My old barber Les cut hair in his O'Connor shop for what seemed like aeons. He was from another era. His Spartan store was devoid of adornments, except for the calendar and photos of topless women on the walls. He always wore a khaki safari suit. And, as best as I can recall, he charged the same price every visit; he was the man inflation forgot. Men, especially poorer ones, used to form large queues at Les's shop, sometimes stretching well past the door. When he last cut my hair, just before he retired, I paid $9 like I always did. My next haircut cost me $25.
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Les would have fascinated economists. One of my lecturers once told me that barbers' prices defy economic norms. Technological advances transform most industries, making their goods and services cheaper, in real terms, over time. But the barber's tools – clippers, combs and scissors – haven't changed. It takes about as long to cut a head of hair now as it did two generations ago. What we're paying for is labour. Even women's hairstylists, who offer more costly treatments than those of a humble barber, are still, for the most part, simply selling their time.
Why is this relevant to anyone other than economics lecturers? Because, in a small way, it may affect the comfort of our retirement.
The Australian Bureau of Statistics measures inflation in great detail, even down to the prices charged by barbers. Last week, the bureau said the consumer price index crept up by 0.5 per cent in the June quarter. This followed a rise of just 0.1 per cent in the previous quarter. Annual CPI is now a very low 1.2 per cent.
Some say this is good news, as the cost of living (or, more accurately, the prices we pay for the stuff we buy, which isn't the same as what we need) isn't rising beyond our reach. But low inflation is neither good nor bad news for most of us, as it tends to mean the community is spending less. This is turn means less income for businesses and, as a result, lower wage rises. So while low inflation means prices are staying down, its flip side is often slow wage growth, which means we can't afford to buy much more stuff anyway.
However, there's a group of people for whom low inflation can be bad news; you'll have noticed them writing letters to this newspaper. Most retired federal public servants and military personnel receive relatively generous superannuation pensions, which rise in sync with CPI. In contrast, age pensioners' payments are pegged to average male full-time earnings, which, in recent years, have risen faster than CPI. The graph below, a mash of 17.5 years of inflation and wage data, shows just how big the difference has been. It's unsurprising that Commonwealth superannuants argue that, as a matter of equity, their payments should also be linked to wage growth.
I've long felt ambivalent about this campaign for "fairness". First, there was little complaint from superannuants during the years in which inflation outpaced wage growth. What if this happens again? Will these retirees demand a switch back to CPI-based indexation when it suits? Second, those public servants lucky enough to be members of the now-closed Commonwealth Superannuation Scheme should, at least occasionally, count their blessings. Those staff employed after 1990 receive far less generous super pensions. Is it fair or equitable that one public servant, employed a year later than another, will receive so much less in their retirement despite sharing a near-identical career? Third, the notion of Commonwealth superannuants fighting for "equity" with age pensioners ignores what is, in most cases, the substantial financial divide between these two groups. Twelve months ago, a single age pensioner received $18,962 a year at most, while the average CSS pension was $29,847. I know whose welfare I'm more concerned about.
Nonetheless, there are valid criticisms to be made of CPI as a measure of the cost of living – because it's not. It's a gauge of spending, and it doesn't discriminate between needs and luxuries. Over the past 17.5 years, the prices of many items and services we buy fell compared with our capacity to pay (e.g. computers, cars, clothes). Some have kept pace with inflation (milk, newspapers, childcare), while others are dearer than they once were (insurance, electricity, eggs). The price of a haircut (Les's excepted) rose faster than most other goods and services: it went up 116 per cent. (As my lecturer predicted, this was almost perfectly in sync with wage growth.)
Defining the cost of living, however, is a nigh-impossible task. The ABS measures the prices of 88 sub-groups of goods and services, most of which comprise several sub-items. It's easy to pick and choose from these in order to mount a case that a person's "living" costs are rising faster than inflation. But how do we fairly select which goods and services, over time, represent a person's needs? Haircut prices have grown at almost twice the rate of inflation. However, while most people buy haircuts, we can have them less often, or get a friend or relative to cut our hair. Is internet access now an essential part of modern life, or is it a sign of a higher quality of life than that we once had? And while we all need food, is it also important, perhaps for our mental health and social needs, to dine out occasionally? The cost-of-living conundrum is almost unsolvable.
Commonwealth and military superannuants already receive pensions that most other Australians can only dream of. They say they simply want to maintain their standard of living. In truth, their demands would see their quality of life continually improve, rather than stay static. This was never part of their employment and pension agreement.
Back in 2009, the government examined the option of switching these superannuants' pension indexation from inflation to male wages. It found the change would add $27.6 billion to public debt. There's little fairness in such a small group making a demand that big of their erstwhile fellow taxpayers.
Markus Mannheim edits The Public Sector Informant. Send your tips to aps6@canberratimes.com.au
