Wednesday, December 04, 2013 8:54:37 PM
'Mortgage Bill' beats 'Electricity Bill' in cost-of-living war
By Stephen Koukoulas
Posted Mon 2 Dec 2013, 1:30pm AEDT
Photo: 'Mortgage Bill' Shorten should be well satisfied with savings due to the unprecedented low interest rate structure, achieved on the watch of the previous Labor government. (AAP: Alan Porritt)
In its attacks on 'Electricity Bill' Shorten, the government is ignoring the massive boost to incomes and cash flow from lower interest rates, and also many other items whose prices have fallen over recent years, writes Stephen Koukoulas.
It's no surprise that the Coalition has been ferocious in its attack on Labor about the impost on the cost of living from the price on carbon. The government reckons that Labor's decision to vote against the repeal of the carbon price will mean that the average Australian family will be $550 a year worse off.
The Coalition is tagging Opposition Leader Bill Shorten "Electricity Bill", suggesting he will take responsibility for the failure of electricity prices to fall if in fact it turns out that the repeal of the carbon tax is blocked in the Senate on the back of the Labor Party's position.
Whatever the true impact on electricity prices if or when the carbon tax is repealed, there are some important home truths about electricity and the cost of living that are often ignored.
For the average household, just 2.6 per cent of their expenditure on goods and services covered in the consumer price index basket, is on electricity. It simply is not a large part of the average household budget. The average household spends double that amount on take away food and meals out.
What is even more important in terms of cost of living is the enormous saving to mortgage holders and small business borrowings and overdrafts due to the fall in interest rates that occurred during the Labor Party's time in office.
Shortly after Labor took office at the end of 2007, the RBA hiked interest rates to the point where the standard variable mortgage rate was 9.6 per cent. The level of interest rates for the business sector was, on average, above 10 per cent.
Right now, mortgage rates are around 5.95 per cent, and less if you negotiate with your bank, and the business lending rate is around 7.0 per cent. These are close to record lows.
What this means for homeowners with an average $300,000 mortgage is a drop in annual interest on their loan of a thumping $11,000.
For the business sector, which has total bank debt of around $850 billion, the interest saving is around $30 billion a year.
"Mortgage Bill" Shorten should be well satisfied with this saving for borrowers because of the unprecedented low interest rate structure, achieved on the watch of the previous Labor government.
This quite massive reduction in the cost of borrowing via low interest rates frees up cash flow and provides a boost to spending, investment and jobs. Indeed, this low interest rate environment Australia is currently enjoying is one critical reason why the economy is in its 23rd year of growth without a recession and why the unemployment rate has remained below 6 per cent for more than a decade.
At this juncture, there is a critical point to note.
It is in no way asserted that the economic policy settings of the previous government alone accounted for all of the reduction in interest rates over the past 5 years. There were many other factors at play that saw the RBA cut interest rates to a record low, not least the global financial crisis.
But this is in much the same way it is completely wrong to suggest the sharp rise in electricity prices was due to the price on carbon. The carbon price accounts for about one-tenth of the rise in power costs over the past 5 years. The other 90 per cent of the price rises were due to other factors.
There is a range of other issues with the cost-of-living furphy surrounding electricity prices.
In the last three years, for example, a time when not only mortgage interest costs have fallen quite massively, average wages have risen by approximately 10 per cent.
In those three years, the price of food has increased by just 4.6 per cent; within that meat and seafood prices are down 0.7 per cent and dairy prices are down 5.8 per cent. Over those three years, clothes prices have fallen 2.2 per cent, furniture prices fell 3.5 per cent, household appliances fell 6.9 per cent, tools and garden equipment down 2.5 per cent, personal care products down 3.0 per cent, car prices down 7.3 per cent, audio, visual and computing equipment down 23.3 per cent, books down 3.8 per cent and sport and camping equipment down 10.1 per cent. And so it goes.
By focusing on electricity prices and honing their attack on the opposition leader by referring him to "Electricity Bill" Shorten, the government is ignoring not only the massive boost to incomes and cash flow from lower interest rates, but also many other items whose prices have fallen over recent years, factors that have swamped the relatively insignificant increase in electricity price attributable to the carbon price.
