Wednesday, July 27, 2011

Inflating the interest

So the quarterly inflation figures came out today.

The CPI came in at 3.6%. It was a little bit above what the market was expecting. How do we know this? Check out how the exchange rate market reacted. See if you can pick the moment the figures were announced:


Yeah it’s tricky, I know.

As of now (about 7:15pm) the Aussie Dollar is trading at $1.106. One dollar and ten cents. How insane is that figure? Try this on for size: it means that since the start of 2009 the dollar has appreciated by nearly 60%


To put that in context, remember that a $30 per tonne price on carbon is equivalent to about a 5 per cent appreciation in the Dollar (yeah that $23 a tonne price is just going to kill our economy…).

imageNow why is the dollar so high? Well obviously there is the view that interest rates will go up – interest rates drive exchange rates more than anything else. But the world economy is pretty nicely in flux so you have to take into account other issues, and the biggest other issue in the World economy is the insanity going on over in America where for absolutely no good reason they are arguing about whether or not to increase the “debt ceiling” which if they don’t do could cause America to default on some of its debt.

Interestingly when American sneezes, the Aussie Dollar no longer catches a cold. As Christopher Joye has noted (and so too has the NAB), the Aussie Dollar is still rising even when the appetite for risk in the market goes down. In times past the Aussie was a nice little moderate risk addition to your currency portfolio, now it is (perhaps because we have a shirt load of stuff in the ground that needs digging up) seen as less risky.


So what does it all mean?

Well let’s have a look at the underlying inflation rate – which went up by 0.9% this last quarter and sits at an annual rate of 2.7%:


Viewed since 1992 the current position doesn’t look too scary (oh and by the way the graph starts in 1992 because that was when inflation got under the 3.0% mark for the first time since the early 1970s).

But let’s take a closer look at say the past 10 years and also add in the “annualised inflation measure” so beloved of Chris Joye (and which he tweeted today he is told the RBA prefers as well)


The bit shaded in blue is the above the 3% line which the RBA views as its no-go zone. As you can see it’s done pretty well except for that part from Jan 2007 when Howard and Costello showed that when it came to the budget, restraint was not the biggest word in their vocabulary (neither incidentally was investing in infrastructure, skills, training etc for 11 years… but we’ll leave that to one side).

As you can see the annualized rate is currently above the 3.0% line. In fact, well above at 3.6%. But as you can also see in the past 10 years that has happened a number of times and it has not always precipitated the standard “annual inflation” going into the no-go zone. Interest rate hawks like the annualized measure because it essentially says if the last quarter is repeated in the future look at the horror that will happen. The standard annual rate is more for those who like to sit back and say chill man, look at what has happened – stop jumping up and down and be smooth.

The market while expecting a rise in the future (to whit the Aussie dollar going up), does not as yet expect the Reserve Bank to increase interest rates at next weeks’ meeting.

Trading Day No Change Decrease to 4.50%
18-Jul 79% 21%
19-Jul 87% 13%
20-Jul 89% 11%
21-Jul 87% 13%
22-Jul 91% 9%
25-Jul 91% 9%
26-Jul 91% 9%
27-Jul 100% 0%

But the RBA is now less caring about doing what the market expects it do than it was in the past (mostly because the RBA less covertly flags what it is going to do now than it did in the past).

But if we go back to the minutes of the last RBA Board meeting, it ended with this statements:

The extent to which these forces would strain the economy's productive capacity over time would be a key determinant of inflation. Members noted, however, that the flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time. Members noted that the CPI outcome for the June quarter, to be published later in the month, would be important in helping to shape views about inflation, and therefore the future path of interest rates. Accordingly, members considered that the current mildly restrictive setting of monetary policy remained appropriate.

Well the CPI figures really would only shape their minds one way…

The chart below shows also that as a general rule, when the annualized inflation goes over 3.0% the RBA bumps up the cash rate. They did it in 2006, consistently through 2007-08, and even in March 2010.


On that measure, I am tending to think the RBA might just increase rates next week. And if they do expect the retailers association to absolutely scream to high hell.

As to the CPI figures themselves, the big headline rise of interest was of course bananas. The supply has not recovered from the cyclone in any meaningful way and so they rose another 138% and in total have increased in price by 470% since the start of the year.

