Last night the Treasurer gave a half-hour Budget speech. I listened in because lately, there hasn’t been enough boredom in my life. There is a lot I could say about this year’s budget — but I won’t. I’ll stick to discussing energy. Mostly, the Government’s plan for providing cost-of-energy relief to low-income households and how they’re doing it wrong.
I won’t say how weird it was for someone my age to see a grown man worry about 6% inflation. When I was a kid, we didn’t even know it could go that low1. I’ll just stick to discussing the economics of energy because this is an area I’ve had a lot of experience pretending to understand.
Direct Electricity Bill Relief
Thanks to the Treasurer leaking like a Swiss cheese balloon, we already knew low-income households would receive some help with energy costs. But instead of getting energy rebates in the form of direct payments to help cover higher electricity and gas prices, they will get “energy bill relief” in the form of direct cuts to their power bills. There are several reasons why this is worse than just giving people cash, but before I go into that, I’ll quote Treasurer Jim Chalmer’s exact words on the Government plan:
“We are delivering up to $3 billion in direct electricity bill relief for eligible households and small businesses, co-funded with the states and territories. More than 5 million households will have up to $500 deducted from their power bills in the next financial year. Real relief, right off your power bill, right when you need it.”
Pulling out my calculator and dividing “up to $3 billion” by “more than 5 million households” it comes to under $600 per household. It’s unclear how much will go to small businesses, but it is mathematically possible for most eligible households to get up to $500 off power bills over the next financial year.
Who Gets It?
On page 10 of the Statement One Budget Overview, it says:
“Support to households will be targeted at those most in need, including concession card holders, those who receive family and carers payments and recipients of electricity concessions under existing state and territory schemes.”
So it will mainly go to pensioners and those receiving Centrelink payments.
Not The Best Way To Help
Directly decreasing electricity bills will help low-income households. But it’s not the best way to go about it. Overall, just giving a payment people can spend as they like is a better option. After all, who doesn’t like being given money? But besides natural human preferences, there’s a good reason why cash is better.
Spending money to directly lower people’s electricity bills reduces their incentive to save electricity. If electricity bills rise by $500, but you then lower them by $500 people have no reason to change their consumption. They’re likely to use just as much as before.
But if you instead let electricity prices rise by $500 but give households a $500 payment to spend as they wish, you spend the same amount helping them. However, they still have an incentive to reduce electricity consumption because they’re paying a high price for it. They will immediately economize on consumption and be motivated to permanently reduce their need for grid energy by investing in solar panels or energy efficiency measures. If they want, they can put the cash payment towards those panels and look forward to lower bills for decades.
Giving money will provide the immediate benefits of reducing electricity consumption and financial hardship, while also reducing grid electricity consumption in the future.
If the cash payment is the same for each household, then those that don’t use much electricity because they have solar or are frugal can come out ahead. This is a good thing because it rewards people for taking steps to reduce their grid electricity consumption and can encourage others to do the same.
Put simply, the direct electricity bill relief method the Government has chosen does not encourage energy efficiency.
An Unbelievable Explanation
The budget documents say…
“Rebates will be delivered through reductions to electricity bills to minimise any potential inflationary impacts.”
But that’s bullshit.
Giving people $19.23 every fortnight through their pension or Centrelink payment will have the same effect on inflation as lowering their monthly electricity bill by $41.66. Because electricity consumption will be higher than if they were given cash payments, electricity prices will be pushed up for everyone — households and businesses.
I suspect the government is directly lowering electricity bills because it will marginally reduce the amount of money they need to spend providing relief. They’re hurting everyone slightly to make a line in their budget look better. This is likely to be a false economy. The choice also benefits energy companies, and that may not be an accident.
It’s not just Australians who will be hurt by this choice, but the entire world. International energy prices are still high, and if Australia reduced consumption, it would help everyone else by slightly lowering them. High energy prices help Putin, and we should avoid giving him a hand because he’s what international relations experts call a complete shithead.
Better Than Nothing
While they’re not going about it in the best way, the direct bill relief will help reduce financial hardship for many households. The majority that doesn’t receive any assistance will have to deal with higher electricity prices as best they can. But they will end up paying a little more than they would have if the Government had decided to provide relief more effectively.
But There Is Good News
Now I’ve got that off my chest; in better news for Australian energy inflation, the budget earmarked $1.6B for an energy-saving plan, including $300 million targeting our embarrassingly inefficient social housing, and $1B for low-cost loans for solar panels, batteries and efficient appliances. If this means genuine low-cost loans instead of the phoney 0% interest offers that simply push up the purchase price, I welcome it. Small businesses will also receive $310M in tax relief for electrification and energy efficiency.
