Could the cost of living be Abbott's undoing?

Much has been made of the importance of cost of living issues in the decisive victory by the Liberal National Party in the recent Queensland election. Many pundits are suggesting this will also be the undoing of the Gillard Government due to the carbon price. But politicians need to be very careful in pandering to the mob's demands to lower the price of bread.

Kevin Rudd tried the trick of pretending he could do something to lower grocery and petrol prices (anyone remember ‘grocery watch'?). It helped get him elected, but then he was ultimately caught out when he couldn't deliver.

Howard also tried this trick on interest rates and then the RBA increased interest rates right in the middle of an election campaign.

Howard managed to string out his deception for probably two elections, but Rudd could only manage about a year or two.

Tony Abbott and his team are treading the very same dangerous populist territory. Sooner or later the electorate are going to realise, just as they did with the GST, that the scare campaign around the carbon price is a con. Yes, retail electricity prices will rise, by about 10 per cent. But considering how badly the electorate have been scared by Abbott and the tabloid media, they may actually find such a price rise surprisingly small relative to what they had come to expect. Also, petrol has been left out of the scheme yet I suspect a large number of householders don't realise this. Again they may be pleasantly surprised come July.

But where I think Abbott is most likely to get exposed is grocery prices. He has run extremely hard on the carbon price increasing food prices, I suspect too hard. I have been shocked by how anxious some family friends have been about what the carbon price is likely to do to food prices. Yet the carbon price will have a negligible effect on food prices now that agricultural emissions are out for good.

The table below, based on data prepared by Tim Grant, Australia's leading life-cycle analysis practitioner, illustrate the amount of CO2 embodied within a range of staple food products. This takes into account emissions along the entire supply-chain from farm to supermarket shelf, including energy intensive inputs such as fertiliser and freight. It then multiplies this by a carbon price of $24.16, which will be the peak of the carbon price (in real terms) before it is likely to plummet once permit trading commences. These numbers most likely overstate the amount of CO2 embodied in production of these goods.

Carbon price impact on food prices (carbon price = $24.15tCO2)

Source: Tim Grant – Life Cycle Strategies for emissions data.

Come July households will wonder what all the fuss was about on grocery prices. And at this point Abbott's credibility will begin to come under question.

To date, Abbott has been ably supported by the tabloid media, particularly the Herald Sun and Daily Telegraph. These two newspapers have chosen to print just about any claim about price rises caused by the carbon price, no matter how self-interested the source, and no matter how flimsy the supporting evidence.

I experienced this first hand. In the week leading-up to the release of the carbon price policy package in July last year, I worked with a journalist from Herald Sun, Karen Collier, to prepare the table listed above. When I walked into the media lock-up for the release of the policy package, the back-page of a Herald Sun lift-out had already been mapped out with my table on it. The only thing remaining was for me to find out the carbon price and then send through my calculations to Collier.

On the day of the policy release however, the government had leaked its own estimates of cost increases to the Herald Sun and Daily Telegraph. These estimates were very close to mine, just slightly lower. I told Collier they would be better off using Treasury's numbers because they were likely to be more accurate, which they did on Sunday. Even though I had put in a substantial amount of effort that did not make it to print, I felt satisfied that the most popular newspaper in the country would present an honest portrayal of the carbon price impact on food.

Then on Monday I was greeted by the following plastered over the front page of the Herald Sun: ‘JULIA GET REAL!'  by Karen Collier. The same story also ran in the Daily Telegraph in Sydney. The story stated:

“Julia Gillard's pledge to shield most Australians from carbon tax pain is under fire with cost blowout warnings on everything from groceries to cars, restaurant meals and department store goods.... the Australian Food and Grocery Council warned bills could rise by three times the government estimate.”

There was not a single mention by Collier that she had received a highly precise, transparent estimate, independent of government that completely supported Treasury's calculations. A few days later Kate Carnell, head of the Australian Food and Grocery Council at the time, conceded to Tom Arup of The Age that their cost estimates were not accurate.

I suspect that, post July, the tabloids' sensationalist claims surrounding the carbon price will begin to wear thin with readers and will quietly disappear from the front pages. At this point Tony Abbott's job will become a whole lot harder because he will have to work with what is, rather than what is imagined.