Now here’s the thing about the CPI. Sure that is a massive increase, but how much has it affected your day to day costs? If like me you just stopped buying bananas – or at the very least instead of buying a hand of 7 or 8 each week, you just buy a couple every now and then.

The other big rise was health costs:Lifetime[3]

The main contributor was hospital and medical services (+3.4%), which rose mainly as a result of the increases in private health fund premiums effective from 1 April 2011.

Ahh private health fund premiums. I do so love to think back to those adverts funded by the Howard Government telling me that basically forcing us to join a private health fund before we turned 30 would help keep the premiums down.. Those umbrellas looked so reassuring.

But the economy, while commonly being referred to as “soft” is not exactly tanking.

The number in employment increased nicely last month suggesting the employment figures are on a bit of an upswing (or at least a flattening, rather than a decline)image:

Wayne Swan blamed the rise on the bananas, which is fine as far as it goes, but the underlying inflation measure also went up, so it’s not an excuse you’d like to keep having to go back to.

Incidentally when the last inflation figures came out (this was the week before the Budget) I wrote:

Swan will have to be aware that if his Budget is judged by the commentators as being flabby, it will be easy for any future rate rises to be pinned on him. If his budget is shown to be “a horror” any rate rises will still be pinned on him but at least he’ll have a stronger case to make that the rate rises are due to a strong economy, outside pressures etc etc. (whether he can sell this is another matter).

As we now know the budget was not too flabby, but hardly a “horror”, and yet the national media and the opposition acted like Swan was proposing the universal drowning of kittens, all because families once they started earning over $150,000 might lose out on some benefits that they had when they earned less than $150,000.

If the opposition is going to have some credibility when/if interest rates go up again, they better come to the table with something more than just “savings in the budget”.

But the final point I made back in May – “whether he [Swan] can sell this is another matter” remains rather doubtful.

Sunday, July 17, 2011

The Tour – Sports Best Annual Sorting Hat

As it does every year, the Tour de France makes you think about life choices.

So what did you do on Saturday? If you were someone sane you did stuff with the family, maybe some shopping, had a lie in, went out to the movies, gardening perhaps. Or you could have been a poor fool who for some unknown reason was born with a synapse in your head that sends impulses zinging around your brain that make you want to become a professional road cyclist. Even worse, you could have been born with the physique – wiry yet strong – and mentality – insanely dedicated and impervious to pain – that would have you aspire to be one of the “General Classification” riders in the Tour de France.

If so, you will have dedicated your life – forgoing normality and that aspect in life we mortals call fun – to getting selected on a professional racing team. And then more than that, you will seek to have a number that ends with a 1 on your back, for that will mean you are the leader of the team – the man around whom all else in the team will dedicate themselves.

Mountain bikes? You most likely did your stint. You may even have ridden on the track – perhaps some time trailing over a very lazy 4,000m. But not for you is the embanked oval. Not for you is the life of following round a motorbike in “Keirin” races. Not for you the hulking diet of Ryan Bayley types, who can brag about eating KFC before races.

No you have chosen a different path – the path less travelled perhaps, and definitely the path less travelled well. You have included yourself in a select group of a select group. There are those in the Tour who will be happy to finish – happy that they have served their master. There will be those who will have lusted for stage wins, who want nothing more than to ride 190km coasting along, only to go insane over the final 500m.

But that is not you either. You are among that group that is so far beyond special, that elite only touches at your definition.

Elite? What is that? Surely all in the Tour are elite. You are not elite; you are nothing less than a god cycling the earth.

There are 22 teams in the Tour. And yes some of the leaders like Thor Hushovd and Mark Cavendish are there for the Green Jersey, but of the 22 teams, we are down to six of whom remain.

Six out of 198 riders. Three per cent. But let’s not just say that – for many, many riders who many, many others would think of as elite didn’t make it to the Tour. Three per cent? Six out of 198? Try six out of 6.932 billion!

The rest? Done, well, tried hard, but go win yourself a stage, don’t bother us with your Yellow Jersey talk. Don’t bother us with your talk of how you like climbing mountains.

Talk is cheaper on the Tour than in just about any other sporting event.

You got a good team? Great, but they aren’t all going to be able to haul you up the side of a mountain.

You haven’t got a great team? Tough, look around you – it’s you and the other six out of 198. Are you better than them?