Just don’t get me started on the $2bn for a “hydrogen headstart” program…
Footnotes
- At one point, a girl in my class had $500 in a term deposit and was getting 15% interest. I think she owns Toowoomba now. ↩
About Ronald Brakels
RSS - Posts
Yes the $2B for Hydrogen could have paid for a lot of batteries
Forrest will be happy though
Totally agree on the energy subsidy method too. One reason I really like the Carbon Tax rebate arrangement. Frugal energy users were rewarded
Ronald – I think you have missed the point of reducing power bills rather than making it a direct payment to individuals who are concession card holder and other benefits recipients.
Firstly, the fact that it is a reduction in electricity bills rather than a cash payment, ensures the payment goes to a cost which is causing significant challenges for many of those people ie causing them cut down on heating and cooking. So there will be benefits for the less well off in terms of health, basic living and less problems with paying other bills. Meantime it stops the benefit being spent on other things and therefore for will have less effect on consumer demand ie lower inflation.
What is not clear is if people will only receive a credit for the positive component of their bill. That may vary from state to state as well. In my case, since my bill is always in a small credit because of my low use and large solar array, the wording seems to suggest I won’t receive anything. Time will tell
For the many of those who will receive the maximum benefit, they would be unlikely to be able to afford to purchase solar panels or even change appliances even with some assistance I am engaged with a community group and among the members on pensions some have been able to upgrade their homes while other can barely afford their everyday expenses and already need assistance if they get a large bill or their car breaks down. And in the regions you need a car.
Of course, there are some pensioners who are quite comfortable because they have additional super and savings so they may well spend that subsidy on other things ie there will be some effect on inflation, although limited.
In my view it is a much better targetted program from an inflationary point of view than a direct cash payment and ensures the benefit goes where needed.
The low cost loan item is interesting but there is nothing online about what the “cost” is, or how to apply for it that I can see.
Disagree with that: Cash payments encourages:
1. Recipients to spend payments on discretionary items; &
2. suppliers to increase prices- this is well known.
I would rather see a means-tested, permanent, ToU tariff option for households/renters who can’t access solar. Somewhere between 0c and 5c between 10am and 2pm. Then a rate capped near the single tariff for the rest of the day to insulate from the dinner-time rorting.
It’s virtual solar panels for low-income households while helping squish that duck curve.
We don’t need more subsidised rooftop – wind, grid batteries, and pumped hydro is the priority.
Is there any news on who these LOW Cost loans to help me install SOLAR are going to be through?
I’d like to do this ASAP?
Or, will my Solar Installer organize the new Low Cost loan for me???
Not enough information available at the moment to say how they will work for certain, but if it follows the model used in the ACT they will be through Brighte and it’s not exactly a simple process, as this article I wrote on the ACT zero interest loans explains. (You can scroll down to where it says “How to apply” if that’s all you’re interested in.)
https://www.solarquotes.com.au/blog/act-sustainability-loans/
I understand that the banks are doing it the same as the green loans that were available years ago
I think you are missing the ‘smoke and mirrors’ intention behind the direct electricity bill reduction being used instead of an equivalent cash payment. Your reasoning is correct, but the Treasurer’ cunning plan is that a bill reduction counts in the ABS CPI calculation as a lowering of prices, whereas as a cash payment wouldn’t factor into the CPI calculation. The Government wants a lower headline inflation figure to encourage the RBA to hold off on further interest rate increases.
In Alberta, Canada the Province paid lump sums of cash monthly into every electricity account regardless of the amount owing.
So that satisfied the goal of reducing electricity bills without interfering with the goal of promoting energy conservation.
They also capped the ‘regulated rate option’ to provide winter price relief (wholesale rates before delivery charges were hovering around $500 per MWh and peaking at the statutory maximum of $999, because they shut down or converted the coal power plants that were 50% of generation, and went to a $50 carbon tax).
But they’re going to ‘recover’ the subsidy this summer from everyone who stays on the Regulated Rate and doesn’t get onto a retailer contract.
I’d like to see variable rates available for residential, too, so that I could charge an EV on that ‘cheap solar’ I hear so much about.
Correct. Jim Chalmers said as much during his budget speech. If I remember correctly he said the payments should reduce CPI by 0.75 percent.
Should have done this, should have done that,this is wrong,that is not enough.For God’s sake give credit for at least trying to address a very difficult and complex issue.
I agree with Malcolm wighton.
Rome wasn’t built in a day.
Disagree wholeheartedly with your take on the $3 billion for more than 5 million households. Providing a cash incentive directly to households to spend as they like is inflationary. This provides economic stimulus at a time when the economy needs economic restraint. The treasurer is between a rock and a hard place. How does the government provide real cost of living assistance, without being inflationary. In my opinion, providing the relief to those who need it by reducing their bills directly is the best compromise. The “cash” cannot be used in the economy at large and therefore doesn’t contribute to inflation, but at the same time provides much needed relief.
