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Liberals' cost of living calculator: accurate but extremely disingenuous Liberals' cost of living calculator: accurate but extremely disingenuous
(21 days later)
Truth may be the first casualty of war, but in election campaigns the first domino to fall is context.Truth may be the first casualty of war, but in election campaigns the first domino to fall is context.
Four weeks ago I noted that the cost of living was increasing more slowly than it has for more than a decade. Now if you think that would deter the Liberal party from attacking the ALP on the issue, you are much mistaken.Four weeks ago I noted that the cost of living was increasing more slowly than it has for more than a decade. Now if you think that would deter the Liberal party from attacking the ALP on the issue, you are much mistaken.
On Tuesday the Liberals launched a "Cost of Labor Calculator" app on its Facebook page.On Tuesday the Liberals launched a "Cost of Labor Calculator" app on its Facebook page.
The calculator asserts it can work out your yearly "cost of living increase with Labor".The calculator asserts it can work out your yearly "cost of living increase with Labor".
The calculator is a beautiful piece of propaganda that uses a few tricks to befuddle the user. First, it asks you to put in your monthly expenditure for the seven items. But it then gives you the increase in annual terms. So if you put in that you spend $1,600 a month on rent, the calculator says your yearly increase in cost of living with Labor is a massive $4,599.The calculator is a beautiful piece of propaganda that uses a few tricks to befuddle the user. First, it asks you to put in your monthly expenditure for the seven items. But it then gives you the increase in annual terms. So if you put in that you spend $1,600 a month on rent, the calculator says your yearly increase in cost of living with Labor is a massive $4,599.
It is a good marketing trick – it gives the sense that prices have tripled rather than increased by 31% in nearly six years.It is a good marketing trick – it gives the sense that prices have tripled rather than increased by 31% in nearly six years.
The other sort of sleight of hand is the use of "Medical" as one item. That could mean the broad category of "Health" or the smaller sub-group of "Medical, dental and hospital services", but in fact it refers to a sub-group of the sub-group and includes only "Medical and hospital services". One possible reason is that since December 2007 total "Health" costs have risen 35.1%, the "Medical, dental and hospital services" sub-category has risen 41.4%, but the specific item of "Medical and hospital services" has risen 45.6%.The other sort of sleight of hand is the use of "Medical" as one item. That could mean the broad category of "Health" or the smaller sub-group of "Medical, dental and hospital services", but in fact it refers to a sub-group of the sub-group and includes only "Medical and hospital services". One possible reason is that since December 2007 total "Health" costs have risen 35.1%, the "Medical, dental and hospital services" sub-category has risen 41.4%, but the specific item of "Medical and hospital services" has risen 45.6%.
The figures used in the calculator are accurate, but extremely disingenuous.The figures used in the calculator are accurate, but extremely disingenuous.
First, the Liberal party has unsurprisingly picked categories for which prices have increased faster in the past five and half years than in the same period to December 2007:First, the Liberal party has unsurprisingly picked categories for which prices have increased faster in the past five and half years than in the same period to December 2007:
It looks pretty stark. Take electricity. It has shot up in the past five years, but little of the increase is due to the carbon price. Two-thirds of the increase since 2007 occurred before the introduction of the carbon price. Last year, when the carbon price came into effect in NSW, it accounted for just over half of the 16% rise in electricity prices. This year, when prices rose on average by 1.7%, the carbon price played no role.It looks pretty stark. Take electricity. It has shot up in the past five years, but little of the increase is due to the carbon price. Two-thirds of the increase since 2007 occurred before the introduction of the carbon price. Last year, when the carbon price came into effect in NSW, it accounted for just over half of the 16% rise in electricity prices. This year, when prices rose on average by 1.7%, the carbon price played no role.
It is always worth remembering that electricity accounts for only about 2% of households' annual budgets. Because it is a necessity, it does account for more of the household budget in poorer households. But even the poorest 20% of households spend only about 3% of their annual expenditure on electricity.It is always worth remembering that electricity accounts for only about 2% of households' annual budgets. Because it is a necessity, it does account for more of the household budget in poorer households. But even the poorest 20% of households spend only about 3% of their annual expenditure on electricity.
