Carbon tax torment or Mickey Mouse?

Since the carbon price was put in place on July 1 2012, the available information suggests the economy is still growing, jobs are still being created, underlying inflation and wages growth are moderate, interest rates remain low, the credit rating agencies have reiterated the triple-A status of Australia and share prices and the Australian dollar have, on average, risen.

While there are challenges ahead for the economy, a sober analysis of the Australian economy would categorise those challenges as either unfolding events from offshore, or issues to do with the high dollar, monetary policy and the budget surplus objective of the government. No one in their right mind would suggest the carbon tax is having anything other than an infinitesimal impact on the big picture momentum of the economy.

The data analysis below notes what has happened to a range of economic, market and other variables in the last four and half months and unless it is obvious, makes no claim that the carbon price had, or didn’t have, an influence on those results. It is just a simple statement of facts to note the trivial impact on things now that the price on carbon has been in place for a reasonable period of time.

In terms of inflation, the September quarter CPI rose 1.4 per cent, with a sharp boost from the carbon price driven lift in electricity and gas prices. Underlying inflation rose 0.7 per cent in the quarter.

Employment has risen by 29,600 since June, with full-time jobs rising 64,900 and a partial offset from a fall of 35,200 in part-time employment. The unemployment rate has risen from 5.3 per cent in June to be at 5.4 per cent in October. The number of ANZ job ads has fallen 11.6 per cent since June, suggesting there may be further softness in labour market conditions in the next few months.

The wages price index rose by 0.7 per cent in the September quarter. This is below the 0.9 per cent average of the last decade and is a result that has only had one lower reading since 2000. Wages growth is moderate.

The value of retail sales has recorded no growth in nominal terms since June, while in real (inflation adjusted) terms, retail sales fell 0.1 per cent in the September quarter.

The number of new motor vehicle registrations has risen by 4.7 per cent since June and in October, were the second highest ever recorded – the highest ever was in September.

The number of dwelling building approvals has fallen 6.5 per cent since June, but the number of new housing loans for owner occupation has risen by 1.9 per cent over the same period.

The NAB measure of business conditions has fallen from -1 points in June to -5 points in October, but business confidence has risen from -3 points to -1 points over the same timeframe.

The Westpac measure of consumer sentiment has risen by 9.1 per cent since June to be at a 19-month high.

The RBA index of commodity prices has fallen 9.4 per cent in Australian dollar terms in June and has fallen 6.5 per cent in US dollar terms. 

The RBA has cut the official cash rate from 3.5 per cent to 3.25 per cent.

The RP Data measure of house prices has risen by 1.4 per cent since 30 June. This has added around $60 billion to household wealth.

In terms of market variables, the ASX 200 index has risen 6.2 per cent since end June, a move which has added around $70 billion to the market cap of all companies listed on the exchange.

The 10-year government bond yield has fallen just 1 basis point to 3.03 per cent as of yesterday’s close.

The Australian dollar has risen around 1.7 per cent as strong foreign inflows into Australia continue. This rise in the Australian dollar is despite lower commodity prices, an interest rate cut and signs the Reserve Bank is conducting a gentle intervention to drive it lower.

In the interim, credit rating agencies Standard & Poor’s, Moody's and Fitch have confirmed Australia’s triple-A credit rating, citing low government debt and sound fiscal settings as principle reasons behind the decision.

These are the hard facts. Some would point out the early payment of carbon compensation boosted retail sales prior to the official introduction of the carbon price. There could also be a longer time frame in terms of the flow through to the CPI. Time will tell. Most other indicators are volatile and will have been driven by things completely unrelated to carbon.

The point of the exercise it to note the economy is still rolling along with patchy growth from sector to sector. The carbon tax was a Mickey Mouse event in terms of its impact on the macroeconomy – as it always was going to be. At the same time, international investors continue to hold Australia in the highest regard and talk of wrecking balls through the economy were and are disingenuous. That said, the price on carbon will reduce carbon emissions – which is in fact what all the fuss should be about.

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