Why you’re not getting cost-of-living help
Sam Hawley: I’m Sam Hawley, coming to you from Gadigal land. Before we get into today’s episode, I wanted to let you know we’re doing a listener survey, and we want to hear from you about how you’ve found the show this year and how we can make it even better. It’s short, anonymous, and you can find the link in our show notes or on our website now for ABC News Daily. If you feel like your standard of living has been getting worse over the past year or so, you’re not alone and you’re not wrong. High inflation, rising interest rates, and rents have meant your relative income is likely to have fallen dramatically. Unless, of course, you’re a baby boomer. Many in that generation are still living it up. Today, the ABC’s national political lead and insiders host David Speers on what the government’s doing on the cost of living and what it could do to close the generational gap.
Sam Hawley: Speersy Data from the OECD, analysed by the Australian Financial Review, shows Australia has suffered the largest fall in living standards than any other advanced economy over the past 12 months. That’s not a record we want. It sounds dreadful.
David Speers: It does. Sam. This analysis from the Finn review really blunts some of the government’s argument that this is a global problem. We’re all caught up in. Inflation’s terrible everywhere. Australia’s just feeling part of the pain here. This analysis suggests that it’s actually Australian households that have done a lot worse than others in the OECD. Incomes here slumping 5.1% in real terms over the 12 months to June, the sharpest fall across the OECD. Taking us back to where household incomes were in 2019, and that compares across the OECD to a rise in living standards of 2.6%, and even higher than that 3.5% in the United States. Yeah, right. So how on earth did we end up at the top of the chart? Well, a few reasons. I think interest rate increases here do tend to inflict more pain on Australian households than interest rate rises in other countries like the US. That’s because of the way our variable interest rates work. They go up each month. You feel that each month in the United States, rates tend to be locked on, locked in for a very long period of time, so they don’t really have as much direct impact. Australia also relies very heavily on taxing incomes compared to many OECD countries, and as incomes rise, our income tax rates aren’t pegged to inflation. They’re not indexed. So people are pushed into higher tax brackets. It’s what’s called bracket creep. What that means is that as inflation helps push up incomes, we’re all paying more and more tax. So in real terms we’re not really improving. But I think one of the big factors too, is population growth over the last 12 months in Australia, as students and others have poured back into the country post-COVID. That has, yes, helped the economy grow, but in per capita terms, not really. So for a whole range of reasons, living standards have gone backwards.
Sam Hawley: And when the OECD tells us that we have had the largest fall in living standards, they’re not really telling us anything we already didn’t know. Because making ends meet for a lot of people right now is really tough, isn’t it?
David Speers: Yeah, absolutely. And I don’t think this is any great surprise to anyone. In fact, even before this month’s Melbourne Cup day interest rate hike, there was some, some calculation that almost half of all mortgage holders were in financial stress, which means they’re paying at least 30% of their income to service loans. And look, you know, for people with mortgages, they’re feeling it. But for people renting as well, we know rents have been rising at extraordinary rates over the last couple of years, in particular while this inflation problem has been around. So that’s a real problem. There are some, though, who don’t have a mortgage, don’t pay rent, are on higher incomes, might have paid off their house. They’re enjoying higher interest rates. Their investments are seeing better returns. Their house price is rising. So for some at least, it hasn’t been a very difficult 12 months at all.
Sam Hawley: Yes. Well let’s talk about those some a bit more in a minute. But Speersy, can we blame the government for all of this? Is it doing something wrong, something that other nations aren’t doing?
David Speers: Look, it can’t be entirely blamed for what we’re experiencing. The inflation problem is caused in part by global factors and in part by domestic factors. And some of those domestic drivers can be traced back to the enormous amount of stimulus that was pumped into the economy during COVID under the Morrison government. But look, it’s the current government that’s there now. It’s their problem to fix. This is on their watch. Voters want solutions, but tackling inflation is just not easy. The one way it’s it’s been talking about in recent weeks is by cancelling or delaying some infrastructure projects to take some heat out of the economy.
