Budget's Energy Rebates Manipulate CPI But Will Fail to Mask Inflationary Policies

The Albanese government is using taxpayers’ money and accounting tricks to cover up the inflationary pressures its?own?policies are exacerbating, particularly those arising from the so-called energy transition.

A responsible budget would have sought to keep a lid on inflation, which is tracked by the Australian Bureau of Statistics (ABS) through the Consumer Price Index (CPI). Instead, Treasurer Jim Chalmers has produced an inflationary budget, while cynically taking steps to artificially lower official inflation numbers.

The most notable of these measures are the so-called energy rebates and rental subsidies which purport to address the cost of living crisis. Now, if the energy rebate was provided directly to Australians after they had paid their bill, then the ABS would clearly reflect the fact that the cost of energy is continuing to increase as the government pursues its Net Zero fantasies. Instead, the government will conscript energy retailers to receive the subsidy and provide it as a credit on the consumer’s bill at the point it is issued. Thus, by sleight of hand, CPI will be lower than it otherwise would have been.

This comes at a time when the Reserve Bank of Australia (RBA) is expressing real concern about its ability to bring down inflation, with a tightened monetary policy being overwhelmed by extra, and highly inflationary, spending by State and Federal governments.

The optimism we experienced at the prospect of lower interest rates in both the USA and Australia as recently as six months ago has now evaporated. Joe Biden has said he no longer wants to hear about ‘Bidenomics’, as the failure of his Inflation Reduction Act to achieve its supposed objective becomes apparent. Some market analysts are even predicting the RBA will be forced to increase rather than ease interest rates.

This is now a test for the RBA Governor, Michelle Bullock. Will she act like a compliant bureaucrat responding only to published CPI numbers? Or will the RBA look at the reality of an economy where reckless government spending is fuelling inflation and policy settings are increasing the cost of construction, energy, and transportation? Based on the relatively stern statements made to date, I would predict Bullock will focus on the substance, not the form.

I must admit I regret being an enabler of Jim Chalmers’ trickery, by loosely referring over the past two years to the ‘cost of living crisis’.?Cost?of living as measured by CPI is subjectively experienced by households as a crisis because the price of the typical basket of goods is going up. But, in reality, we have a ‘value of currency crisis’. Subjectively we see higher prices, but a potato is still a potato. What has changed, objectively, is the value of the note we have in our?hand.

Inflation is the product of the currency being debased. Governments in Australia and across the West did many bad things during the Covid response, but the worst was to both shut down the physical economy and then simultaneously pump in a massive monetary stimulus to preserve the measured figures for GDP and growth. This disconnect between reality and the nominal value of goods and services, as measured in dollars, could not last, and it has not.

Many years ago, the Nobel Prize-winning economist Milton Friedman, said, ‘Inflation is always and everywhere a monetary phenomenon.’ He has been proven right once again.

In his analysis of the budget, economist Chris Richardson, was right to say it is an inflation-inducing document. Wages have not kept pace with prices, the RBA will have to increase your mortgage costs above where they might otherwise have been, and the taxman will get a bigger slice of your income due to bracket creep.

Meanwhile, there is a real-world impact on underlying price levels of an ‘energy transition’?which moves?us from secure and affordable forms of energy to intermittent and expensive renewable alternatives. The federal government is now providing subsidies for so-called clean energy to spur this transition while simultaneously providing subsidies to consumers to shield them from the impact.

Supposedly this budget measure only lasts for one year, kicking the problem down the road past the next election. But such subsidies, once in place, are very hard to shift. The International Energy Agency (IEA) has reported there has been a rapid increase in so-called ‘affordability measures’, tracking towards more than a trillion US Dollars globally.

In line with their aping of the failed German?Energiewende (energy transition), Australian policymakers are adopting?the tricks?that attempt to blind consumers (and voters) from the consequences of the transition. Of those, the IEA reports:

‘European Union countries are now responsible for two-thirds of total affordability measures. Germany is the largest single contributor to this total, and is estimated to be on track to spend around one-half of its EUR 200 billion economic shield (Abwehrschirm) budget envelope approved last October.’

In the short term hard-pressed Australians could be forgiven for welcoming the cash handout to provide relief from surging energy bills. But, as The Who once said, we 'won’t get fooled again.’

Scott Hargreaves is the Executive Director of the Institute of Public Affairs. This is an edited version of an article which first appeared at Spectator Australia "Flat White".

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