Abbott's car crash with reality

Tony Abbott has been joyriding with the community's ignorance and fear over the carbon tax. But on October 24 his joyride will crash into an immovable wall of reality. That's when the Bureau of Statistics releases its updated consumer price index, which will show that in spite of a notable rise in energy costs since July 1, the overall increase in the cost of living will have been small.

As explained by Alan Kohler in Business Spectator a few days ago, preliminary estimates of inflation by TD securities for July show that the price of many items has actually gone down over the past month. This is in spite of a 15 per cent rise in electricity costs and 10 per cent rise in price for gas and other fuels. Energy these days is just too small a component of household and business expenditure to seriously turn the dial of inflation.

With rises in the cost of living incredibly benign and unemployment low, Abbott's monotonous droning about the carbon tax will start to wear extremely thin with the media pack. Consider this example from an interview with Sabra Lane of ABC Radio's ‘AM' program, discussing Gillard's recent call for reform of electricity network regulation.

SABRA LANE: Your energy spokesman Ian Macfarlane said on Tuesday that the states had been price gouging. He said that this was an issue and said the Prime Minister was a latecomer. The energy regulator himself has said prices are too high but his hands are tied. What would you do about it?

TONY ABBOTT: Well I'd abolish the carbon tax. That's what I'd do. 

SABRA LANE: But specifically on the regulator and the fact that he also says his hands are tied. 

TONY ABBOTT: Yeah, but if we're worried about power prices Sabra, what is impacting on power prices now that wasn't impacting before is the carbon tax. So if we're serious about getting power prices down we would be dropping the carbon tax. 

SABRA LANE: But a large percentage increase of power bills over the last five years has been apparently due to this gold plating of electricity assets. You'd do nothing about it?

TONY ABBOTT: Well the last thing you would want would be to see power black-outs or power brown-outs. We want certainly security of supply here. 

But the point I make Sabra is that we've never heard about this for five years. Now the Prime Minister, she's in a desperate jam over her carbon tax and the carbon tax's impact on prices, she's blaming everyone but herself for this problem. 

SABRA LANE: Well the regulator was set up under the Howard government with the states in 2006. It was a product of the Coalition government. What would you do about it? You're saying that you wouldn't touch it?

TONY ABBOTT: Well the problem is not the regulation of power prices. The problem is the carbon tax putting up power prices. 

One has got to ask how long Tony Abbott can keep this up for. Here is a matter of serious public policy surrounding the expenditure of over $40 billion dollars within just five years that is substantially greater than the effect of the carbon tax, and Tony Abbott has nothing to say.

Just so it's clear for those readers unfamiliar with the topic, residential electricity prices nationally will have almost doubled from about 15 cents per kilowatt-hour in 2008 to about 25 to 30 cents in 2013/14. Of that rise the carbon price accounts for about 2 cents. Other green schemes such as the Renewable Energy Target account for less than a cent. The market price for the actual generation of electricity (excluding the impact of the carbon price) in the eastern states is at its lowest level in more than a decade. The rest of the rise is largely due to network expenditure.

Western Australia is a bit different because the state government artificially kept residential prices well below the cost of provision, and so households there are also confronting rises associated with unwinding this costly subsidy. Again this is symptomatic of the problems with state government ownership and interference in electricity markets.

Tony Abbott's own spokesperson for energy, Ian Macfarlane, as well as Malcolm Turnbull, have both publicly acknowledged that there is a serious problem with excessive network expenditure, and having state-governments as both owner and regulator of power sector assets.

There is likely to be 12 months until the next election. Tony Abbott will not be able to survive this long based solely on his existing repertoire of slogans because the media will demand to know more. 

The question is does he actually know what he wants to achieve from government, and do his colleagues agree with him?