Six out 198.

Last night if you were one of that insane sextet. Here is what you faced:


The last climb – 15 km of calf muscle screaming silliness. What did you say about it? Cadel Evans. You’re one of the six, give us your views:

"It was a long, but not a steep climb.”

Not steep? Let’s describe it officially shall we:

Plateau de Beille - 15.8 km climb to 7.9 % - Category H

Only a 7.9% gradient. Pffft. Maybe for the other 192 that means something, but for the supreme six? Is that all you’ve got, earth?

Andy Schleck – you want to be more than just one of six, what say you?

"The climb wasn't selective enough”

Not selective enough?

Stuart O’Grady, Schleck’s team mate, had flogged himself stupid at the front of the peloton giving Schleck a nice pace. They were together at the start of the final climb. O’Grady ended up finishing 22 min 57 second behind. Now sure his race was done, but imagine losing nearly 23 minutes over 15 km.

How impervious to mathematics and logic are these riders? Here’s the 16th Stage:


What do you say? Do you say, Please Mum why on earth did you not slap some sense into me 25 years ago when I said, I want to be a bike rider? Do you ask your Dad why didn’t he give you a golf club and send you out so that you may complain about having to play in the wind and rain? (Yes Bo Van Pelt would describe walking around 18 holes as “"Brutal"; Trevor Immelman said it was like going "18 holes with the heavyweight champion of the world." Yeah, truly.)

But no you don’t say that, and you won’t even get any commentators saying it either. Instead you get this:

As we’re heading towards the Alps, this stage is not flat, which is what you would expect, but it isn’t too hard either as it just rises steadily throughout.

You’re riding 151 km on a steady rise of nearly 1,200m, but hey – quit your crying, it “isn’t too hard”.

What you need to look towards are two glorious selection sorting days in the Alps. Let’s start with Thursday and Stage 18:


Three Highest Classification climbs. Three chances to have a bit of a play of the game – can 6 become 5, or 4 or 3 or…

Here are the six:

Standing  Rider  Rider number bib  Team  Time  Gaps
1 VOECKLER Thomas  181 TEAM EUROPCAR  61h 04' 10"   
2 SCHLECK Frank  18 TEAM LEOPARD-TREK  61h 05' 59"  + 01' 49"
3 EVANS Cadel  141 BMC RACING TEAM  61h 06' 16"  + 02' 06"
4 SCHLECK Andy  11 TEAM LEOPARD-TREK  61h 06' 25"  + 02' 15"
5 BASSO Ivan  91 LIQUIGAS-CANNONDALE  61h 07' 26"  + 03' 16"
6 SANCHEZ Samuel  21 EUSKALTEL - EUSKADI  61h 07' 54"  + 03' 44"
7 CONTADOR Alberto  1 SAXO BANK SUNGARD  61h 08' 10"  + 04' 00"

Ignore the first guy – Voekler. He did well to get through the Pyrenees retaining the Yellow Jersey (he did much the same in 2004 – but in the end in Paris he finished more than 35 minutes behind the winner, Armstrong, so he doesn’t count).

Frank Schleck doesn’t have the 1 at the end of his name, but he finished 6th and 5th in 2008 and 2009, so he’s a big show. So here’s who we have:

  1. Schleck, F
  2. Evans
  3. Schleck, A
  4. Basso
  5. Sanchez
  6. Contador.

These six can look anyone else in the eye and know they are better than them when it comes to the overall.

Others may climb better; others may time trial better; many more will sprint better.  But only these six can claim they have a chance at being able to look down on everyone. Everyone not only in the cycling world, but also we poor newts who when God was handing out muscles, stamina and intelligence, gave us neither the frame, nor lung capacity, nor insane drive.

At other times in the year there will be races – some important like the Giro in Italy, some magical in their brutality like the Paris–Roubaix – but this is the one time each year where the six get to look not so much into each other’s eyes, but each other’s souls. Getting left behind on a mountain stage in the Tour is not blinking in a starting contest, but more having your very life’s purpose crushed.

All those years without fun? Special diets? Life spent in Europe away from family and friends? Miles and miles of training done in heat, cold and wet? imageWell done, congratulations, valiant effort. But on this day it has been for nought. Maybe you should have tried golf?

