Friday Feb 03, 2023

Cost-of-living crisis another case of runaway inflation


Crises in Australian politics almost always emerge before election campaigns. But for new governments they tend to be much more important after.

The cost-of-living and a related but independent rise in power prices and decline in power supply have become full-blown crises in the past month or so and are picking up prominence.

Treasurer Jim Chalmers mentioned the cost-of-living crisis more times across two hours on breakfast television and radio on Tuesday than Labor did during the latter half of the election campaign.

To be fair to Dr Chalmers, he had only warned that unpublished government data showed prices were rising at a much faster rate than official figures suggested. Besides, a sense of crisis had already lodged in the head of the median Australian, David Koch, who brought it in his opening question ahead of that afternoon’s RBA announcement. 

Will this crisis hang over Labor’s earliest, biggest decisions in government? That is the big question. History suggests that they certainly hope it does.

Crisis to crisis

But a long history provides little guidance on how a cost-of-living crisis plays out in Australian politics.

Former prime minister John Howard made a lot out of the seemingly slight observation that the “most sensitive part of the political anatomy was the hip-pocket nerve”.

And in 2001, with voters punishing him severely for price rises attributed to the GST, he showed he really meant a claim that the cost of petrol was the issue most on his mind in office.

Mr Howard took more than $100 billion off future governments’ budget bottom lines but promised motorists immediate relief of 1.5 cents on a litre of petrol and blunting future rises in the fuel price at 88 cents a litre. (As treasurer Mr Howard unilaterally intervened to lift fuel prices by 3.5 cents to align with international markets.)

Tony Abbott came to power promising to address skyrocketing prices and stop a carbon tax threatening  “unimaginable” costs but then lifted the freeze on fuel taxes.

Unlike most political exaggerations, the cost-of-living crisis if more often deployed malignly by governments, not oppositions.

COVID vitamins
Cost-of-living pressures have been a concern for decades. Photo: Getty

Kevin Rudd won power after claiming that grocery and petrol prices were out of control. Not much came of attempts to move on those. But declaring inflation inherited from the Coalition as “public enemy number one” was a good justification for cutting spending.

His successor, Julia Gillard, put a fine point on economic orthodoxy about spending less during inflation when she said programs had been axed “as the best way of helping Australians manage cost of living pressures”.

These examples are especially egregious because inflation was not, in fact, out of control.

The cost of living provides a reliable distraction for any new government already intent on cutting spending and minimising criticism.

Post-acute crisis

After a meeting with state counterparts about power supply, Energy Minister Chris Bowen picked a fight with his ministerial predecessor, Angus Taylor, and the Coalition’s flirtation with costly nuclear power for reasons that have yet to become clear. Elsewhere a supply shortfall caused by unreliable ageing coal-fired power stations was blamed on renewables.

Coherent thinking is not encouraged by a tendency to examine issues through the lens of crisis.

These energy issues are really just subplots for a global energy crisis underway for more than  30 years since the discovery that fossil fuels were destroying the planet forced an often painful transition. Electricity prices have spiked suddenly this Winter but price spikes are routine.

No-one has a better view of the facts on cost-of-living than Ben Philips the principal research fellow at the ANU’s centre for social research and methods.

Ten years ago he authored a definitive statistical analysis that exposed political leaders’ claims of skyrocketing cost of living as a furphy aided by selective reporting when prices rose but not if they stagnated or dropped.

Mr Philips says when data goes beyond wages it shows household wealth in property and investments have helped ensure that living standards have not yet been touched by recdntly rising cost of meat, fuel and fruit.

“For most people I don’t really think things have changed,” he said.

But the story is not the same across the economy.

“I think there’s always a cost of living crisis for [people on] low incomes, particularly people on very low welfare payments,” he said.

“Some people are [also] in perhaps a more precarious form of employment.”

So far a fairly narrow debate about inflation has not produced much consideration of the tradeoffs we might make to stop it or in the name of stopping it.

Analysis by the Australia Institute suggests rate rises will stunt wages growth even though workers’ spending is not driving the biggest price increases.

The government might also be committing a mistake by not discouraging the idea that it can do much at all on prices influenced mostly by global trends.

Boris Johnson was the first leader to pronounce a cost-of-living crisis, which proved a welcome distraction until very recently. But lame policy responses including increasing the size of daycare classes and allowing vehicles to skip yearly inspections made his government seem out of touch when it was going for just the opposite.

 





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