News Politics Cost-of-living crisis another case of runaway inflation

Cost-of-living crisis another case of runaway inflation

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Crises in Australian politics almost always emerge before election campaigns. But for new governments they can prove more useful afterwards.

The rising cost-of-living and a not unrelated spike in energy prices and supply interruptions have each now been designated a fully fledged crisis. They are now picking up steam.

In two hours of breakfast TV and radio, Treasurer Jim Chalmers said “cost-of-living crisis” more on Tuesday than Labor had in the second-half of the campaign, transcripts show.

To be fair, Dr Chalmers had only just warned price rises were going to get significantly worse. And the word had already become lodged in the head of the median Australian, television’s David Koch, who led an interview about that day’s RBA announcement  with a question on the government’s first crisis.

Will this crisis hang over Labor’s earliest, biggest decisions in government? That is the big question; history suggests the party will be doing all it can to make sure of it.

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 halted future fuel tax rises. (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 soaring prices and stop a carbon tax threatening  “unimaginable” costs.

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

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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. His policy responses on both are well remembered for the wrong reasons.  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 axing programs  “was the best way of helping Australians manage cost of living pressures”.

But inflation was not, in fact, a cause for concern.

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 capacity drop among rickety coal power stations was blamed on renewables.

Perspective is rarely helped by the crisis tag, which has now been applied to an annual rise in power bills often seen in Australia’s lumbering national market for energy in recent decades, though for different reasons.

No-one has a better view of the reality of the 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 analysis that exposed political leaders’ claims of skyrocketing cost of living as a furphy aided by the media’s tendency to ignore price drops, like petrol’s fall.

Mr Philips says when data goes beyond wages it shows household income from property and investments have stopped long-flat living standards from dropping due to rising costs for fruit, fuel and meat.

“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.”

Missing from debate is any analysis of the tradeoffs we are making with counter-inflation measures and those we should feel prepared to make.

Economist Alison Pennington has argued rate rises will limit wages growth even though inflation is being driven internationally and workers would not use pay raises on things like housing or education which have been inflating overall price rises.

Boris Johnson was likely the first leader to pronounce a cost-of-living crisis, which proved a welcome distraction and soon a preoccupation. A clutch of suggested lame-duck suggestions including cheaper daycare via larger classes cemented impressions the government was ineffective and out of touch – just after it spent so much energy trying to seem the opposite.