Last night the Schlecks attacked up the hill. Evans and Basso reeled them in (Voekler doing his bit as well). Basso had a go – that too was covered. Evans tried once (covered).

Nothing was discovered, no one blinked. Each man’s reason for living remained intact.  

Stage 18 may sort some out. But three idiotic climbs over mountains may not wreak the havoc one would think – especially as this is the last climb:

Col du Galibier (2 645 m) - 22.8 km climb to 4.9 % - Category H

Long, but not particularly steep. (Heard that before?)

But if you look closer you see the last kilometre is a lovely 9 per cent gradient. Expect attacks as well with 4 km to go – where the black shows another 9 per cent incline.

You can lose a lot of time in 4 km. Time enough to know that the sextet is now a quintet or perhaps a quartet ready to do a cycling version of Pachelbel's Canon. And at such a point you will know that the Tour de France game of musical chairs has found you standing when the music stopped.

And then – because why on earth would you expect any less – the very next day you get out your bike and head again along the sides of mountains, and face this:


Forget the first climb – they’ll all go up that together. It’ll all be won and lost (as it always is won and lost when the Tour regularly arrives here) on the final climb up Alpe-D’Huez.

Here’s how the Official website describes it:

The stage everyone is afraid of

For us gloriously non-deluded types who can enjoy the Tour not from atop a bicycle, but atop a couch – potato chips, beer and remote at hand – this is a wonderful stage. Short so it won’t keep us up too late, and on Friday night, so we can put the week behind us and get ready for the weekend by enjoying the delights of watching men’s souls crack open in agony.

The last climb? Have a look:


It starts with 2 km of at least 10 per cent incline. But the real fun begins with about 5km to – when the road tilts to the sky and goes up at 11.5 per cent.

The only guarantee is that by the end of this stage we and all those in the tour will know.

All will have been revealed.

Sure there will be a time trial the next day – but the likelihood is that will be for looks and for minor placings.

If you’re not there at the end of the Alpe-D Huez; if you’re not still looking at others in the eye; if you’re not still answering attacks and doing some yourself, then you, my friend, are no longer in the Tour.

Yes you will keep riding. Yes you will still have the number 1 on your back. Yes you will still get to Pairs. But you might as well be sitting on the couch next to us.

You didn’t come here to finish second, and you sure as hell didn’t come here to have your mouth open so wide gaping and groping for oxygen as you hit the 11.5 per cent gradient that some evil god was able to reach his hand inside and tear out your heart.

No other sport has this foreshadowing. Yes in a long distance running event packs will emerge and only the winners will come from the front. But in a marathon you don’t look at a point in the race and say – up till here everyone will be in it; after here only the best will remain. Mostly the pace will be constant and those who can keep up do, those who can’t, won’t.

In the Tour at the bottom of the Alpe-D Huez there will be a majority of the pack. Within 100m it will be a minority. Within a kilometre it will be a selection.

And the thinning will continue all the way up the climb.

Who will remain at the top? For Contador he not only has to be at the top – but also has to do it more than 2 minutes better than the rest – which is why I think only if Contador wins this stage may the time trial still be relevant to the final outcome.

Evans looked strong last night – but will he hold on when the real inclines take over. The Schlecks will work in tandem – it didn’t crack anyone last night, will it next Friday? Basso and Sanchez are less likely, but don’t tell them that – you don’t get to be one of the six by admitting self doubt. 

The Tour – as it always does – comes down to a few moments – moments when the great is sorted out from the very good. Moments where viewers will hold their breath then scream for their champion; knowing the next 10 minutes will matter more than the rest of the entire tour. With a week to go we can foresee where they will happen; at this point we know to whom they will happen; but we have no idea of what the result will be.

Sport at its best.

As it is every year.

Sunday, July 10, 2011

The Carbon Price: The Tim Tams are safe; not sure about hyperbole

So word leaked out this morning that the Carbon Price was going to not wreak the  expected havoc on the price of consumer goods. It was reported that the price of Tim Tams would increase by $0.012. This I guess means my masterful plan to stock up on chocolate biscuits and reap the windfall gains once the world comes to an end with the institution of a carbon price was rather misplaced.

Oh well, no less stupid than suggesting the mining industry is fighting for its survival, I guess. 