We are amongst some of the highest recourse rich countries in the world yet our power prices are simply crazy! Rather than a one of silly payment that achieve nothing other than wasting money and not addressing the core issue of why is our power so expensive and why has so many manufacturing firms left the country and still doing so due to unreliable power supply and silly costs..etc..
I would much prefer the government to focus on getting to to have some of the cheapest power in the world not the most expensive… They control most states and federal levels now so they really no no excuses to get this fixed now yet a year later and seems absolutely nothing has been done other than higher costs, higher inflation and less firm power supply.. very very disappointing indeed!
* Regarding inflation being allot higher in the past, that was the case however the average home in the capital cities did not cost over a million dollars back then so had a far less impact on mortgage holders and is why I think you can’t compare is so simplistically as it effects multiple factors..
Yes, but all our resources are at the call of multinational companies who sell those resources to all, including us at world market prices.
The privatisation train that the neo-liberal economic rationalists jumped on in the 80s and 90s is starting to show it’s flaws.
Sorry, that’s literally how the world works. Unless you’re isolated and have no trade, and then the price of sticks and rocks and string is only local.
Regardless of how the economy is organized, prices tend to be affected by markets elsewhere whenever there’s trade.
But so far, there isn’t any electricity being exported from Australia to Japan or Singapore, so there’s no direct effect on electricity prices. It’s the cost of everything used to make electricity that’s risen.
And the only fix is to make more of it in country if you can do it for less than the other country. No use complaining about the cost of a transformer if you’re literally getting the best deal possible anywhere on the whole planet,, after shipping and handling.
Australia is uniquely stupid and doesn’t reserve any of its resources for itself. Even that mighty bastion of capitalism America prohibits exports of crude oil, only refined oil products can be exported A) to value add in country and B) to stop all the oil being sucked offshore to the highest bidder.
We used to have a low gas price in Australia until it was linked to the international price by the LNG exporters, who pay zero tax in Australia. Not only do we get to pay a higher price for our gas than our overseas customers do but our government makes SFA revenue out of it.
Qatar makes about 30 times the revenue we do on exactly the same volume of gas. Norway taxes its oil and gas at 78% yet oil companies are still extracting it. Our government on the other hand are running scared of the foreign multinationals when it’s supposed to be the government that holds all the power.
This seems entirely counterintuitive until you consider that Gough Whitlam wanted to buy back the farm and keep Australian resources for Australians and look what happened to him.
Yes the cost of energy from the sun is the same cost everywhere we can capture it,…FREE,……Max out the PV panels to capture it cheap and use it when you can,…put your freezer on a timer to run on sun only, same with resistive hot water storage = very cheap,… so store the heat or cold
,…then all those with timers on dishwashers and Reverse Cycle aircons etc,…concentrate on using it if possible not loosing it,…………….and then maybe batteries,….. and of course energy efficient gismos, provided that it is not cheaper or more reliable to add solar PV and not waste that free
sunshine.
Dear Mr Brakels,
I love your self deprecating, cheeky as, style of writing. Yet I often disagree with your views.
Energy underpins everything. Imagine; suddenly no sun (there goes the solar industry for starters!).
Now I don’t give a toss about the energy source (renewables’ preferred) but the way to increase economic productivity is to make energy completely free.
Obviously, not possible. It takes capital to set up a solar farm, wind farm, oil rig, nuclear power plant, fracking gas field, open cut coal mine,,…
Energy production is well ripe for nationalisation.
That’s why renewables’ will rule, they’re the cheapest (most economically productive) form of energy.
So, whilst I’m having this rant, I’d refer to your numerous articles about batteries being “…uneconomic…”.
Please explain to me how the battery(ies) in my; torch, car, pacemaker, computer, transistor radio, mobile ‘phone, hearing aid, bionic ear…; are uneconomic.
Batteries are convenient/enabling storage, not money makers.
So why insist batteries have to “…pay back…”?
Cheers,
Mark Reid
There are plenty of good reasons to buy a battery but I want people to know what they are getting into. I’m not going to tell them a battery is likely to pay for itself if that’s probably not the case at the moment. There are many reasons to get a battery that aren’t a straight financial return such as backup, environmental benefit, increased feelings of independence, finding the technology cool, etc. I want people to have a good idea of what they’re getting into and then they can make an informed decision based on their situation and personal preferences.
How do I opt out of political rants but still get alerted to anything of value re rooftop solar, home batteries etc?
Hmm… You may have to go by the title.