By Stephen Koukoulas
Australia had a price on carbon for two years. Its impact on energy consumption and production was as expected, with energy usage falling in absolute and per capita terms and energy production shifting substantially towards clean, renewable sources.
Now that it has gone, the following snapshot outlines how well the economy has continued to perform while the carbon price was in place.
It has been noted many times before that as the carbon price was being introduced, then opposition leader Tony Abbott suggested â€œthis toxic taxâ€ would “act as a wrecking ball across the economyâ€ and that the economic consequences would be “absolutely catastrophic”.
It was also forecast that the introduction of the tax would “wipe out jobs big-time” while towns like Whyalla would be “wiped off the map” and “ghost townsâ€ would be created as a direct result of the tax.
These forecasts have proven to be ridiculously wrong. If a market economist or Reserve Bank of Australia official used those projections to form a hard forecast for the economy and financial markets, they would have been forecasting a deep recession for Australia â€“ perhaps worse.
The embarrassing misjudgment of those forecasts would have no doubt lead to the sacking of those making such outlandish and costly forecasting errors.
A look at a myriad of data on the economy shows why.
The facts below are all based on the latest available Australian Bureau of Statistics or RBA data, unless otherwise indicated. There are still some hard data yet to come for the June quarter, but the results are clear.
Since the carbon price was introduced:
- Real GDP has risen by 5.0 per cent over 7 quarters (an annualised growth rate of 2.9 per cent which is around the long run trend).
- Employment has risen by 240,800 people, made up of 91,200 new full-time jobs and 149,600 part-time jobs. This is a touch below trend, but this together with the GDP growth rate suggests productivity growth has been strong.
- The stock market (All Ordinaries index) has risen 35%, adding over $410bn to the value of Australian shares. A further $90bn or so of dividends were paid to shareholders while the carbon price was in place.
- According to RP Data, house prices rose 16% while the carbon price was in place, adding approximately $680bn to the wealth of owners of houses.
It is these last two points that are powerful: the gains in stock market values and house prices alone total nearly $1.2 trillion, or more than $100,000 per Australian household, on average, while the carbon price was in place.
A range of other indicators point to the maintenance of normal economic conditions.
Inflation, measured by the consumer price index, has risen by 5.5% in the past two years, a figure which includes the one-off impact on prices for electricity and gas from the carbon price. Underlying inflation has risen 5.3% over the same time which is an annualised of 2.6%) which is right in the middle of the RBAâ€™s target band.
The wages price index has risen by 5.2% in seven quarters since the carbon price took effect (annualised pace of 2.9%), locking in a period of moderate wage increases. While the data on average weekly earnings is not timely, it is estimated that average wages have risen by approximately $80.00 a week which is over $4,000 in annualised terms.
There are a myriad of other indicators for retail sales, new motor vehicle registrations, building approvals, credit, housing finance and the like. They are all similarly solid or strong.
Australiaâ€™s triple-A credit rating has also remained unchallenged, bond yields were low and the Australian dollar strong.
The carbon price clearly then had no material or lasting impact on the macroeconomy. Things kept rolling along with the other drivers of economic activity, namely global conditions, the level of the Australian dollar, interest rates and fiscal policy all doing their thing.
It will not be interesting, at all, to see whether the repeal of the carbon price will have any impact on the economy. It wonâ€™t.
But having said that, if over the next two years the economy can more or less match the performance seen over the past two years when the price on carbon price was in place, it will be good news â€“ Australia will have passed 25 years without a recession. The only disappointing thing is that there will be no effective government policy in place to reduce Australiaâ€™s carbon footprint in the world.