But let us not be side-tracked, when Julia Gillard came out at noon and announced the carbon price, it was a significant moment. One of the criticisms of the Rudd Government was that is didn’t make the tough decisions; didn’t do anything unpopular. Putting a price on carbon is definitely in the tough decision pile, and quite snuggly fits in the “unpopular” drawer as well. Deciding something which heretofore had been free will now have a price is not something that happens everyday.

The whole policy can be read here (56 pages – have fun). The Treasury modelling is here (even more fun).

To say that it is pretty complex is to take a big drink out of the understatement bottle. So let’s have a quick squiz at a few things:

First the Government has come up with a bit of a video on how the carbon price works. I quite like it:

It’s simple yes, but not demeaning, and not boring like the bloke with the power point trying to explain the RSPT. Do not underestimate how few people understand how a carbon price works. I would bet a majority think it is like a GST or is something we need to account for in our incomes tax returns. So explaining how it works is item number one for the Government.

Now to the announcement:

The introduction of a broad based carbon price in Australia, commencing from 1 July 2012 with a fixed price period and transitioning to a fully flexible cap-and-trade carbon pricing mechanism on 1 July 2015.

  • The fixed price will commence at $23 per tonne of CO2-e;
  • Coverage of the scheme will include stationary energy, most business transport emissions, industrial processes, non-legacy waste, and fugitive emissions, with direct liability under the mechanism limited to large emitters;

The price was not a shock – it had been leaked on Thursday. The general reaction seems to be – yeah that’s lower than we’d like, but higher than we’d hate. The Treasury modelling gives a nice graph on where it sits visa vis the European carbon price:


So it’s pretty comparable.

What does it mean for prices?


So not a big hit to prices; a lot less than the GST – but remember as well the GST was accompanied with much bigger compensations and tax cuts. But the difference of course is the GST was meant to do that, the carbon price is supposed to be felt – Abbott is exactly right when he says that.

When it goes to the flexible ETS in 2015, the rules are thus:

Pollution caps:

  • Five years of pollution caps will be announced in advance and extended each year to maintain a minimum five year period of caps at any given time.
    Price cap:
    – A price cap will operate in the first three years of the flexible price period. The price cap will be set at $20 above the expected international price in 2015/16 (as set in regulations no later than 13 months before the end of the fixed price period) and will rise by five per cent in real terms each year.
    – A review of the role of the price cap will occur after the first three years of the flexible price period.

Price floor:

  • A price floor of $15, rising by four per cent in real terms each year, will operate for the first three years of the flexible price mechanism.
  • A review of the role of the price floor will occur after the first three years of the flexible price period.

So a minimum of $15, and a maximum of $20 above whatever is the international price.

What else was there?

  • International linking will be allowed in the flexible price scheme;
  • Kyoto compliant credits from the Carbon Farming Initiative will be able to be used for compliance.
  • The establishment of a new more ambitious 2050 target for emissions reductions which will be set at 80 per cent below 2000 levels.
  • The establishment of a new independent Authority – the Climate Change Authority – which will provide advice to the Government on progress towards meeting announced targets;
  • make recommendations on pollution caps, voluntary action, trajectories, long term emissions budgets and mechanism design issues;
  • conduct regular reviews on the carbon price mechanism, NGER reporting, the Renewable Energy Target and other matters upon request.

The Climate Change Authority is interesting – it will be headed by former Reserve Bank head Bernie Fraser, and will advise the Government on the carbon pricing mechanism – including future pollution caps, which will in effect help determine the carbon price under the flexible pricing system – because it will determine how many permits are in the market. The CCA will also work with the Productivity Commission on issues such as assistance to polluters. The Productivity Commission report will be looking at such matters as: “Industry sectors where there is strong evidence of windfall gains as a result of the assistance.” Of which you can bet there will be many, given emissions-intensive trade-exposed are getting free permits covering 94.5 per cent of their activities affected by the carbon price. (This point alone pretty well renders Abbott’s suggestions that the mining industry is fighting for its survival and that Whyalla will be wiped off the map are complete bulldust)

But enough of this; let’s get down to a couple things – what will it do to emissions:


As you can see a big swag of the reductions in carbon emission come from overseas. Abbott will be onto this, suggesting it is a waste of tax payers money (and also trying to suggest his own policy would not require such abatement if it was to get to 5 per cent reduction). What it also shows is that in terms of domestic levels only we are not going back to the stone age. Two per cent by 2050 sounds like nothing, but bear in mind the population will grow to an expected 35 million by then, so we’ll have an extra 13 million people generating 2 per cent less emissions.

