One year with no carbon price wrecking ball

On the first anniversary of the carbon tax, forecast economic devastation simply hasn't happened. Instead, decent growth has been a win for treasury.

Today marks the one-year anniversary that Australia has had a price on carbon and the economy is still cooking with gas.

There is no sign of a wrecking ball, a jobs wipe-out, ghost towns or an economic catastrophe if one looks at the hard data and facts that have been available since July 1, 2012.

The price on carbon appears to have had the impact on the economy that most sober analysis suggested – a moderate, one-off lift in prices and an infinitesimal impact on economic growth and job creation.

Clearly developments in the global economy and China in particular, the Australian dollar and commodity prices have been driving growth, rather than any macroeconomic impact from carbon pricing. Lower interest rates and fiscal policy are also influencing the growth momentum of the economy with the carbon price all but a non-event.

Of course, we do not have the full run of annual economic data for the one-year anniversary of the carbon price, but there are at least three quarters of news that can be analysed to see just how the economy has performed in the period since July 1, 2012.

The facts below are all based on the latest data from the Australian Bureau of Statistics, the Reserve Bank, Bloomberg and RP Data, unless otherwise indicated.

Since the carbon price was introduced: 

– Real GDP has risen by 1.9 per cent in the three quarters of available data (annualised growth rate of 2.5 per cent).

– Employment has risen by 157,400 people in 11 months, made up of 76,300 new full-time jobs and 81,000 part-time jobs.

– The unemployment rate has edged up to 5.5 per cent in May 2013 from 5.3 per cent in June 2012, just before carbon was priced.

– The stock market (ASX200) has risen by more than 17 per cent, adding approximately $205 billion to the value of Australian shares. A further $50 billion or so of dividends have been paid to shareholders since June 30, 2012.

– According to RP Data, house prices have risen 3.9 per cent since June 30, 2012, adding approximately $160 billion to the wealth of owners of houses.

– In terms of inflation, the CPI has risen by 2 per cent in three quarters (annualised pace of 2.6 per cent), a figure which includes the boost to prices from the carbon price driven lift in electricity and gas prices. Underlying inflation has risen 1.7 per cent in the nine months (annualised pace of 2.2 per cent) and this figure has also been inflated by the carbon price. 

– The wages price index has risen by 2.2 per cent in nine months (annualised pace of 3 per cent), locking in a period of moderate wage increases.

– The value of retail sales has risen by 1.6 per cent in the 10 months to April.

– The number of new motor vehicle sales has risen by 1.6 per cent in 11 months, with a new monthly record high for car sales registered in December 2012.

– The number of dwelling building approvals has fallen 3.1 per cent since June but the number of new housing loans for owner occupation has risen 7 per cent over the same period. 

– The NAB measure of business conditions has fallen from -1 points in June to -4 points in May, but business confidence has risen from -3 points to -1 point over the same timeframe.

– The Westpac measure of consumer sentiment has risen by 6.9 per cent since June 2012.

– The Reserve Bank index of commodity prices has fallen 7.5 per cent in Australian dollar terms since June and has fallen 8.1 per cent in US dollar terms.

– The Reserve has cut the official cash rate from 3.5 per cent to 2.75 per cent.

– The 10-year government bond yield has risen a net 70 basis points to 3.75 per cent as of Monday’s close.

– The Australian dollar has fallen around 10 per cent as the market has adjusted to the global influence of lower commodity prices and interest rate cuts.

At the same time, Australia’s triple-A credit rating from all three ratings agencies remains unchallenged.

So there you go. Decent economic growth, job creation at a steady pace, a strong stock market, moderate house price gains, rising wealth and real wages for the household sector, low inflation, falling interest rates, steady business conditions and strengthening consumer sentiment.

And all of this with China weaker than expected a year ago, the eurozone in a deep and protracted recession, an overvalued Australian dollar and unexpected budget tightening from the State government sector.

With the facts and runs on the board very different to the extreme forecasts a year ago, what has happened is a major win for treasury, its projections and modeling of the carbon price effect on the economy.

It is, or at least should be, a humiliating kick in the tail for those suggesting a wrecking ball and other economic catastrophes.

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