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Koukoulas: the real shock on electricity bills

I suspect most people have little idea where they spend their money or how much they spend on each item they consume. The reason for this suspicion is the current debate over electricity prices and the related discussion on so-called cost of living pressures.

On any aggregate measure, there has been a decade-long easing in cost of living pressures for the average Australian household. This has been driven by a powerful mix of rising wages, rising pensions and lower taxes which have swamped the impact of generally small price rises and what is currently a very low rate of inflation. Complaints from the general community about “doing it tough” are hard to fathom.

To electricity first. The average household allocates a little over 2% of spending to the consumption of electricity. If gas and “other household fuel” (wood, heating oil and the like) are added to electricity, the total spend is around 2.5%.

According to the national accounts, household expenditure on electricity, gas and other fuel was a touch over $19 billion in the year to the March quarter 2012. Total household final consumption expenditure over the same period was $786 billion, meaning that total household energy consumption accounted for 2.4% of all household consumption spending. Using the weights for the June quarter CPI as a cross check and spending on electricity was 2.2% of household expenditure. In other words, the numbers line up.

By way of comparison, 4.8% of household spending is on petrol (including diesel and gas), double that of electricity. Since the June quarter 2008, petrol prices have fallen 2.5%, but you don’t hear too much of that is the atmospherics and high drama of these “tough” times. A quite remarkable (to my mind) 3.6% of household spending is on alcoholic beverages, cigarettes and tobacco. That’s about 50% more than is spent on electricity. It is even more extreme for hotels, restaurants and cafes, which account for 7.1% of household expenditure — nearly three times the amount spent on electricity.

There are around 8.6 million households in Australia, meaning the average annual expenditure on electricity is currently about $2,000. Five years ago, the average expenditure was around $1,200 a year.

The average annual household electricity bill has risen by $800 over that time, which translates to around $15.40 a week. At face value this seems a lot. Note that the average household spends $117 a week on hotels, restaurants and cafes.

But let’s have a look at the other side of the household financial accounts — income.

Over those same five years, average weekly earnings have risen by $180 a week (recall there are an average of 1.4 people in paid employment in each household) and for a single age pensioner, the weekly pension has risen by around $80 a week. And a single pension would have a much smaller electricity bill than the average household, especially when generous rebates and the like are taken into account.

In the most simple terms, while there has been a large increase in electricity bills in the last five years, the prices of other goods and services have increased by a small amount (2.5% per annum on average). This means quite simply that overall cost of living pressures have been easing. Wages growth has outpaced inflation by an average of 1.7% per annum over the past five years which has provided a significant boost to living standards.

All of the above figures and facts are based on averages. Some households have no one who smokes, or spend more than 2.5% of their income on electricity. Some people are unemployed, and some get big pay rises and spend lots of money eating out. This means that there are always people and households that are below average on any of these measures and inevitably some are doing it tough now. But based on the aggregate data, that number is relatively small and there are many more people who are much better off now than five years ago.

Footnote: The source for these data is the Australian Bureau of Statistics and the consumption patterns are, not surprisingly, similar whether the data are taken from the national accounts, the weights in the consumer price index or the household expenditure survey.

*This story was first published at Climate Spectator

11
  • 1
    Dajopa
    Posted Tuesday, 14 August 2012 at 12:25 pm | Permalink

    Ummmmm………..house prices? not worth a mention?

  • 2
    Ian Johnston
    Posted Tuesday, 14 August 2012 at 1:39 pm | Permalink

    Aggregate data is a pretty poor way to analyse the cost of power on the households at the bottom 25% of the household expenditure curve.

  • 3
    NeoTheFatCat
    Posted Tuesday, 14 August 2012 at 2:15 pm | Permalink

    Unfortunately, there will never be enough proof for those who desperately want to believe that they’re “doing it tough”. Either the statistics are faulty, or the ABS is in collusion with the Government.

    As always, people are unable to separate personal experience from the reality. Personal experience tells me that I never have enough for what I want, and damn the statistics that say otherwise.

  • 4
    Hamis Hill
    Posted Tuesday, 14 August 2012 at 3:19 pm | Permalink

    DAJOPA, yes the collapse of capital gains, inevitable after the Howard-Costello mortgage debt orgy, is totally discounted in the “what have they got to whinge about” calculations.
    There has been a total and permanent change to the financial circumstances of the last thirty years.
    Never to be taken into account, it seems.