What it also shows is just how damn hard it is to reduce carbon emissions. And given no one – not even those economists who do not like the carbon tax – thinks a direct action policy such as suggested by Tony Abbott will reduce emissions more efficiently, it gives an indicator of the job ahead of Abbott – especially if he wants to tell us it can be done without abatements sourced from overseas.

To believe Abbott is right is like suggesting price increases of cigarettes has been less effective at reducing smoking than warnings on packets. Sure warnings and nicotine patches (essentially direct action measures) are great, but if smokes still cost $4 a packet, a hell of a lot more of us would still be smoking.

What the ALP will focus on is the reduction compared to what would have happened had there been no carbon price. In her speech announcing the policy, Julia Gillard said:

By 2020 our carbon price will take 160 million tonnes of pollution out of the atmosphere every year.

That’s the equivalent of taking forty five million cars off the road.

That’s a good figure to spout. It makes sense to put things in a form people can grasp. 160 tonnes of carbon sounds a lot, but is it – you feel like you need to know a climate scientist to ask to find out? 45 million cars on the other is a lot and you don’t need to be a bloke in a scientific white coat to grasp it (you just need to ignore that the main driver of car use, petrol, is excluded from the carbon price!). 

But what will it do to the economy – especially electricity generation. This graph is pretty instructive:


Notice the green column next to “brown coal”? Err no? That’s because it ain’t there. By 2050 it is planned that no brown coal fired power stations will be operating. Black coal ones also take a big hit. They are replaced by a huge boost in renewable.

This policy is hoping to change the economy. As the Treasury modelling states:

Over time, the electricity sector will move away from coal-fired generation to renewables, with renewable energy growing from 10 to 40 per cent of the generation mix by 2050, and conventional coal-fired generation falling from 70 to below 10 per cent of the generation mix by 2050.

The key is that “over time” bit. The statement also contains:

Once commercially viable, carbon capture and storage (CCS) technology will deliver significant emission reductions, comprising almost 30 per cent of generation by 2050.

Which is ummm… optimistic. It ends with:

Of course, the exact mix of generation will depend heavily on a range of uncertain factors, including the cost of new technology and the price of energy commodities like gas.

In other words, we hope it’ll get there, but geez, we’re talking 2050.

So that’s the result, but let’s get down to what it is all really about. This policy might be about reducing carbon emissions, but it is also just as much about the compensation, and the changes to the tax system.

The big sell item is that “9 in 10 households will get a combination of tax cuts and payment increases.” This is a bit tricky – it certainly doesn’t mean all 9 will get their costs fully met – but then again, given what the carbon price is meant to do, nor should it.

First let’s look at the changes to the rates and taxation and the increasing of the tax free threshold from $6,001 to $18,201

Tax Scales  2011-12  2012-13  2015-16
  Threshold ($)  Marginal Rate  Threshold ($)  Marginal Rate  Threshold ($)  Marginal Rate
1st Rate  6,001 15% 18,201 19% 19,401 19%
2nd Rate  37,001 30% 37,001 32.50% 37,001 33%
3rd Rate  80,001 37% 80,001 37% 80,001 37%
4th Rate  180,001 45% 180,001 45% 180,001 45%
LITO  Up to $1,500  4% withdrawal rate on income over $30,000  Up to $445  1.5% withdrawal rate on income over $37,000  Up to $300  1% withdrawal rate on income over $37,000
Effective tax free threshold*  16,000   20,542   20,979  

Now the key aspect of all of this is that this legislation will be separate to the legislation introducing the carbon price. This means if the Liberal Party wants to oppose it all, they will have to vote against tax cuts.

I don’t think that would disappoint the Labor party.

The other aspect is the compensation.

Among the compensation assistance are increases to Family Tax Benefit A , the pension, and the ‘Essential Medical Equipment Payment’.

You can go over to the excellent website Clean Energy Future to find out how much the carbon price will affect your net income. (As an aside – it is great to see a Government website that doesn't look  like it was designed by a blind accountant).