News Reader: The federal government has confirmed 50 infrastructure projects across Australia will no longer go ahead, including fast rail, road and intersection upgrades and car parks.
David Speers: But in the meantime, we know cost of living. The number one concern of voters right now. And while you know support for Labour’s holding up in the polls, it is starting to slip. We’re seeing that as well.
Sam Hawley: Yeah, it’s a big, big issue for everyone out there and for the government. So let’s consider then Spears, what the government is actually doing to help the treasurer. Jim Chalmers, says Labour’s given targeted and responsible assistance to the people that need it. So what have they actually done?
David Speers: Well worth reminding everyone that inflation actually helps the budget bottom line right. So government coffers are swollen because income tax revenues are higher. Company tax revenues are higher. And this has helped turn the budget from a projected deficit into a surplus. And look, the government rightly banked nearly all of that revenue upgrade spending. It would have made matters a whole lot worse. Now. It did spend some, though. It allocated about just over $14 billion, and that money’s been rolling out in targeted ways over recent months. Jobseeker went up a little. The single parent payment, rent assistance, childcare subsidies, Medicare bulk billing incentives were increased. So in a very targeted way, the government is trying to help those most in need. It’s never going to be enough to satisfy those who need the most help, but it is trying to do the right thing by helping where it can, but not too much that it’s going to make the inflation problem worse.
Jim Chalmers – Treasurer: Well, I think what we’ve demonstrated is an ability to target cost of living relief to those areas where the pain is most acute. And what we’ve decided to do is to work out where our cost of living assistance will put downward pressure, not upward pressure, on inflation. That’s why we’ve gone for those ways of delivering help.
Sam Hawley: So the government doesn’t want to fuel inflation. But let’s return to that other group that we mentioned before, the group that’s sort of doing okay. One of the problems the government has is that the older generation, the baby boomers, they still have lots of cash, they don’t have mortgages, they have really healthy super funds, and they’re actually spending up big fuelling inflation. So can’t the government do something to address that, to address the ability of of all of this?
David Speers: Well, it could, but I think there’s a limit to how far the government is going to go here. It’s no secret that baby boomers are sitting pretty increasing their wealth. Millennials and generation Z are going backwards. And as our colleague Alan Kohler has pointed out, Commonwealth Bank results recently highlighted this great divide between the generations. Millennials have the most debt. Baby boomers have the most savings,
Alan Kohler: And Gen Z’s and millennials are cutting back their spending and therefore doing all the hard work helping the reserve Bank get inflation down. Baby boomers are spending more and undermining that effort. So sorry about that, kids. So what can government do about this? Well, look, the last time Labour really tried to go after those who are sitting on big assets and big wealth was in the 2019 election campaign and it ended in disaster. This was when Bill Shorten promised to rein in negative gearing rules, capital gains tax discounts, franking credits, all measures aimed at taxing assets.
Bill Shorten – Minister for the National Disability Insurance Scheme: New purchases of existing housing won’t be able to claim a government subsidy. If I’m not giving you a subsidy for you making a loss on an investment property, that ain’t a new tax, that just means you’re not getting a subsidy.
David Speers: And of course, Labour lost that election. And since then Labour’s been very reluctant to touch any of those individual measures. Should note, though, that the one thing the Albanese government has done on this front since coming to office is increase the tax on big superannuation accounts, those holding more than $3 million in their super balance.They still get a discounted tax rate, but not as generous a discount as it previously was. But even that rather modest measure was fiercely attacked by the opposition, so you can see why Labour’s a bit cautious.
Sam Hawley: Yes, and we all wanted to know who had the $3 million super funds anyway. Sounds pretty good to me. All right. So it’s very unlikely the baby boomers spending will be targeted. What about these stage three tax cuts which are meant to come into force next year? Is the government going to continue with those?
