Cost of Living increases and the policies which drive them.

These policies define the Capitalist/Socialist divide and they bell the cat about Conservative politics in General.

A few years ago I was asked by an MP to do some work on cost of Living. So I started off by looking at the bits and pieces which the ordinary people have to pay on a weekly basis.

First of all they have to eat. Where do they get their food from? The supermarkets.

Secondly they have to have a roof over their heads, How much does this cost? (on an ongoing basis)

Thirdly they consume electricity and Gas and drink water.

No one could argue that these three things make up the absolute necessities of living.

Other products and services could be and are discretionary. They are not absolutely necessary.

So lets have a short look at the first two and a longer look at Electricity and how that is, affecting our cost of living.

Competition Policy – The food we eat and where we buy it.

The first comment we can make about the Supermarkets is that they control the majority of food and groceries sold in Australia. Coles and Woolworths are what is known as a duopoly. So the Policy which affects the cost of living of consumers of Coles and Woolworths is Competition policy.

Are two huge supermarket chains good for competition? The short answer must be no. They allow the two huge organisations to actually have too much market power; Market power which dictates the price that farmers sell their goods to these organisations for. Rather than the farmer saying, I will sell you these cabbages for x price. The supermarkets say we will buy these cabbages for y cost.

This is pretty simplistic and a swag of experts argue about Supermarket power in Australia and other markets at this University of Melbourne Symposium. Hosted by the Competition, Law and Economics network at Melbourne Uni.

My point is that competition provides lower costs for consumers and better outcomes for farmers. It is a much better natural market mechanism than a Duopoly.

One only has to look at the day to day prices of goods at ALDi and then the other majors to see that their prices for the same goods are hugely inflated in the duopoly.

Housing Policy.

Housing in a developed country like Australia is a major part of the economy, both as a driver of industry and jobs (demand for inputs) and as a Supplier of finished affordable products.

So the cost of housing is an important factor in the economic landscape. It is measured in various ways.

Government Policy under the liberals (The Howard government) actually drove the growth shown by Howard’s Government in the national accounts.

Giving people a grant to buy their first home and giving them a grant to buy their home was a real driver in the increase of the price of houses.

Whilst wages grew at trend during the Howard years, the proportion of the average disposable income spent on the mortgage changed by about 20%. When Howard came to power in 1996 the proportion of the average disposable income spent on a house was 30%, when he left power in 2007, it was 50%. So it increased from a third up to half up by 20%.

His reckless policy of giving away huge grants to people sure drove the housing market, but it also drove the cost of living up hugely.

Electricity Poiicy (Public utility), as an example of a cost of living increase.

Perhaps the greatest example of the cost of Living increase in our lifetime is the cost of Electricity.

I will use Victoria (Australia) as my example because it shows some really distressing trends for the rest of Australia. It also shows that the free marketeers of the conservative parties have created the biggest, most manipulated and false market conditions ever seen in the capitalist greed model.

When Jeff Kennett came to power in the early 1990’s he followed a not particularly Economic articulate labor government. The debt left by Labor, Kennett immediately started talking about as the biggest economic disaster of all time.

It was a good excuse to look at selling off the two most valuable assets of the State. The State Electricity commission of Victoria and the Gas and Fuel Corporation.

I want to use the SEC(V) as my example.

So how efficient was the State owned corporation? The answer is very efficient.

The authority I use for this is the work of Professor Sharon Beder of Wollongong University.

http://www.herinst.org/sbeder/privatisation/UnionsNSW.pdf

Let us first look at how well the SECV was travelling before Kennett decided to sell it.

Page 8 of this paper.

“However, in the case of the State Electricity Commission of Victoria (SECV), debt was not really a problem. In the year before it was broken up, 1992/3, “it paid $995 million in interest, a $191 million dividend to the State Government, and had a profit of $207 million.”9 Mark Skulley, ‘Private Power, Public Interest’, Sydney Morning Herald, 11 March, 1995, p. 32.”

The paper goes onto say

“An Independent Inquiry into the Privatization of Victoria’s Electricity Industry found

that in the year prior to SECV restructuring, its debt-equity ratio was 342 percent

compared with an average of 382 percent for the top 20 Australian companies on the

Australian stock exchange. In addition a 1994 Bureau of Industry Economics study

found that Victoria’s electricity prices to industry were eighth cheapest out of 40

OECD countries.10 Cited in ‘Independent Inquiry Recommends Halt to Electricity Privatization’, Frontline, September, 1995, p. 4.”

So in summary the SECV was investing, it was delivering a dividend to Government and it was also making a profit, whilst being the 8th cheapest Electricity supplier in Victoria.

So why sell it? By any Business idea it was working well.

The same was true of South Australia.

