Tag Archives: SACOSS

The Vegemite Curve: A curve becomes an index becomes a policy

As a contribution to Anti-Poverty Week this year, I have invented a new economic concept: the Vegemite Curve.

Economists like curves. There is:

  • The Phillips Curve to tell us about the relationship between inflation and unemployment, except when it didn’t – e.g. 1970s;
  • The Laffer Curve to tell us how lowering taxes can raise revenue – except when it doesn’t;
  • The IS-LM curve to tell us about key macroeconomic relationships, except when it is applied to the real world;
  • Piketty’s elephant curve to tell us by how much the rich have been getting richer; and most obviously,
  • there are the ubiquitous supply and demand curves of neoclassical mircoeconomics which tell us the outcomes of the actions of utility-maximising automatons.

My curve will never be as famous as any of these curves, but it is based on the real-life economics of people in poverty in Australia. It is a graphic representation of a poverty premium – an extra cost that accrues to people in poverty precisely because they are in poverty. If money makes money, then it is equally true that being poor costs more.

The Vegemite Curve

While there are a range of different types of poverty premiums, the Vegemite Curve illustrates the costs of not being able to afford the initial outlay to buy commodities in bulk. It is constructed simply by plotting the unit cost (per 100g) of different size jars of vegemite, and it clearly shows how the unit cost increases with smaller jar sizes. Here it is:

The Vegemite Curve graph shows an upward sloping line of unit price per 100g, with unit costs increasing as jar size decreases.

The Vegemite Curve is not exactly revolutionary – it is standard business economics based on economies of scale, but it does mean that if you can only afford the smallest size jar in your weekly shop, you end up paying 59% more per unit than if you could buy the biggest size.

And as with any economic analysis, it is easy to combine hard data with a few assumptions and calculate a bottom line: in this case, if you are limited to buying the small jar, over a year your total expenditure on Vegemite would be $38.50 more than if you had the money to buy the bigger size. Perhaps not a lot of money, but when the principle of Vegemite Curve is applied to most items in a weekly shop, the impact on those in poverty is significant.

The Vegemite Index

When the Vegemite Curve went through SACOSS’ internal processes, it became an index! This transition was simple in mathematical terms and produced the same shape curve (below), but it was mildly disappointing for me. In economics, curves are causal while indexes are incidental. For example, if you move a supply curve you change the price and demand, while an index like the CPI simply registers the price change after the fact. However, the Index label is probably fair enough given that we were not claiming that Vegemite causes poverty!

The Vegemite Curve turned into an Index of unit prices per 100g, with unit costs increasing as jar size decreases.
Source: SACOSS 2024 Anti-Poverty Week Statement

Implications

The Vegemite Index could have significant ramifications for economics and social policy. It could challenge the costings of Henderson style poverty lines or minimum budget standards, because the average costs of items may be higher for those on low incomes. Similarly it could challenge the appropriateness of the 50% of median income poverty line because the relationship between income and living costs is different for those on different incomes. And perhaps it changes the income elasticities in the demand for impacted items, and creates a different demand curve for poor people.

But in reality, it probably does none of those things!

A bit like some of the curves I mentioned at the top, its explanatory claims are exaggerated. However, what the Vegemite Index does do is to highlight a real and important poverty premium for people living in poverty. They not only have less money than other people, they also have relatively higher living costs – and this can be illustrated in the consumption of an iconic everyday product. Giving it the pretence of an economic “curve” or index is just fun to help get some attention to the issue – and it worked in getting some TV and radio coverage, even getting Allan Kohler’s attention on ABS News’ Finance Report.

But beyond grabbing some media attention, the real point of the Vegemite Index is to use the media attention to argue for government policy responses to address poverty premiums. The SACOSS Anti-Poverty Week Statement highlights a range of ways governments and institutions can address different poverty premiums, but in relation to buying in small quantities, it is hard to directly reduce the poverty premiums because they reflect standard economies of scale. Accordingly, the response needs to be on the income side – which in effect means that the Vegemite Index is yet another reason why we need to raise the rate of the hopelessly inadequate social security payments like JobSeeker and Youth Allowance.

