It is no surprise that the cost of living has emerged as a key issue during the election campaign.
The 5.1 per cent national inflation figure for the March 2022 quarter was higher than expected, but price inflation has remained above the Reserve Bank of Australia’s 2-3 per cent target range since June of last year.
Price inflation in Perth is even higher, running at 7.6 per cent, according to the most recent data.
The Ukraine-Russia conflict has had a lot to do with rising fuel prices, but there’s more to cost-of-living pressures than that.
We’ve seen typical weekly rental costs rising by up to $100 since the start of the pandemic in several capital cities and regional areas, with Perth’s rental vacancy rates at unprecedented lows.
Supply restrictions and floods have pushed up grocery prices and led to shortages of building materials.
And wages have taken longer to pick up.
In Western Australia, there has been annual growth of 2.4 per cent in private sector wages and 2.1 per cent for public sector workers, according to the latest data from the Australian Bureau of Statistics.
Statistics. That’s a long way behind price inflation, and people are feeling the pressure.
The RBA board reacted by lifting the cash rate by 0.25 percentage points to 0.35 per cent, with RBA governor Philip Lowe foreshadowing more rate increases for the rest of the year.
Some of his comments might be pre-emptive in moderating people’s expectations and behaviours, but we may well be looking at cash rates of 2 per cent or more by this time next year.
But even though the cost of living has become the soundtrack to the election campaign, the two main parties have yet to back up the rhetoric with structural reforms that respond to cost pressures.
The Liberal Party’s measures are mostly temporary: halving fuel excise duties for six months, introducing a one-off $250 cost-of-living payment for pensioners and those on JobSeeker payments, and adding $420 to the Low and Middle Income Tax Offset (LMITO).
And the LMITO will be withdrawn next year, which means $1,500 less in income for 10 million taxpayers next year compared to July of this year.
Labor is promising cheaper childcare and 30,000 more social housing units over the next five years, while the Coalition plans to put $5.5 billion towards 27,500 new social and affordable dwellings.
Both parties’ commitments on social housing are a step in the right direction, but still falling a significant margin short of what’s required (it’s been argued that we need at least 300,000 new social housing units to meet demand).
Other than social housing, neither party has really addressed the rental crisis.
We’ve heard little of reform to Commonwealth Rent Assistance, which is currently capped at $72.90 per week.
This means for those receiving maximum CRA, every extra $10 on rents means $10 less for them to spend on everything else.
And neither party has addressed adequacy of income support in any ongoing sense, possibly for fear of accusations from the other side of spending profligacy.
Rather than kicking the can down the road in the hope that pressures will ease, there is a compelling need to embrace structural reforms that commit to the indexation of personal tax thresholds, benchmark CRA to market rents, address adequacy of income support payments and increase the supply of low-cost rental accommodation.
• Alan Duncan is director, Bankwest Curtin Economics Centre