Now back after the budget, Matt Cowgill did an excellent post of what is the average Australian income. He found:

a single person, living alone, would need around $36 000 in disposable income to sustain the typical Australian’s standard of living. Following a widely-accepted methodology, each additional adult adds $18 000 to this figure, so a childless couple would need a disposable income of $54 000 a year to enjoy a median standard of living. Each child adds $10 800 to this figure.

A couple family with two children would therefore have needed $75 600 disposable income in 2007-08 to have the same standard of living as the typical Australian.

So let’s bear those figures in mind when we look at the impacts of various scenarios:

First, single people:

Single Person No kids
Incomes Price Impact Assistance Net Cost Per Week
$30,000 $229 $323 -$94 -$1.81
$35,000 $251 $303 -$52 -$1.00
$40,000 $270 $303 -$33 -$0.63
$45,000 $287 $303 -$16 -$0.31
$50,000 $304 $303 $1 $0.02
$60,000 $346 $303 $43 $0.83
$70,000 $392 $266 $126 $2.42
$80,000 $441 $16 $425 $8.17
$90,000 $485 $3 $482 $9.27

So let’s add a few thousand onto Matt’s figure of $36,000 to update to today’s figures (his were 2007-08), and the $40,000 single person actually comes out $33 a year better off. Nothing astounding, but certainly nothing to lose sleep over. It’s only when you get up to $70,000 a year income that the single person starts feeling more than $1 a week pain. And remember as well that’s only if you don’t do anything to change the price impact (ie use less energy). The estimates also assume (correctly) that the more you earn the more you spend. But I doubt the single person on $40,000 is going to shed too many tears for the poor sod earning $80,000 who decides to spend more each week, because they can. Perhaps it might just be wise to turn off the plasma when you’re not watching it.

What about if we add a child into the equation?

Single Person 1 Child 5-7 Years
Incomes Price Impact Assistance Net Cost Per Week
$30,000 $371 $864 -$493 -$9.48
$35,000 $376 $1,119 -$743 -$14.29
$40,000 $381 $1,419 -$1,038 -$19.96
$45,000 $386 $1,545 -$1,159 -$22.29
$50,000 $392 $442 -$50 -$0.96
$60,000 $408 $442 -$34 -$0.65
$70,000 $434 $391 $43 $0.83
$80,000 $475 $391 $84 $1.62
$90,000 $511 $391 $120 $2.31

Yes, those on around $50,000 and with one child – ie around the median using Matt’s figures will be $50 better off a year. Not much again, but no harm either – and remember as well they would be better off if they change their behaviour. The price impacts assume no change in behaviour. But look at the $45,000 level. Under these assumptions you are $1,159 a year better off.

The reason for this is because targeting those under median incomes to bear the brunt of a carbon price is dopey. They don’t have much opportunity to adjust behaviour – they actually are spending money on needs and not just wants.

What about the DINKS – double income, no kids:

Couple, Double Income (50-50 split), No Kids
Incomes Price Impact Assistance Net Cost Per Week
$60,000 $455 $646 -$191 -$3.67
$70,000 $480 $606 -$126 -$2.42
$80,000 $512 $606 -$94 -$1.81
$90,000 $547 $606 -$59 -$1.13
$100,000 $582 $606 -$24 -$0.46
$110,000 $618 $606 $12 $0.23
$120,000 $658 $606 $52 $1.00
$130,000 $700 $606 $94 $1.81
$140,000 $744 $531 $213 $4.10
$150,000 $788 $281 $507 $9.75
$160,000 $833 $31 $802 $15.42
$170,000 $873 $6 $867 $16.67
$180,000 $913 $6 $907 $17.44
$190,000 $954 $6 $948 $18.23
$200,000 $994 $6 $988 $19.00

Until you together earn over $100k, you’re sitting pretty. But then it starts to bite or nibble in the case of the $1.81 a week for households on $130k.

Once you get over $150,000 you will notice the hit – nearly $10 a week. But let’s not forget if you’re on $150k you’re not struggling – you’re about $70,000 a year above the median. 