Stephen Koukoulas is a Research Fellow at Per Capita, a progressive think tank. Between October 2010 and July 2011, he was economic policy advisor to the Prime Minister Julia Gillard. View his full profile here .. http://www.abc.net.au/news/thedrum/stephen-koukoulas/2836682 .
http://www.abc.net.au/news/2013-12-02/koukoulas-mortgage-bill-beats-electricity-bill/5128874
By Stephen Koukoulas
Posted Mon 2 Dec 2013, 1:30pm AEDT
Photo: 'Mortgage Bill' Shorten should be well satisfied with savings due to the unprecedented low interest rate structure, achieved on the watch of the previous Labor government. (AAP: Alan Porritt)
In its attacks on 'Electricity Bill' Shorten, the government is ignoring the massive boost to incomes and cash flow from lower interest rates, and also many other items whose prices have fallen over recent years, writes Stephen Koukoulas.
It's no surprise that the Coalition has been ferocious in its attack on Labor about the impost on the cost of living from the price on carbon. The government reckons that Labor's decision to vote against the repeal of the carbon price will mean that the average Australian family will be $550 a year worse off.
The Coalition is tagging Opposition Leader Bill Shorten "Electricity Bill", suggesting he will take responsibility for the failure of electricity prices to fall if in fact it turns out that the repeal of the carbon tax is blocked in the Senate on the back of the Labor Party's position.
Whatever the true impact on electricity prices if or when the carbon tax is repealed, there are some important home truths about electricity and the cost of living that are often ignored.
For the average household, just 2.6 per cent of their expenditure on goods and services covered in the consumer price index basket, is on electricity. It simply is not a large part of the average household budget. The average household spends double that amount on take away food and meals out.
What is even more important in terms of cost of living is the enormous saving to mortgage holders and small business borrowings and overdrafts due to the fall in interest rates that occurred during the Labor Party's time in office.
Shortly after Labor took office at the end of 2007, the RBA hiked interest rates to the point where the standard variable mortgage rate was 9.6 per cent. The level of interest rates for the business sector was, on average, above 10 per cent.
Right now, mortgage rates are around 5.95 per cent, and less if you negotiate with your bank, and the business lending rate is around 7.0 per cent. These are close to record lows.
What this means for homeowners with an average $300,000 mortgage is a drop in annual interest on their loan of a thumping $11,000.
For the business sector, which has total bank debt of around $850 billion, the interest saving is around $30 billion a year.
"Mortgage Bill" Shorten should be well satisfied with this saving for borrowers because of the unprecedented low interest rate structure, achieved on the watch of the previous Labor government.
This quite massive reduction in the cost of borrowing via low interest rates frees up cash flow and provides a boost to spending, investment and jobs. Indeed, this low interest rate environment Australia is currently enjoying is one critical reason why the economy is in its 23rd year of growth without a recession and why the unemployment rate has remained below 6 per cent for more than a decade.
At this juncture, there is a critical point to note.
It is in no way asserted that the economic policy settings of the previous government alone accounted for all of the reduction in interest rates over the past 5 years. There were many other factors at play that saw the RBA cut interest rates to a record low, not least the global financial crisis.
But this is in much the same way it is completely wrong to suggest the sharp rise in electricity prices was due to the price on carbon. The carbon price accounts for about one-tenth of the rise in power costs over the past 5 years. The other 90 per cent of the price rises were due to other factors.
There is a range of other issues with the cost-of-living furphy surrounding electricity prices.
In the last three years, for example, a time when not only mortgage interest costs have fallen quite massively, average wages have risen by approximately 10 per cent.
In those three years, the price of food has increased by just 4.6 per cent; within that meat and seafood prices are down 0.7 per cent and dairy prices are down 5.8 per cent. Over those three years, clothes prices have fallen 2.2 per cent, furniture prices fell 3.5 per cent, household appliances fell 6.9 per cent, tools and garden equipment down 2.5 per cent, personal care products down 3.0 per cent, car prices down 7.3 per cent, audio, visual and computing equipment down 23.3 per cent, books down 3.8 per cent and sport and camping equipment down 10.1 per cent. And so it goes.
By focusing on electricity prices and honing their attack on the opposition leader by referring him to "Electricity Bill" Shorten, the government is ignoring not only the massive boost to incomes and cash flow from lower interest rates, but also many other items whose prices have fallen over recent years, factors that have swamped the relatively insignificant increase in electricity price attributable to the carbon price.
Stephen Koukoulas is a Research Fellow at Per Capita, a progressive think tank. Between October 2010 and July 2011, he was economic policy advisor to the Prime Minister Julia Gillard. View his full profile here .. http://www.abc.net.au/news/thedrum/stephen-koukoulas/2836682 .
http://www.abc.net.au/news/2013-12-02/koukoulas-mortgage-bill-beats-electricity-bill/5128874
It was Plato who said, “He, O men, is the wisest, who like Socrates, knows that his wisdom is in truth worth nothing”
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