Carbon price's feared impact a 'storm in a teacup'

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This was published 11 years ago

Carbon price's feared impact a 'storm in a teacup'

By Peter Hannam

IT IS almost a case of ''now you see it, now you don't.''

The tax of $23 per tonne of carbon emissions arrived on July 1, but not before the government splurged on $2.85 billion in handouts so most families wouldn't notice.

Polluting industries must come to grips with the carbon tax.

Polluting industries must come to grips with the carbon tax.Credit: Sylvia Liber

Treasury's modelling shows the carbon price will inflate consumer prices by 0.7 percentage point by June 2013. Just don't expect the Australian Bureau of Statistics to provide a progress report on the impact of the tax when it unveils September-quarter inflation figures on Wednesday.

In its August quarterly monetary policy statement, the Reserve Bank quietly dropped a table estimating CPI (2.5 per cent by December with the tax, 1.75 per cent without it) that it had run three months earlier.

The bank was apparently concerned repetition of the table would imply an imprimatur on a number it can't test with precision. Its assessment for the tax's boost to underlying inflation by June (''around 0.25 percentage point'') runs on page 68 of the August statement.

It's a subtle signal. Sensitive figures can carry appropriate ''health warnings'' when run in text, while numbers in tables are more open to misunderstanding or misuse.

Either way, the central bank sees no cause for concern.

''The introduction of the carbon price had not yet had a significant effect on downstream price pressures, with only isolated examples of suppliers attributing price increases to the carbon price,'' the RBA opined in the minutes of its September rates meeting. Carbon didn't make it into October's minutes.

Too hard to tell

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The ABS won't fill the void with a definitive ''carbon impact'' figure when it releases the CPI data this week - or in the future.

''The ABS will not be able to quantify the impact of carbon pricing, compensation or other government incentives and will not be producing estimates of price change exclusive of the carbon price or measuring the impact of the carbon price,'' the bureau said.

Economists say it is impossible to disentangle the exact price increase from factors such as wage movements and the strength of the dollar.

It's not going have that much of an effect on the economy overall

Saul Eslake, chief economist for Australia and New Zealand for Bank of America Merrill Lynch, recently cut his forecast for ''headline'' CPI to 1.1 per cent for the September quarter, for an annual rate of 1.6 per cent (versus 1.2 per cent in the June quarter,) bringing both predictions roughly into line with the market consensus.

''I think the economy has absorbed the introduction of the carbon tax relatively easily, with less disruptive impact than the introduction of the GST,'' he said. ''The latter truly was ''a great big new tax.''

The GST start in the September quarter of 2000 saw quarterly inflation leap from 0.8 per cent to 3.7 per cent, while the annual rate rose to 6.1 per cent from 3.2 per cent.

Stephen Walters, chief economist for JPMorgan in Australia, expects the carbon price will exceed Treasury's 0.7 percentage point estimate, although the worst has already passed. September quarter CPI will be about 1 per cent - double the June quarter figure - and 1.5 per cent from a year earlier, he predicts.

Electricity prices jumped 15 to 16 per cent in the quarter, but the increase included network and other charges unrelated to the carbon tax, he said.

As electricity accounts for just 2 to 3 per cent of the basket of products used to determine CPI, compared with 14 per cent for food, the tax's pinch on households may be modest.

''You could get a relatively small fall in the price of fresh food and you end up square,'' Mr Walters said.

Paul Bloxham, HSBC's chief economist in Australia, tips 1.3 per cent for the quarter and 1.9 per cent annually, at the upper end of forecasts.

''The bulk of [the tax impact] will come through in the first print,'' contributing about half, he said. Weak demand across the economy, though, suggests only modest second-round price effects that won't prevent the RBA from ''looking through'' the tax when it sets interest rates.

''It's a storm in a teacup,'' Mr Bloxham said. ''Really, it's not going have that much of an effect on the economy overall.''

Wilhelm Harnisch, chief executive officer of the Master Builders Association, is less sanguine about the carbon price.

''Trading conditions have been poor - suppliers have been absorbing the costs,'' he said. Fierce debate on the tax ahead of its introduction dented confidence already fragile because of global economic concerns and tighter credit conditions.

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Compensation to stifle the price increases for steel, cement and other materials will eventually end, meaning the drag on the construction industry will linger, he said.

''The full impact won't occur for another five years.''

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