carbon price household assistance patricia faulkner ao adviser to the mpccc 19 april 2011
TRANSCRIPT
![Page 1: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/1.jpg)
Carbon Price Household Assistance
Patricia Faulkner AO
Adviser to the MPCCC19 April 2011
![Page 2: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/2.jpg)
This presentation seeks to:
Propose issues for consideration in establishing how low income households will be assisted to adjust to the impacts of a carbon price.
![Page 3: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/3.jpg)
The presentation will cover:
• Objectives of assistance
• Key policy / administrative choices
• Characteristics of low-income households
• CPRS household assistance – the base case
• Why change the CPRS package
• Where is the current level of consensus /debate?
![Page 4: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/4.jpg)
The objective of household assistance should be …
• Initially, assistance should help low income households meet the cost of living impacts of a carbon price, without adjustment of their energy usage.
• In the longer term, assistance should help high energy using, low income households reduce their emissions / energy costs and adjust to a low carbon economy.
![Page 5: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/5.jpg)
What share of Carbon Price Revenue should go to households?
Share derived by a bottom up costing of a fair package of assistance required
Share is balancing item after need for business assistance is calculated
×
![Page 6: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/6.jpg)
Which households should be assisted with “cash” …
• Low income – bottom two income quintiles (total disposable income)
• Middle income families with children
• All income levels
Assistance to low income households will be ‘generous’ and fair: Prime Minister’s interview with Laurie Oakes, 27 February 2011.
![Page 7: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/7.jpg)
What are the potential mechanisms for providing assistance?
1 “Cash”- Flat dollar sum (assistance relates to cost)- % increase (assistance relates to income)- Overcompensate (buffer)
2 Concessions – based on average cost
3 Rental assistance increase
4 Utilities allowance increase
5 Programs to educate / purchase / renovate
6 Paid in advance
![Page 8: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/8.jpg)
Should energy efficiency programs be funded?
For high energy using low income households?
All households?
Who should administer?
Third sector
Retailers
Government
?
![Page 9: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/9.jpg)
Should the objective be fairness or should other priorities be pursued?
Assist households to afford energy (fairness)
Improve productivity
Improve participation
Disadvantaged community development / improvement
![Page 10: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/10.jpg)
Should complementary effort be considered in conjunction?
Block tariffs
National Energy Efficiency Program
Education (myretailer.com)
Pricing transparency
Effort to control network charges
![Page 11: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/11.jpg)
Low-income households spend less money but a greater proportion of their income on energy than
high income households…
Notes: Derived from wave 9 HILDA data. Analysis is restricted to households with total 2008-09 disposable income greater than $10,000 and less than or equal to $100,000. Outliers in energy expenditure data (more than 50 per cent of income spent on electricity, gas and other heating) are also omitted from analysis; this resulted in sample loss of 0.7 per cent.
500
700
900
1100
1300
1500
1700
1900
$
01
23
45
67
89
10
Per
cen
t
10000 20000 30000 40000 50000 60000 70000 80000 90000 100000
Household disposable income, $
% of income (left axis) $ amount (right axis)
2009Annual expenditure on gas, electricity and other heating
![Page 12: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/12.jpg)
Expenditure on energy, as a proportion of income is variable for all, including for low income households
Indicative energy bills for residential customers as a share of disposable income – Sydney and surrounding regions 2011-12
Source: IPART, 2011
![Page 13: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/13.jpg)
Some low income households are high energy users
Household electricity usage (MWh per year)
Source: IPART, 2010
![Page 14: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/14.jpg)
Low-income households have limited access to capital to make appliance and housing adjustments
Weekly disposable income (equivalised) by income quintiles, 2007-08
Source: ABS, Household Income and Income Distribution, 2007-08
![Page 15: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/15.jpg)
Low-income households have limited access to capital to make appliance and housing adjustments
0
20
40
Lowestquintile
Secondquintile
Third quintile Fourthquintile
Highestquintile
Equivalised gross household income
Per
cen
tag
e
Proportion of people unable to raise $2,000 for ‘something important’,by equivalised gross household income
Source: ABS, General Social Survey, 2006
![Page 16: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/16.jpg)
Roughly equal proportions of low income households receive their principal income from pensions/allowances as from wages
Number of people in first and second quintiles by principle source of household income (equivalised), 2007-08
Source: ABS, Household Income and Income Distribution, 2007-08
Pensions and allowances
Wages
![Page 17: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/17.jpg)
The characteristics of 1st quintile low income households are distinctive
Household composition by income quintile
Source: 2003-04 Household Expenditure Survey
Note: Quintiles derived using equivalised household income.
![Page 18: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/18.jpg)
IPART found that large electricity using households on average:
– Had more occupants, although on average these use less per person than smaller households
– Were more likely to be couples with children– Had higher incomes– Lived in free-standing homes
Pensioners and retirees were generally low energy users.
Source: Residential energy and water use in Sydney, the Blue Mountains and Illawarra, IPART, 2010, p.42
![Page 19: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/19.jpg)
CPRS – expected outcomes of proposed assistance – the Base Case
• Around 90 per cent of low income households (or 2.6 million households) would have received assistance equal to 120 per cent or more of the average cost of living increase for that income group.
• On average, low income households would have been $190 better off per year. ($3.65 per week)
• Around 97 per cent of middle income households would have
received some direct cash assistance.• Around 50 per cent of middle income households (or 1.7 million
households) would have received assistance equal to their average cost of living increase for that income group.
• Motorists protected from higher fuel costs by ‘cent-for-cent’ reductions in fuel tax for the first three years.
• All households to receive support to take practical action to reduce their energy use and save on energy bills through …
Source: CPRS White Paper, p.17-1; Media Release, Ministers Swan, Wong & Macklin, 25 August 2009; Media Release, Minister Garrett, 30 December 2009.
![Page 20: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/20.jpg)
CPRS – mechanisms for assistance• Wage earners would have received assistance through
increases to the Low Income Tax Offset and Dependency Tax Offsets. (paid less tax)
• Income support recipients would have received assistance through percentage increases in Pensions, Allowances and Family Tax Benefit. (received more income)
CPRS income definitions (per annum)
Low Middle
Single Up to $30,000 $30,000-$80,000
Couple Up to $45,000 $45,000-$120,000
With children Up to $60,000 $60,000-$160,000
Source: CPRS White Paper, p.17-6
![Page 21: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/21.jpg)
The changed context: electricity prices have risen steeply since 2007
Retail electricity price index (inflation adjusted), capital cities
Source: State of the Energy Market 2010, Australian Energy Regulator
![Page 22: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/22.jpg)
Emerging consensus / debate
• Priority should be given to low income households (2 lowest quintiles). Flat rate compensation based on average cost plus an overcompensation factor.
• Increase assistance with number of children• There is a need to think about low income private
renters• Targetted energy efficiency programs support for
low income households
![Page 23: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/23.jpg)
Related ideas beyond assistance
• More education and transparent pricing (myretailer.com website)
• Block tariffs – progressive pricing• National Energy Efficiency Program• More effort to limit network costs
![Page 24: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/24.jpg)
Debates
• Pay a concession – discretionary cash ?• Who can administer / run EE
– Retailers– Not for profits– Government
• Emergency relief funds will need to increase
![Page 25: Carbon Price Household Assistance Patricia Faulkner AO Adviser to the MPCCC 19 April 2011](https://reader037.vdocuments.mx/reader037/viewer/2022102900/5518caf4550346881f8b5a67/html5/thumbnails/25.jpg)
Thank you