Simple!

Finally, BTW, alongside the Vegemite Curve, I also invented a litter line graph and uncovered some invisibility cloaks hiding the impacts of ambulance charges. But that is a story for another day!

3G Phones, Energy Smart Meters and the Neoliberal Fantasy

Below is a link to an Opinion piece I ghost wrote and which was published today in Adelaide’s online news site, InDaily. It is a critique of the narrowness of industry initiatives and regulatory responses to the impending closure of the 3G mobile network and the roll out of energy smart meters. The response is based almost exclusively around the need to fully inform consumers, rather addressing the fuller needs of consumers and the consequences for people dealing with the technology changes.

While the piece finishes with some implications for how we provide essential services, in a short piece it was impossible to draw out any broader theoretical concerns. However, in the back of my mind was always a critique of neoliberalism.

It is neoliberal ideology that posits people as consumers, makes essential services into commodities and imagines oligopolies as markets. It was in the neoliberal moment of Australian history that energy and telecommunication networks were privatised, and pseudo markets were constructed with rules that reflected the economic fantasy that if consumers are fully informed they will shop around and that this will deliver optimum outcomes. As the article shows,  we are still paying the price for that delusion.

Read the opinion piece here: https://www.indaily.com.au/opinion/2024/04/17/consumers-bear-the-cost-of-essential-service-changes

Image of InDaily page with Opinion piece "Consumers bear the cost of essential service changes"

Do we ever really know what is in federal or state budgets?

The federal and state budgets are key moments in the Australian political calendar and can have significant impacts on the lives of many people. After all, budgets are the definitive statements of government priorities, not just what they say they are interested in, but what they are actually spending money on – or not. However, trying to get a grip on what is in a budget, especially in the mania of budget day, is difficult or almost impossible – even for economically literate and experienced stakeholders. My experience is largely with the South Australian state budget, but I don’t know that it is very different in other states or for the federal budget.

For many who are playing the game, budget day starts in the “budget lock-up”. In the hours before the Treasurer formally introduces the budget to parliament, the media and selected stakeholders are locked in a room and given access to the budget papers so that they can make better informed commentary on the budget. It is daunting to go in to the lock up and be confronted by the stack of budget papers – literally thousands of pages to navigate in just a few hours – without the aid of phones, computers or the usual tools of analysis.

In my work at SACOSS, I have done at least 10 state budgets and a few budget lock-ups. In the lead up, I run workshops for first-timers to help them find their way around the papers, or least to give them a pointer to where to start and where to find things. But this knowledge does not help me much with the budget day analysis.

State Budget title page showing topics of all budget papers.

Budget Day

My political economy approach wants to focus on the macro-economic underpinnings of the budget and what is happening at the aggregate level, but the reality is that the lock-up and the budget day is dominated by “budget measures” – the new initiatives announced and costed in the budget. There is of course a media and political focus on the macro-economic bottom line – surplus or deficit, but there is little analysis of revenue or expenditure trends, or changing expenditure patterns within the budget. Faced with a mountain of government media releases and budget documents spruiking new spending, the media races to summarise these for their audience, while stakeholders in the lock-up cram to find out if there are new measures relevant to them before they walk out to give their two -minute summary to a media scrum.

Realistically, this focus on budget measures is probably all that is possible on the day, but the commentary model is fundamentally flawed. This is not just because there is little time for a proper analysis beyond the headline new measures, but also because it inevitably makes the budget discussion about “what’s in it for me/us”. This is self-interest hard-wired into the budget commentary, when broader perspectives are required.

Further, the focus on budget measures can be misleading.

Measures in the SA State Budget

Take for instance the most recent South Australian state budget. The government media releases and budget papers trumpeted an additional $1.8bn in health spending over five years from 2022-23, and there were 18 new health initiatives announced in the Budget Measures Statement. Similarly, there were 9 new measures in human services costing $110m in 2023-24 (net of the Commonwealth government contribution to the Energy Bill Relief Plan).

