Economy falls through our shopping bags

MICHAEL RODDAN

June 24, 2019
The Australian

Australian businesses have warned Treasury that bans on plastic bags are contributing to the weakening economy as shoppers are unable to carry large amounts of groceries to their car or home, confidential briefings reveal.

The concerns are contained in a ministerial submission created by the Department of Treasury, which details the findings of its business liaison program held ­between February and March, and obtained by The Australian under freedom-of-information laws.

The liaison program, which was used to inform the budget, ­included warnings from businesses and industry groups to bureaucrats of weaker rates of consumption and falling consumer sentiment, increased uncertainty for business investment, and continued slow wages growth for workers.

However, a slew of companies also complained to the government’s chief economic department about the effect that banning plastic bags was having on slowing activity in the $320 billion retail sector.

“Several firms suggested that the introduction of a ban on plastic bags meant customers reduced their consumption to an amount that they could instead carry, and delayed purchases of heavier groceries,” notes the report, sent from Treasury economist Angelia Grant to Josh Frydenberg and his assistant ministers on April 2.

Contacts also warned Treasury that the poor showing in the retail sector would likely see “continued subdued inflation, with grocery deflation only partly offset by higher power prices”.

Woolworths and Coles banned free single-use plastic bags nationally a year ago, and single-use plastic bags have been prohibited by governments in South Australia, Queensland, the ACT and Western Australia.

Last week the Victorian government foreshadowed a ban on single-use plastic shopping bags across the state from November.

Jordy Elkington, from Hawthorn in Melbourne, said she tried to remember to bring her bags when shopping but wasn’t always successful.

“I think it’s a good thing, ­obviously,” she said as she emerged from a Woolworths supermarket in Camberwell in Melbourne’s east. “It’s annoying sometimes but it’s for a good cause. Give it another year and it will just be normal — people will always have bags in their car.”

She said she would usually carry excess items rather than buy a plastic bag.

Ms Elkington said it was hypocritical of supermarkets to charge people for plastic bags and then use excess packaging on products.

“They need to get rid of it all. I can’t believe they package things like apples,” she said.

The National Retail Association estimated in December that less than six months after the new rules were implemented there was an 80 per cent drop in consumption of plastic bags nationally.

Appearing at a Senate estimates hearing after this year’s budget, Treasury secretary Philip Gaetjens said he wanted to “emphasise the importance of business liaison in formulating Treasury’s economic forecasts” in the lead-up to the budget.

The documents show the outlook for residential property markets was subdued, heightened uncertainty about the global economic outlook, and price pressures for farming and food manufacturing because of the drought.

“Treasury conducted business liaison with a range of stakeholders, including banks, mining companies, industry bodies, economists, state and territory governments, representative organisations and small businesses. These consultations provide detailed forward-looking insights on the economic outlook, which directly inform our deliberations on the economic forecasts,” Mr Gaetjens said.

UNSW Business School professor of economics Richard Holden said if there was a shift towards consumers buying fewer groceries it was likely they were forgoing purchases of unnecessary items. This would benefit workers by leaving them with more money to spend on things they actually need while not adding to the growing amount of food waste across the nation, he said.

Professor Holden also said the inclusion of the claims in the Treasury submission raised questions as to how trusting public servants were of arguments put forward by industry representatives in forums such as business liaison programs.

“It’s hard to believe there will be a macroeconomic effect from plastic bag bans,” Professor Holden said.

“What are heavy groceries? It’s things like bottles of soda and soft drink. A plastic bag ban isn’t going to mean that people aren’t feeding their children or buying the things they really need. It’s almost surely that people are not throwing in the optional extras. It doesn’t sound like the end of the universe,” he said.

“If you ask anybody what they think about policy A or policy B, they’re going to tell you something that’s both from their own perspective and that’s in their interest. If anything, we ought to treat those messages in these programs critically, rather than just taking it as gospel or something businesses are telling us in good faith.”

According to the Department of Environment, Australians throw away 3.1 million tonnes of food every year, while businesses get rid of another 2.2 million tonnes. The cost of food waste is estimated to be about $20 billion annually, according to the government.

Australian Prudential Regulation Authority member Geoff Summerhayes on Friday said there was an unavoidable short-term economic cost involved with the transition to a more environmentally friendly economy, but that avoiding any sort of mitigation would also carry longer-term costs.

Mr Summerhayes said the shift to a low-carbon economy was “already under way” due to consumer demand, investor decisions and regulatory responses.

“Regardless of their choice, some pain will be felt — the only questions being how much and when,” he said.

According to new research from the Reserve Bank’s business liaison program, profit margins in the retail sector have been smashed because of heightened competition in the sector, which has reduced the pricing power of major chains.

A cosy duopoly enjoyed by Coles and Woolworths has been disrupted by the arrival of foreign supermarkets such as Aldi and Costco, punching a hole in their net profit margins, which have sunk from just above 7 per cent in 2009 to below 5 per cent currently.

Because of the concentrated grocery sector, Australia’s supermarkets charge high prices for basic goods such as milk, potatoes, eggs and bread compared with international peers. According to Numbeo, a crowd-sourced global database of consumer prices, grocery prices in Sydney are 15 per cent higher than in London.

Meanwhile, consumers have less money to spend as wages continue to stagnate and energy bills suck up more of households’ disposable incomes.