How important are energy costs to the average household?

Look I’m still trying to work out how much of the new energy policy agreed by the coalition is about appeasing the right wing of their party and how much makes any sense for the rest of us out in the real world where global warming is accepted as a real problem. But the one element that continues to perplex me is the focus on energy costs – so time for some research.

Over the last few years energy costs have gone up in most Australian States. The Northern Territory and the ACT are the only places they have remained stable. The increase has been up to 37% over the last 8 years (without adjusting for inflation), so that’s a fair increase on its face. But when you dig a little it doesn’t seem so horrifying.

When it comes to energy, households in some cities were spending a lot more in 2015-16 to keep the lights on than in 2009-10. Perth and Adelaide saw the largest percentage increases in average electricity spending, at 37 per cent and 30 per cent respectively. Hobart and Canberra were the only capital cities where spending on electricity remained stable over the six years.

Here’s why it seems the focus on energy may not be as significant as it’s made out to be. First energy costs make up a relatively small part of the household budget, so while there have been increases they are off a low base. Certainly the increases in energy costs are dwarfed by the increases in mortgage costs over the same period and are equally dwarfed by savings in other areas such as food and transport. So while there have been increases for most people, they’re not huge in real dollar terms largely because spending on electricity and gas simply don’t make up a huge part of the average budget.

The obvious riposte here is that these figures don’t match with the flood of headlines about the consequences for people of rising power bills (“SOARING electricity and gas costs are crippling families”). One obvious answer to that is that it’s an example of the classic problem in quoting percentage changes without any context.

Another is that it’s certainly arguable that electricity and gas are different because they’re an area that people have little control over. They are in effect a completely non-discretionary spend that people sacrifice in other areas to cover.

It’s arguable, as an example, that expenditure on food has gone down to pay for the other increases. The fact that the ABS figures show a continual slight drift towards more being spent on basic expenditure and less on discretionary would tend to support that argument. But some of that is going to be driven by the fact that costs of underlying discretionary items have fallen and patterns of spend have changed – tobacco products take up a smaller proportion of expenditure for example.

The fixed costs argument is also reflected in stats showing that energy costs make up around 4% of a low-income household’s expenditure, but only 2% of a high-income household’s expenditure. But neither of those numbers is very high and fiddling with them won’t make a significant difference.

Costs over which you have little control are always going to be legitimate concerns. But energy costs are clearly not the main driver in household expenditure and are not likely to become so. Fiddling around the edges of them is not going to make life significantly either better or worse for most people. That’s just a statistical fact.

If the government wanted to target areas that would make a difference to the average household then focusing on the costs of education and healthcare would be the place to start.

Or put another way, if it was to take energy costs rising by a couple of percentage points for Australia to meet its targets on reducing global warming, that would quite literally be a small price for most households to pay.

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