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No cost crisis, just hypochondria

Date

Sydney Morning Herald columnist and reporter

View more articles from Adele Horin

<em>Illustration: Simon Bosch</em>

Illustration: Simon Bosch

Has there ever been a time when Australians didn't complain about the ''cost of living''? It is written in our DNA to moan that life is tough and getting tougher. If it's not the price of bananas and mortgage payments, other culprits will be blamed for casting us into Struggletown - childcare, petrol, electricity.

Life is indeed tough for some. But it's not true that life has got tougher, and that the federal Labor government is to blame. Most of us, including age pensioners and self-funded retirees, low, middle, and high income families have never been better off.

But politicians pander to the whingers, and the tabloid press incites discontent. It is political death, and probably death to newspaper circulation, to tell Australians they're a bunch of hypochondriacs whose pain is imagined or feigned. It's one of Labor's misfortunes that whinging about the cost of living has been elevated from a national sport into a national frenzy.

Labor knows the complaints are unfounded: the Rudd/Gillard record in containing the average annual growth in living costs to 2.9 per cent is as good as the Howard government's. But the government is indulging people's impressions of spiralling living costs with a $3.9 billion gift to families in the budget through increased family tax benefits and the bonus for schoolchildren.

The perception is not supported by the data. A recent analysis by Ben Phillips at the National Centre for Social and Economic Modelling examined trends in costs of living - and in our overall standard of living - going back to 1984.

No matter which way Phillips looked at it, for every type of household the story was the same. All groups were better off in the long term going back to 1984, and in the short term between 2003-04 and 2009-10. Rising household income has outstripped rising prices, and some prices have actually fallen.

Yes, petrol prices, mortgage payments, cigarettes, and electricity have gone up. But incomes have gone up faster and a whole lot of things have come down in price.

The shock of the electricity bill has the effect of erasing from people's memories that the last time they bought, say a pair of shoes, or a pair of undies, the items - amazingly - cost no more than they did 20 years ago. And wages and pension payments have gone up in real terms.

A couple with children has done particularly well in recent years. After taking into account cost of living rises that include mortgage payments, childcare, petrol and other big ticket items, they were on average still $328 a week better off in 2010 than in 2003. And since 2010, their circumstances have probably improved further given low inflation and steady wage increases.

Whether looking at household type, or income quintile (whether people fell in the bottom 20 per cent or top 20 per cent of income earners or in between), or whether they were renters, paying off a mortgage or owned their home outright, Phillips found each group was better off than the same group a few years ago, or in 1984.

The only exceptions to this good news story were unemployed people living on Newstart, students and other young people on the Youth Allowance, and some sole parents. Yet it is these groups, with genuine cost-of-living complaints, for whom there is little sympathy.

If people are feeling pressure, it may be because they want to do more and spend more than before. They live bigger lives: the Bali holiday rather than camping; private schools not public; restaurants rather than home-cooked meals. People spend more on recreation and sport, and use more childcare than they used to.

If families really were in Struggletown, more of them would be spending a greater proportion of their income on necessities such as food and electricity than on discretionary - or luxury - items, such as alcohol, airfares and restaurants. But that is not the case, as the AMP.Natsem report Prices These Days! makes clear.

Just because there is no cost of living crisis, it would be churlish to argue against giving families extra money, especially when the increases in family tax benefits announced in the budget were well-targeted. They deliver most to families on incomes below $50,000 up to middle income families around $80,000. These families, though better off than they used to be, fell behind the big earners in the decade's boom years.

Forget the spurious argument about cost of living pressures: the increases in family tax benefits strike a blow for a more egalitarian Australia, and for some reduction in child poverty. (The education bonuses, however, are less well-targeted).

Australia has one of the most generous family payment systems in the world for low and middle income families. A family with a breadwinner on a gross income of $43,000 with three teenagers gets about $21,869 in family payments - even before the latest largesse. A two-income family on $80,000 with three children gets about $10,000. As well, they will be overcompensated in the government's carbon tax package.

Will the latest cash injections stop the whingeing? Probably not. And lost - possibly for a decade or more - was the chance to significantly boost the incomes of single unemployed people whose life below the poverty line is really something to complain about.

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