Government squeezing ever tighter

Governments around the country are becoming significant players in fuelling cost-of-living pressures affecting many families.

The available CPI data shows goods and services either directly provided by governments or that are highly regulated or taxed have recorded some of the strongest price increases over the past five years.

Prices have risen most significantly in the utilities that are either owned or regulated by government.

Compared with the overall increase in average prices of 16 per cent, water and sewerage charges have almost doubled over the past five years.

Compounding the financial squeeze on families and businesses, electricity and gas prices have increased nationally by 56 per cent and 39 per cent respectively.

In the case of electricity, contract prices are likely to rise further because government greenhouse policies prevent new low-cost generation from being built, instead favouring more expensive renewable power.

Environmental policy has increasingly become a friend to inflation in recent years.

Clarity for energy investment is becoming increasingly fraught since certainty in government regulation is practically impossible to provide.

It is well known Queensland desperately needs new investment in electricity generation.

Additional capital spending on water infrastructure, which has also failed to keep pace with demands from a growing population, has been factored into higher price levels.

Environmental and planning regulations have also played their part in scuppering plans for new utility infrastructure.

A recent example of this was the proposed Traveston dam, which was eventually vetoed by the Federal Government.

Some states have misdirected their capital investments in ways that will guarantee excessive costs are passed to consumers.

The cost per kilolitre of water produced by energy-intensive desalination plants is 10 times more than water harvested naturally through conventional dam water storages.

The Bligh Government's recent decision to mothball the Tugun desalination plant will only temporarily dampen the overall increases in water charges for households.

As much as information on previous price trends provides insights into cost pressures already being felt by individuals and households, what is important for the inflationary outlook are expectations of future price movements.

An emissions trading scheme preferred by the Government would significantly increase total household bills, with rising power input costs for consumables feeding through to final prices paid at the checkout.

Maintaining the 20 per cent renewable energy target by 2020 will only add to the cost pressures.

Without economic reform proposals to enhance productivity and thereby reduce business costs, there seems little prospect green inflationary pressures will ameliorate any time soon.

The risks for potentially higher official interest rates under this scenario are manifold.

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