These sound like significant investments in health and human services and were highlighted as such in media reporting. But after the media had gone and all the expenditure data could be analysed, in particular adjusting the dollar values in the budget papers for inflation, a different picture emerged.

Despite the new initiatives, both health and human services departments saw their funding decrease from the current (2022-23) year to the 2023-24 budget year – and in real terms the expenditure declined over the forward estimates. This was partly because the expenditure in those departments (and a range of others) increased markedly in 2022-23 with inflation providing extra revenues and costs. So the 2023-24 decrease was a readjustment from an inflated highpoint, but the decline over the forward estimates is also a function of indexation of departmental funding not keeping pace with inflation, plus the hangover of older “operational savings” targets which reduce departments’ base level expenditure.

These long-term expenditure cuts stand in stark contrast to the impression of massively increased expenditure created by the budget day highlighting of new measures.

Agency Statements

Four of nine volumes of the SA Budget Papers are agency statements – detailed statements of expenditure, targets and performance of each government department. These should be a wealth of knowledge and interest to stakeholders, but they are not consistent across departments or through time, or even have a long enough financial time frame to enable a decent analysis after a couple of days – let alone in the couple of hours of the media cycle.

For instance, in the detail of Budget Paper 4, Volume 1, there was a projected rise in the number of children in out-of-home care in the coming year, which could be seen as a failure of the family support system. In Volume 3 there was a transfer of a sub-program out of Wellbeing SA that left the flagship preventive health unit as a small blip with less than 1% of the department’s funding. Later in the same volume, we find that the spending on Youth Justice in Human Services will decrease despite a projected increase in the number of kids in the system. These are just a few items captured in SACOSS’ extended Budget Analysis. However, this analysis takes days, and even then, the document is dominated by new budget measures. It is actually hard to find this analysis amid summaries of government programs and verbage.

A week is not enough time to properly analyse the budget, yet the window for public commentary is only hours. But it is not simply about time – it is also about who/what defines the terrain of the political debate (and how we cooperate/resist).

Tricky Measures

And all the above, is without even considering the politically difficulty of explaining in a short sound byte that, while the government’s signature energy bill relief plan is really important and welcome, they are wasting around one-quarter of the massive expenditure on households who probably don’t have problems with their energy bills, while failing to assist renters on a minimum wage who, unless they have kids, get no relief – no matter how big their energy bills are. Simply saying “some people are missing out” plays into populist politics of middle-class interest, but it is very hard to put the full analysis while also ensuring that the importance of the scheme overall is not lost in the midst of a budget scrum. And in this instance, we had the details in advance – it is even more impossible if confronted with a similar initiative for the first time in the budget lock-up).

Reflections

This post is not about the South Australian state budget, or the merits or otherwise of the budget measures referred to above. It is about how we approach political economic commentary – and how the structures of information provision and media cycles shape and limit the discourse around what is a fundamental process for the distribution of income and wealth in our society.

At the big picture level, the budget debate and our response raise longstanding issues around political power – from Gramsci’s 1920s analysis of political/cultural hegemonic power to Lakoff’s 21st century focus on the importance of framing (and elephants). The power to define the debate is fundamental, but contestable – though in this instance I suspect we are more entrapped than contesting.

But the issues go way beyond a government budget. They are replicated in the big challenges of whether and how we can talk about the wholesale changes necessary to address climate change or the massive, systemic inequalities which have arisen over the past 20-30 years. Such change will be almost impossible if our key political debates are conducted one measure at a time within a narrative of how each measure impacts me or my group (with a subtext that nobody can ever be worse off).

At the more local level, it is about how we make best use of a window of couple of hours a year when a large number of people are paying attention to public policy? How can we get beyond the spin, hold governments to account, and make arguments for progressive change. I confess, after 10 state budget cycles, I am not sure I am close to working this out – but I suspect it is less about the content analysis and more about changing the way we engage in the budget process.