“Electricity privatisation in South Australia (SA), which occurred in 1999, was also

promoted as a debt reduction measure. State debt was portrayed as being out of

control. In fact SA’s debt was “at historically low levels”. Before its breakup and sale

the Electricity Trust of SA (ETSA) contributed some $2 billion dollars to state revenue over the previous decade and its operating costs had decreased significantly. The money from the sale did not adequately compensate for this loss of income.11 Greg Kelton and Kim Wheatley, ‘Pulling the Plug’, The Advertiser, 10 February, 2001b, p. 23; Spoehr, ‘Power Struggles’, p. 17; Rohan Gowland, ‘Power Sale Bonanza for Advisors’, The Guardian, 24 June, 1998; ‘Victory as ETSA Sale Stopped’, The Guardian, 1 July, 1998.”

In Victoria the following two things also happened.
1/ The price was raised by 10% to make the sale more attractive Page 20

2/ 13000 workers lost their jobs. Page 20

The following also happened.

1/ Apprentices stopped being trained in the same numbers as pre privatisation.

2/ The system became less reliable. More blackouts because of less maintenance.

But the major thing that happened was that a false market was created. Before privatisation, the SECV as one entity was owned by all Victorians. When it was sold it was split into two, Supply and generation and these were further split into other supply and generation companies. False market economics. As soon as you sell a Public asset the first thing the buyer wants to do is increase profitability. They have done this by sacking workers and also lobbying for the price to rise. In the Beder study it is claimed that Electricity prices in Victoria and South Australia were 20% higher than NSW where the Electriity assets were still State owned.

3/ Maintenance of Appliances connected to the system.

In the case of the gas and fuel corporation, they used to employ an expert team of technicians who would come and fix or install a replacement if it could not be fixed. They also charged reasonably and you could pay the debt off on your Electricity or Gas account.

Contrast today.

I had occasion to ring up a supplier of my ducted heating system, because a blackout had fried my Gas controller. It needed to be replaced.

The Make is Brivis. How much do you think they charge for the call out?

$229. If your a pensioner or disabled it’s $169.

To this you have to add parts.

So if a service man makes 8 calls a day (one per hour), the company makes $1832 per day. And for a 5 day week $9160. And for a 48 week year $439,680. BEFORE THEY HAVE FIXED ANYTHING!

I actually managed to get a call out fee of $150 and to change the controller was $180. The tech also advised me to claim through the electricity supplier and I was amazed when they paid me the full amount.

So the Liberal party, Who don’t forget can “govern much better than the Labor party” presided over the greatest rip of, of the Victorian and South Australia consumers in living memory and still they claim that cost of living is better under them.

There is one more factor that I haven’t included and that is the PAYE tax receipts that were lost to the Federal government as a result of selling the SECV and the Electricity Trust of South Australia (ETSA). Because of the Jobs lost in the process.

Not only that but imagine the damage that the loss of those jobs did in The Latrobe Valley in Victoria and the further loss of livelihood of businesses who depended on those workers consuming on a weekly basis.

We are told by the Economic illiteracy of Joe Hockey that the age of Entitlement is over and in my opinion he has stewarded in a new Age of Economic Vandalism and cost of living increases by his far right idea of the world.

One such example is his goading of the Car manufacturing firm Holden, to decide to leave Australia. Nowhere in the world is car manufacturing carried out WITHOUT the assistance of the government of that country in the form of subsidies. NOWHERE.

I wrote about this here

https://vinceogrady.wordpress.com/2014/01/10/holdens-decision-to-exit-australia-and-the-processes-surrounding-it/

Yet Hockey just doesn’t get that because he has no brains and no mathematical ability to understand facts and figures.

If the Australian Government put in a dollar and GM Holden put in three dollars that created eighteen dollars of economic activity. What a great Investment. Yet all of that is now gone.

Add that to the disgraceful Economic performance of the Liberals in Victoria under Kennett, the making of false markets, the increased cost of living of citizens and the absolute sham of a reason to sell off the farm, one wonders why Victorians ever vote for Liberals Governments.

Kennett underhandedly (along with the IPA), trashed the Economy of Victoria by denying Victorians the dividends of the SEC and the Gas and Fuel corporation. They were replaced by the evils of Speeding fines and gambling revenue.

No one has ever asked the Question “If Victorian drivers are so bad, why don’t we teach them to drive properly?”

The answer is because we would lose all of the speeding fine revenue.

So if you want to vote for rises in costs of Living then the best way (in my opinion) to do so is vote Liberal National.

There is one last thing I will propose to you.

If you think I am wrong about Electricity being too high then just look at the discounts that are being offered. Everyone of the suppliers in Victoria is offering 20%. You have to ask the Question, if they can afford to discount by that much then the price is 20% too high.

My advice to the Labor party in Victoria is this.

Re enter the Victorian Electricity market and become an Electricity provider. Price your electricity so that you make a modest profit. Everyone else will have to compete with you in this market. The customers will then see a reduction in the price they pay and the Victorian Government price will see them obtaining all of the customers.

