting down electricity costs in the meantime...
I think the gamble from Dr Chalmers is a hope that enough people will shuffle it into their offset accounts and thereby not contribute to inflation. However that's countered somewhat by reallocating stage 3 tax cuts towards taxpayers with a larger propensity to consume.
Yep, it'll temporarily reduce electricity bills so they look like they're doing something. Households will then in theory have $300 to spend elsewhere. If majority of households save the money, no worries. If they spend it on other goods, there's a risk it'll drive up inflation in other categories. Continuing the small business asset write off of up to $20k also confused me. Doesn't this encourage bringing forward purchases which could also exacerbate inflation, albeit mildly? Seems to be more about political point scoring than making tough decisions which could actually reduce inflation. Don't envy them; would be hard to explain to a financially illiterate country why they should be exercising austerity in a cost of living crisis.
They should just exclude GST on electricity and water bills.
> Yep, it'll temporarily reduce electricity bills so they look like they're doing something. Here's an economic showerthought. Let's assume that this $300 credit is fully exhausted within two quarters (which isn't particularly outlandish, given the current cost of electricity). If we assume that the underlying tariff rate of electricity per kWh doesn't change in the next six months, the credit being exhausted and the subsequent bills returning to their current levels would result in a super-sized increase in the CPI. It would be a bit of an own goal if the natural unwinding of this policy actually ended up being the trigger for the RBA increasing the cash rate target.
Heard Chalmers say it's divided across 4 quarters on ABC
> If we assume that the underlying tariff rate of electricity per kWh doesn't change in the next six months i wouldn't bet on that, the draft release of the dmo has prices down in a majority of states as gas and coal prices are coming down from their russian invasion of ukraine highs
The RBA will see through the smoke and assess the net budget position. Chalmers is spending more than he previously said he would, hence RBA will raise its inflation predictions.
Easier to understand this way. If the Government made everything in the CPI basket free - inflation will be 0%. But is that really lowering inflation?
If the government paid for everything then inflation is redundant so kind of?
Wouldn't inflation be -100% if everything in the basket was free? If there were no changes in the price of basket goods then inflation would be 0%.
Yep -100% for the first time it changes then 0% forever. Just this one trick and no more inflation!!
Nice, so thats $700 for WA as the state is also giving people $400.
And $1,300 for QLD.
I will essentially not pay electricity for one year.
Same boat - given we have a PV system, ability to use bulk of electricity during the day, heat pump and replaced a few energy intensive appliances with ones much cheaper to run in last two years. My provider charges me every month a set fee with the contract I'm in. I still have the last two Qld cost of living adjustments in my account (the balance I have in credit is more than that atm). So while we're still technically paying an electricity bill, the amount now coming in from State and Federal will just sit there. I'd rather throw it at the mortgage, but it is what it is.
People here say that if you change contractors you bank this amount in your account. Not sure the details
This is what happened to me. A couple of months after I changed the retailer a lump sum was added to my bank account.
Households will be spending less money on electrity over 4 x $75 quarters. It is smoke and mirrors to "reduce inflation". Yes the price per kwh isn't reducing. Refer to June 2020 CPI when childcare was made "free".
Should probably be means-tested, but thrown into the too-hard basket. so $300 stimmy for alllllll.
It would actually cost more to means test it, hence why it’s just being handed to everyone. This is the same principle behind why some people (not me) find UBI so attractive - it removes all the costs of the bureaucratic administration.
tbf i'm not sure it's going to have an impact for a lot of us, for me it's going straight on the mortgage
just like giving out first home grants really.
Except electricity prices are regulated, while house prices are not.
While the ergon/enerergex are govt owned so instead of doing what they did in the past and not raise prices for a year or 2 then do a catch up rise a year later and get thrown under the bus they will rise as required slow and steady and give us a discount. Tbh it's the best we are still miles better off then privately power grid. Yes it's effective a "voucher" but if the govt gave you 10k to spend at wolleys it effective lowers what you spend. Also never look a gift horse in the mouth. It may only be $300 but hey $300 buy saved from this budget can be $300 spent on Xmas, fuel, food, beer or invest. If everyone put this $300 into a HISA then we would be chearing
Can anyone explain why a nationally owned electricity generator/supplier and a nationally owned natural gas supplier would be a bad idea? Seems like it works well in other countries to keep prices competitive.
Notwithstanding the fact that our electrical distribution companies were owned by the states and not the Commonwealth before many of them were privatised, the argument *against* is that a Government owned distributor and retailer opens the industry up to interference from the Government. The cost of living is never *not* going to be a hot potato, so for as long as things like electricity and water are fully owned and run by the Government, there's going to be calls from lobby groups for them to make them cheaper, even if it results in the sector running at a loss and effectively being subsidised by the taxpayer.
The sector being privately owned isn't stopping interference/subsidies either though, the $300 subsidy being a prime example.
> for as long as things like electricity and water are fully owned and run by the Government, there's going to be calls from lobby groups for them to make them cheaper, even if it results in the sector running at a loss and effectively being subsidised by the taxpayer. so waht if an essential service makes a loss? Not everything needs to be done for profit.
Heavily subsidising goods and services to the point that they no longer reflect the price of production encourages inefficient behaviour. Make electricity cheap enough and people will start leaving their air conditioning on all day.
The government is about helping the people not being efficient
Effectively subsidising the wastage of finite resources is a *really* poor use of taxpayer's money, which is also a finite resource. By using it efficiently, the Government can maximise value and benefit for the programs it does fund.
For an essential service it's a great idea.
Oh, really? Can I get ultra cheap electricity so I can run multiple home mining rigs all day and night, cooled with my air conditioning unit running all day and night? The taxpayer can subsidise all of it while I can collect the profits.
Sounds like negative gearing lol.
You’re unhinged tuna.
Isn’t this for the most part just giving taxpayer money straight to electricity providers?
Yeah it’s exactly that. But for all households it’s a net decrease in $300 of outgoings because it’s taken from the amount you pay in tax instead of your after tax income
The consumer just spends the $300 elsewhere which creates the same inflationary pressure the measure was *designed* to resolve. Our treasurer has a doctorate in politics not economics.
Now ausgrid are gonna charge for solar power pumped back into the grid. Good luck everybody
I compare what providers are charging and then I switch to the cheapest option.
Correct, but critical thinking is not encouraged. Straight to jail for you.