  • 5
    drmick
    Posted Tuesday, 14 August 2012 at 3:30 pm | Permalink

    A lot of people live in an economy where the average income is double what they earn. A lot of people also haven’t had the “average wage rises”, that you talk of; yet they have to pay the same for services as those who earn 10 times the “average wage”. Dont tell any carer working in aged care that they are on the gravy train.

  • 6
    Tim nash
    Posted Tuesday, 14 August 2012 at 4:22 pm | Permalink

    I love how this is pointed back at the “consumer”

    Like because we have a huge price rise in a utility we where supposed to all just sit around twiddling our thumbs going “oh well our salaries are going up and you know what, I spend more on going to the movies and other things anyways so putting up electricity..that’s fine!

    Exactly who is an article like this aimed at? A multi-million dollar electricity retailer CEO.

    Then there is the whole “consumers are not doing more to reduce demand”

    Well there has been reductions in demands due to solar panels.

    So we have been doing things to reduce demand..and our bills still go up.

    Can you see why consumers are so pissed off?

  • 7
    Dogs breakfast
    Posted Tuesday, 14 August 2012 at 4:34 pm | Permalink

    Stephen K, of course you should expect a bollocking for putting facts in front of people who aren’t interested in the facts.

    Things appear to be tough for a lot of people, but it largely isn’t because of higher prices outpacing their wages.

    But there are other issues, principally telephony, plus some fancy technology, which years ago wasn’t even considered as a ‘want’ which has now become essential.

    The fact is that a lot of people who do whinge about the cost of living will also be sending their children to private schools. Now the low cost catholic and similar aren’t a part of this, but if you can afford $10K to $25k per year for your kid to go to school, you aren’t struggling because of the effects of electricity price rises.

    If Electricity bills were sent out weekly it would change the perception entirely. If Petrol bills were sent out quarterly people might stop driving.

    Perception and reality, not always aligned.

  • 8
    pedro
    Posted Tuesday, 14 August 2012 at 7:17 pm | Permalink

    It’s simple really, as Dogs breakfast says.

    The problem is that most people pay quarterly, so it’s a whack you remember.

    Secondly, the msm (for some strange reason - definitely not high drama) always reports the annual amount of increase.

    Average $120 increase” they screamed this week. They could have said “30 cents per day increase”, or a small increase, which is what it is. But no, it has to be as dramatic as possible.

    Why not just make all utility bills monthly? It’s surely less than half a week’s rent. End of story.

  • 9
    stephen.coates
    Posted Wednesday, 15 August 2012 at 12:31 pm | Permalink

    I read this article with interest and take the point that it is based upon averages. I agree the majority of Australians are not average, but either above or below, but I don’t agree with the comment that a relatively small number of people are doing it tough now, not from the people I know.
    I have tracked my household spending meticulously over ten years and the impact of electricity costs was more affected by the changing household income, kids education and mortgage costs but not price increases.
    In 2008, electricity accounted for 1.3% of the dual household income and now it accounts for 6%.
    Now with no mortgage/single income, it sits behind food/dining out and health insurance as the third highest household cost. Gas hot water and cooking is excluded.
    But then we have a second beer fridge, a pool pump running 6 hours per day, muliple TV’s, PC’s etc all mostly in operating/standby mode. The price of increasing electronic consumerism.
    Then I get dismayed that the majority of the Australian public is influenced by shock jocks, headline seeking media outlets, right wing liberals and lobby biased public officals.
    Is it because they will gain more support (ratings/votes) by saying everybody will be better off with thier glass half empty views?
    I will support whoever provides the most ethical, professional, strong leadership and strategic direction.
    By nearly every peer reviewed article I have read, the majority of Australians should be grateful for the position they are in compared to the rest of the world.

  • 10
    drsmithy
    Posted Wednesday, 15 August 2012 at 12:34 pm | Permalink

    Beware anyone peddling average figures when it comes to incomes. Median is much more representative.

    On top of which, it’s hard to take anyone seriously when they talk about cost of living pressures without including housing costs.

  • 11
    iggy648
    Posted Monday, 20 August 2012 at 3:29 pm | Permalink

    Surely to stay in business, a company providing electricity must make $X income to pay its bills, pay its staff, shareholders, etc. If it makes less, it goes out of business.
    $X = N (number of units sold) * $A (average cost per unit)
    Or $A = $X/N
    So if everybody cut down their consumption by an average of 25%, the price per unit would have to go up by 25% innit?
    Thinking of cutting down all the trees around my house so I can go solar!

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