News Advisor Why is everything in Australia SO expensive?
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Why is everything in Australia SO expensive?

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By almost any measure, Australia is one of the costliest places on the planet.

The Economist Intelligence Unit’s (EUI) global cost-of-living survey, which compares 131 cities using New York as its baseline, ranks Sydney as the fifth and Melbourne as the sixth most expensive on places earth. That’s pricier than Tokyo, Geneva and Copenhagen. Brisbane and Perth are tied for 21st spot.

Thanks to the declining Australian dollar, we have fallen down the cost-of-living rankings a little this year – but our nation is still a very expensive one.

According to the latest data from Numbeo, a global database on living conditions, the cost of renting in Australia is 26 per cent higher than New Zealand and 36 per cent higher than the US. And Americans can stock their cupboards for 21 per cent less, and Kiwis for seven per cent less, than it costs us here.

So why, exactly, is Australia so pricey?

Houses

Housing

In his submission to the Senate Inquiry into Housing Affordability, Saul Eslake, chief economist at Bank of America Merrill Lynch Australia, blamed government policies such as negative gearing for inflating residential property prices while failing to promote the construction of new houses. This, in turn, had forced aspiring first-home buyers on to the sidelines.

Mr Eslake told The New Daily that Australia’s highly urbanised population was a further contributing factor.

Almost two-thirds of us choose to live in cities of over a million people – the highest proportion of any population in the advanced world after Hong Kong and Singapore – for which we pay a premium, he said.

Our concentration around the coast and our preference for relatively large houses on sizeable blocks of land were further contributing factors, he added.

Geo-blocking

Australians pay more than their fair share for technology and online entertainment because of geo-blocking, a policy that restricts our access to content based on geographic location. In other words, big companies charge us more because they can.

Tom Godfrey, head of media at consumer group CHOICE, said this frustrating reality means we often pay hefty mark-ups on products and downloadable content from companies like Apple, Microsoft and Amazon.

Australian consumers pay an average of 52 per cent more for iTunes music, 50 per cent more for PC games, 41 per cent more for computer hardware, and 34 per cent more for software compared with consumers in the USA, according to CHOICE research.

Thankfully, geoblocks can be circumvented. Third-party delivery services like Bendigo-based company Price USA allow you to buy products direct from America at local prices. Virtual private networks (VPNs) can also be used to open up Netflix, HBO and US iTunes accounts, which are usually blocked in Australia.

price-discrimination

Cosmetics and colognes

Australians are also paying a high price for beauty.

We splash out a premium for big brand cosmetics. For example, the Revlon Colourstay Ultimate Suede Lipstick costs $25.95 at David Jones, whereas in Walmart in the US the price is as low as $7.89 (not including US sales tax), according to a recent CHOICE report.

For men, the popular Giorgio Acqua Di Gio Essenza cologne (75ml) cost $125 at Myer, but only $68.53 at Nordstrom in the US (not including sales tax), CHOICE found.

Perfume

The tyranny of distance

When you read these figures, you could be forgiven for thinking that local retailers are ripping us off.

But part of the reason that Australians pay higher prices on retail goods can be explained by our distance from the rest of the world, Mr Eslake said.

Transport costs, and the need to stock greater quantities of products in case they run out, are both factors that drive up the price of cosmetics, colognes and many other foreign-made products.

Higher wages

The comparatively high hourly rates paid to Australian workers is another reason why we pay higher prices than elsewhere.

International data shows our labour costs have risen at a faster rate than in any comparable country besides Norway, Mr Eslake said. These higher wages, and more generous penalty rates, help to explain why our restaurant meals “are typically much higher than in other countries”, he added.

In other words, our waiters and waitress are paid better than in other parts of the world.

Petrol

Nic Moulis, CEO of the Australasian Convenience and Petroleum Marketers Association (ACAPMA), said Australian petrol prices are comparatively low – the fourth lowest in the developed world after Canada, the US and Mexico.

But this is little consolation for motorists who are paying more and more for their fuel.

Mr Moulis said government taxes were partly to blame, with 36 per cent of the average petrol price over the last two years made up of GST and fuel tax. A further 52 per cent was made up of the cost of the petrol itself.

“The service station owner is making 2 cents [per litre] for selling petrol while the government is making 51 cents,” he said.

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Sparse population

Finally, we are a population that is spread out over a very large area, often with vast tracts of land in between.

The widely scattered nature of our population means that “we need to spend more on transport and more on inventories than a similar population on a smaller landmass would have to”, Mr Eslake said.

With all of that in mind, it doesn’t look like our prices will be falling any time soon.

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