Absent from the Liberal party's app is a mention that this group of seven goods comprises a mere 21.7% of the annual average expenditure of all households.Absent from the Liberal party's app is a mention that this group of seven goods comprises a mere 21.7% of the annual average expenditure of all households.
To put that in context, households spend 21.5% of annual expenditure on food and drink.To put that in context, households spend 21.5% of annual expenditure on food and drink.
Those two items are not included in the Liberal party app – perhaps because in the past five and a half years they have increased by less than they did under the last five and half years of the Howard government.Those two items are not included in the Liberal party app – perhaps because in the past five and a half years they have increased by less than they did under the last five and half years of the Howard government.
This is the big problem of the app. It leaves out so many expenditures it is little short of a gimmick. So let's include some other categories.This is the big problem of the app. It leaves out so many expenditures it is little short of a gimmick. So let's include some other categories.
Let's include both food and drink – clearly necessities of life. Automotive fuel is not only a necessity, the average household spends more on that than it does on electricity, gas and water combined, so we'll include that. Instead of rents, we'll use housing prices. The Liberal party's calculator had medical expenses, but instead let's use childcare, because that is certainly a major issue. People spend 2.5% of their income on non-durable household products such as cleaning and personal care products, so that goes in as well. And life isn't all about necessities, so let's include all recreation and culture expenses – that takes up about 12.5% of annual spending.Let's include both food and drink – clearly necessities of life. Automotive fuel is not only a necessity, the average household spends more on that than it does on electricity, gas and water combined, so we'll include that. Instead of rents, we'll use housing prices. The Liberal party's calculator had medical expenses, but instead let's use childcare, because that is certainly a major issue. People spend 2.5% of their income on non-durable household products such as cleaning and personal care products, so that goes in as well. And life isn't all about necessities, so let's include all recreation and culture expenses – that takes up about 12.5% of annual spending.
All up this new bundle accounts for 49.9% of annual household expenditure. And what do you know, the prices of all of these items have increased by less since December 2007 than they did from June 2002 to December 2007:All up this new bundle accounts for 49.9% of annual household expenditure. And what do you know, the prices of all of these items have increased by less since December 2007 than they did from June 2002 to December 2007:
This is why when we talk about increases in inflation or increases in cost of living we don't just cherry-pick items. We use a large basket of goods and services that takes into account all household spending.This is why when we talk about increases in inflation or increases in cost of living we don't just cherry-pick items. We use a large basket of goods and services that takes into account all household spending.
And when we look at the whole picture we see that from June 2002 to December 2007 overall inflation grew by 16.3%, and from December 2007 to June 2013 it grew by 15.3%.And when we look at the whole picture we see that from June 2002 to December 2007 overall inflation grew by 16.3%, and from December 2007 to June 2013 it grew by 15.3%.
But the Liberals' cost calculator also neglects to consider the increase in average wages. As noted on Monday, the wage price index has continued to increase by more than the consumer price index for most of the past five and half years (as it also did in the five years to December 2007).But the Liberals' cost calculator also neglects to consider the increase in average wages. As noted on Monday, the wage price index has continued to increase by more than the consumer price index for most of the past five and half years (as it also did in the five years to December 2007).
Dodgy cost calculators make for a great toy when you are trying to win an election, but as long as political parties treat voters like idiots and refuse to give them the full picture on such issues, we will forever be denied the chance of a proper debate.Dodgy cost calculators make for a great toy when you are trying to win an election, but as long as political parties treat voters like idiots and refuse to give them the full picture on such issues, we will forever be denied the chance of a proper debate.
And while complaining about cost of living sounds like a great idea when you are in opposition, shifty claims about reducing the cost of living inevitably come back to bite you when in government.And while complaining about cost of living sounds like a great idea when you are in opposition, shifty claims about reducing the cost of living inevitably come back to bite you when in government.
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