Ok, families. First a couple with only one income and one kid who has just started school:

Family, Single Income, 1 child 5-7 years
Incomes Price Impact Assistance Net Cost Per Week
$30,000 $364 $767 -$403 -$7.75
$35,000 $372 $791 -$419 -$8.06
$40,000 $374 $791 -$417 -$8.02
$45,000 $388 $442 -$54 -$1.04
$50,000 $406 $442 -$36 -$0.69
$60,000 $433 $442 -$9 -$0.17
$70,000 $467 $391 $76 $1.46
$80,000 $507 $391 $116 $2.23
$90,000 $542 $391 $151 $2.90

Compare to having no kids – you do better. A single person on $70,000 with no kids is $126 a year worse off, here you are now $76 a year worse off. Once again – get up higher – say $90,000 a year and you are $151 worse off. Maybe it is time for the other partner to look for some work. For example if that $70,000 was from two incomes, one of $49,000 and one of $21,000, the family would actually be $585 a year better off.

Which leads us to two incomes, two kids – one pre-school, one at school:

Family, Dual Income (70-30 split), children 0-4 and 5-7 years
Incomes Price Impact Assistance Net Cost Per Week
$60,000 $501 $773 -$272 -$5.23
$70,000 $526 $1,274 -$748 -$14.38
$80,000 $553 $1,064 -$511 -$9.83
$90,000 $594 $819 -$225 -$4.33
$100,000 $638 $661 -$23 -$0.44
$110,000 $667 $466 $201 $3.87
$120,000 $696 $306 $390 $7.50
$130,000 $735 $306 $429 $8.25
$140,000 $774 $306 $468 $9.00
$150,000 $812 $306 $506 $9.73
$160,000 $850 $306 $544 $10.46
$170,000 $889 $306 $583 $11.21
$180,000 $934 $306 $628 $12.08
$190,000 $978 $306 $672 $12.92
$200,000 $1,022 $306 $716 $13.77

Again using Matt’s media of around $80,000, you see that such a household will actually be $511 better off a year.

This remains even if the incomes of the two are equal rather than one fulltime and one part time

Family, Dual Income (50-50 split) children 8-13 and 13-17 years)
Incomes Price Impact Assistance Net Cost Per Week
$60,000 $510 $843 -$333 -$6.40
$70,000 $546 $803 -$257 -$4.94
$80,000 $578 $803 -$225 -$4.33
$90,000 $610 $679 -$69 -$1.33
$100,000 $650 $679 -$29 -$0.56
$110,000 $674 $679 -$5 -$0.10
$120,000 $694 $606 $88 $1.69
$130,000 $734 $606 $128 $2.46
$140,000 $775 $531 $244 $4.69
$150,000 $817 $281 $536 $10.31
$160,000 $859 $31 $828 $15.92
$170,000 $899 $6 $893 $17.17
$180,000 $943 $6 $937 $18.02
$190,000 $986 $6 $980 $18.85
$200,000 $1,030 $6 $1,024 $19.69

Tony Abbott will no doubt focus on the red parts – the people who are worse off. He did this today – take this from the Liberal’s media release:

For example, a policeman and a nurse each earning $70,000 a year with one dependent child will be on average $230 a year worse off even after compensation. And that’s just for starters.

Notice the “each earning $70,000” rather than “together earning $140,000”. And certainly no mention that such a family brings in around $60,000 more than the median family…

Nonetheless the hits are there – some small, some large – and it will be up to the Labor Party to convince the public that the cost is worth it to reduce carbon emissions.

But now the framework is set. Abbott’s hyperbole about the end of times looks decidedly overblown – and his performance in his press conference suggested he is still trying to work out how he is going to counter the tax cuts, and the fact that the big hits are to households well above the median rate.

Gillard, once again looked comfortable – but she often does when introducing new policy and gearing up for the fight. She has been less impressive once the battle is joined and Abbott has found his spin.

And so now we prepare for the fight – armed with some facts and not just assumptions. Will that change the fortunes of the ALP and the LNP? Or has the battleground been set already and the voters will take the tax cuts and still stay firmly opposed to the ALP?

Today Tony Abbott’s attack lost a bit of puff, and it would be tempting for the ALP to focus on that aspect, but, for mine, the best thing the Labor Party could do now is to ignore him, and just get out there and sell this policy.

There is plenty of time to show up Abbott’s outlandish predictions for the dopiness they are, for now Julia Gillard need to focus on the electorate, not the opposition.