Living standards are going up but are lower than six years ago – hardly a winning argument
Often politics will involve asserting things that feel right even though the evidence doesn’t support it. Such was the case this week with the Labor party’s assertion about rising energy prices. But we also had the situation of the treasurer arguing that living standards had improved, which not only didn’t feel right but also was questionable when his evidence was held up to the light.
The ALP’s focus this week was on energy prices and saw Bill Shorten and Mark Butler ask a variety of questions attempting to assert that power prices have gone up. Shorten for example asked, could “the prime minister confirm that the average Sydney household is paying almost $1,000 more in power bills since this federal Liberal government was elected to office?”
The claim that power prices have gone up by $1,000 is a big one and the ALP didn’t really back it up.
Because the data doesn’t support
The most recent inflation figures show that since September 2013 electricity prices in Sydney have actually fallen 2.1%. That’s because the carbon price ended in July 2014 and prices did fall once power companies could pump carbon emissions into the atmosphere for free.
That last aspect really is the crux of the issue. But rather than debate the impact of carbon emissions, our energy debate as ever is stuck on the issue of price. Because providing carbon emissions had zero cost, the quarter after the carbon price ended, electricity prices in Sydney on average fell 7.3%.
But because prices of things do inevitably go up, they have risen since then – and very much so in the past year.
In the 12 months to June this year, the Australian Bureau of Statistics calculated that Sydney electricity prices rose 10%. That is a sizeable jump – but it is still a long way from seeing energy prices going up $1,000.
The ALP knows that while prices might have fallen two years ago, they are rising now, and that will take precedence in people’s minds – not only because it is more recent, but because the recent rises reinforces the pre-held belief that power prices always go up.
And it should be stated that is not an incorrect assumption.
In the past decade electricity prices in Sydney have risen 116% compared with the overall rate of inflation in Sydney during that time of just 27%.
Arguing that electricity prices are going up is always going to be an easy sell, and while the government is right that prices have fallen, it is only that case if they use a time frame that suits their narrative – ie since the 2013 election rather than the past year.
Such cherrypicking of time frames was also done by the treasurer in a response to an assertion made by Shorten in parliament that despite promising economic leadership Malcolm Turnbull had delivered (among other things ) “declining living standards”.
The treasurer tweeted on Thursday that this was “false” and the “National Accts show they’re up 3.8%”
The figure Morrison is using to justify this claim is “real net national disposable income per capita” – a measure Chris Bowen has also used in the past to talk about living standards.
A while it is correct that since September 2015 the measure has grown 3.8%, and the treasurer might feel on strong footing given the opposition has also used this data, the use of it does provide some less than happy storytelling.
For example, using that measure you could argue that living standards fell 1.4% in the June quarter alone – the biggest quarterly fall in two years, and the second biggest fall since the GFC.
Not exactly a solid narrative.
The treasurer would also need to admit that on this measure living standards remain lower now than they were in 2011.
The ABS estimates that in June this year real net national disposable income per capita was $13,942 – lower than the $13,971 measured six years ago in June 2011.
That living standards are going up but they are lower than they were six years ago – and also a mere 0.8% better than they were when the Liberal party took office – is a hardly a winning argument. And this is even more the case given it doesn’t fit with other data or people’s perceptions that living standards have actually fallen in recent times.
Certainly over the past four years real wages have been flat – since March 2013 the Reserve Bank’s underlying measure of inflation has risen 9.4%, while in that time private sector wages have risen just 9.3%.
Similarly figures out just this
week showed that both median and average household incomes fell from 2013-14 to 2015-16.
One reason for the discrepancy between these figures and Morrison’s assertions is that the measure he has used is a measure of national income, not household income.
And national income gets a big boost when the price of our exports rises. As the ABS noted back in 2013 this caused national income to rise much faster the GDP during the mining boom.
And once again fast rising export prices has been a big driver of national income. Since September 2015 the terms of trade have risen 18% in trend terms – a growth level similar to that experienced in 2005-06.
But the difference was that back then it fuelled an employment boom that saw wages grow strongly. This time round the boom has seen a massive jump in company profits while wages growth has shuddered along at record lows.
Profits however add to national income and thus makes the measure of real net national disposable income look rather good.
But the national accounts also measure household income, and there the picture is rather less cheery.
In nominal terms, since Turnbull took over the prime ministership, household disposable income has grown by less than half that of national disposable income, and on a real per capita basis it has if anything gone backwards and is mostly flat since 2011.
While the ALP’s argument struggles when held up against the data and time frames but gels with people’s perceptions, Morrison’s claims not only falter against other data and other time frames, they also jar with people’s perceptions.
People are often slow to acknowledge improvements in their standard of living, and to that extent treasurers often have a hard time selling a positive picture. Generally they need strong employment growth and wages growth.
This week showed that employment continues to grow well, but until wages follows suit, the treasurer is going to have a hard time convincing anyone that their standard of living has improved – whatever measure or time frame he chooses to use.
Since ‘Turnbull took over the prime ministership, household disposable income has grown by less than half that of national disposable income’. Photograph: Dan Peled/AAP