David Speers: I think it’s unlikely they will touch them at all, despite the fact we’re now told that inflation will still be higher than it should be by mid-next year, when these stage three tax cuts come in. So there might be an issue there about this making the problem worse. Look, the stage three tax cuts just to remind people they give everyone over earning more than $45,000 a year some benefit. But by far the biggest benefit goes to those at the top, earning more than $200,000 a year. The issue for the government, though, of course, is credibility. It promised over and again to keep these stage three tax cuts. So this would become a totemic issue of trust if they tried to amend them, rein them in, shift them a little. So I think it’s unlikely that the government will touch them. But arguably there’s a very good argument that we need to do something about our tax system. .
Sam Hawley: Yeah. All right. Well, let’s strike that off the list for now then. Another factor, as you mentioned before, is migration is the huge surge in population that we’ve had. That is something the government is in control of at least.
David Speers: It is. But this isn’t easy either. Look, the government is making some changes to the migration system. It wants to close loopholes that have seen, for example, too many people brought in on student visas when they’re not really students, but here to work in low paid work. It’s also trying to attract more permanent skilled migrants, so we’re not constantly relying so heavily on temporary migrants. These changes will make some difference. But look, they’re not going to go as far as some might like. And, you know, in many ways we do need particularly skilled migration to plug some of the gaps that we have in the economy. But when we’re in a cost of living crisis, immigration can be a really potent political issue. Much of the blame for the pain people are feeling falls on new arrivals. The government’s aware of that. The opposition certainly aware of that. I suspect we’ll hear a lot more about migration between now and the election.
Sam Hawley: So it’s not only economically tricky for the government, it’s so politically difficult because voters, as you mentioned, are not happy. So how is the government going to navigate that?
David Speers: Well, it’s I suspect it’s going to do more of what it did in the budget earlier this year and that is only targeted relief. While ever inflation is a problem, its biggest mistake would be to make that problem worse. So it’s aware of that. It’s being very careful about that. It doesn’t want any more blame to fall on its shoulders. But clearly there is already blame. You know, we’re seeing that in the polls. As I say, they’re still in a comfortable lead over the coalition. But, you know, as this pressure continues, as this cost of living crisis rolls on, you can see the trajectory of support for the government might just keep slipping. Yeah, sure. And it’s good fodder for the opposition, of course. Oh, look. Absolutely. And you know, the opposition under Peter Dutton in particular are quite adept at not really providing alternative solutions, but hammering the government with the blame for the pain that people are facing.
Peter Dutton – Leader of Opposition: People know that you’re getting less in your basket than you were 12, 15, 18 months ago with higher electricity prices, higher grocery prices, higher fuel, higher insurance costs, and a prime minister that’s trying to deceive the Australian public.
David Speers: So yeah, I’m sure we’ll continue to see that from the opposition.
Sam Hawley: Yeah, sure. All right. Well, it sounds like the government has gone as far as it’s willing to at the moment in terms of cost of living relief. And I think a lot of voters feel like they do need some help right about now. So really speersy, do you expect there will be anything more apart from that targeted relief that you mentioned before?
David Speers: Look, I don’t expect there’ll be much more simply for the fact that they don’t want to make the problem worse. Now, arguably, as I say, there is a strong case that we do need to rejig our entire tax system. And I know this has talked about so often and never really done, but we do rely far too heavily on income tax rather than taxing assets in Australia. This was shown in the latest Intergenerational Report as something that’s only going to get worse over the years and the decades ahead. And certainly when you come back to OECD comparisons, we’re way out of line here. But this takes a lot of political risk to do it. And what’s the risk appetite for the government at the moment? Well, you know, we have short parliamentary terms. The next election is going to roll around before you know it. So I don’t see the government being too bold over the next 12 months or so.
Sam Hawley: David Speers is the ABC’s national political lead and insiders host. This episode was produced by Bridget Fitzgerald, Nell Whitehead, Sam Dunn and Anna John, who also did the mix. Our supervising producer is David Coady. I’m Sam Hawley. Don’t forget to take our listener survey. The link is in our website. ABC NewsDaily will be back again tomorrow. Thanks for listening.