Then as a second string of this strategy, purchase a generating company and build a Solar thermal power station next to the existing dirty coal fired plant. Do this over a few years until the whole of the Electricity supply and generation is back in Government hands and the people are once again inoculated from huge price rises causes by Liberal party Economic policy which advantages their mates rather than the citizens they are supposed to represent. Make an Act of parliament which forbids the sale of Public assets.

As well as having inoculated the cost of living increases of the Liberal Government’s of this land, the building of Solar thermal power next to existing infrastructure will see the fight against climate change taken right up to the place where it needs to be taken to. No one will be able to stop a future progressive government doing this because if followed this Policy will see the ownership of the Asset back in the hands of the people.

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6 thoughts on “Cost of Living increases and the policies which drive them.

  1. Thanks Joy,

    It really annoys me that people like Campbell Newman made lots of comments about cost of living and how he could keep it down. Then increased the cost of Electricity by over 20%

    • Yes, Vince, that is how Newman lied his way into government. Queenslanders should not be so gullible at the next election. Of course, he & his cohorts are still lying through their teeth & fudging figures. Hopefully people aren’t so stupid as to believe them.

      Same with the Victorian elections which are closer between LNP & Labor than it should be. Here in NSW Smooth Boy Baird has hoodwinked the voters & would win handsomely atm but with ICAC going the way it is this could change – hopefully.

  2. One of the biggest problems joy is the false information the press put out about issues. They just repeat the Liberal Media releases. If you have a Public asset that is delivering and providing jobs, it won’t be making a huge profit (because it is not a business, it’s a service to the electors). It stands to reason that as soon as it is sold and run as a business, then the new owners are going to apply all of the business norms of making at least 30% and more if they can maximise it.

    The professor from Wollongong University who I cite in the blog, explains that well in lots of papers she has written.

    If you take a purely pragmatic approach to the issue (and all of us forget the ideology) the customers and owners of the Electricity assets are best served in their return on investment by having them owned by the state (effectively by the voters). This would (and did) return a greater monetary value to them by the savings they would have by not having it sold and the prices rise as they have.

    Joe Hockey wants all the States to sell off everything, yet now Abbott is talking about the States having not enough money to deliver the services they are obliged to. If you sell off an Asset which delivers a dividend to the State, that reduces the amount of money the State can have to provide those services.

    Also blind Freddy knows that the Taxation treatment of a corporation is different than individual workers who pay PAYG. Sack the workers and have less PAYG. The treatment of a corporations Tax liability is gamed by the Accountants who manipulate it so that they minimise Tax (probably lawfully). So its a bad thing for the revenue of the Federal Government too. Look at all the corporations who operate in Australia and who pay bugger all Tax.

    So they have to put Taxes up. In effect we have had a double slug. Taxes increase because the LNP made a bad decision to sell the asset so No dividend, also no PAYG because of the workers sacked. In the case of Victoria 13,200. (Imagine that tax bill). Its actually a triple slug because the Electricity prices have risen also because of the False market created.

    So my claim that Joe Hockey is an Economic illiterate is proven in three ways. All of them detrimental to Australia. But a boon to the private sector Capitalists.

    • Well said Vince. Joe Hockey (who has vanished off the planet, it seems, thus proving he is an alien) is the most incompetent, economically illiterate Treasurer in Australia’s history, as well as being just plain dumb. Costello wasn’t much cop either but he was at least able to fool the electorate, for years, into thinking he was doing his job.

      The Australian media, of all stripes, is the most pro Abbott & other LNP governments of the world’s media apart from that of North Korea. The MSM has been, & still is, deliberately partisan giving the public a jaundiced view of politics in this country No wonder people are confused from all the neo-con Tea Party propaganda with voters, happily voting against their own best intersts.

  3. Joy, I am certain that there are a lot more people like us who think the same and an awful lot more who don’t have the time to stop the grind of their life to be able to find out what is really going on.

    Every policy area is under duress by the Conservative Tea party types. I saw a news item two days ago that the Europeans are going to have a 40% drop in emissions.

    Whereas we are going to have a reduction in the reduction.

    How ever Australians were duped into voting for the climate deniers is amazing and a tad depressing.

    Interesting watching Kitchen Cabinet last night with Andrew Robb, with the personality of a sand grain and his invitee Mary Joe Fisher, the lady unable to answer a question directly.

    Their discussion about depression was so self absorbed that I was nearly sick, especially when a third of the people on Disability pensions (of a total of 800,000) are mentally ill. And they are, according to that other doyen of the church, Kevin Andrews, Bludgers.

    Isn’t it amazing that the Liberal party people when in trouble head for the convenience of the Hospital bed or some such other excuse. Yet the people who are really ill with a disability are treated as pariahs.

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