Wednesday, July 01, 2009

Our new (pensioners) cost of living

I'll be different

If you were designing a cost of living index that would set the pension, would you include in it the cost of alcohol and cigarettes?

Australia's Statistician Brian Pink has had to grapple with the question in implementing a Budget promise to draw up a new "pensioners and beneficiaries only" cost of living index and he's decide not to make "social or moral judgements".

"Some people may regard the use of tobacco or alcohol as socially undesirable," he says in a discussion paper released ahead of the launch of the index next month. "But I have decided to include both because they are significant items of household expenditure and can be accurately measured.

Tobacco and alcohol combined account for about 1 in every 11 dollars spent by pensioners with beneficiaries spending slightly more on tobacco than alcohol...

Other items will have little place in the new pensioners and beneficiaries index.

One is education expenses, significant in the overall CPI, but relatively unimportant in the spending of beneficiaries.

Another is full-price public transport. The statistician will use only concessional prices to estimate the cost to beneficiaries of public transport, telephone and internet connections, property rates, car insurance and utility bills.

"We are trying to measure changes in purchasing power," says Mr Pink. "So we are looking at the basket of goods beneficiaries actually buy."

The rationale means that one important item excluded from the main CPI since 1998 will make its way back in to the pensioners' index. The Bureau has decided that while mortgage interest have no place in the calculating the main the CPI which it calls a a "measure of inflation," they should be included in the pensioners index which is a measure of "the cost of living".

All items other than mortgage rates will be sourced from the standard CPI with the weights varied.

Food will be the most item in the basket as it accounts for 1 in every 5 dollars spent by beneficiaries, far more than for the general population.

Published in today's SMH and Age