Chapter 1Introduction
1.1Since the Select Committee on the Cost of Living (committee) was established in September 2022, the number one issue affecting Australian households and businesses has been a cost of living crisis that has lowered the standard of living of every Australian.
1.2Throughout the course of this inquiry, the committee has examined quantitative data, received expert evidence, and heard from everyday working Australians to better understand how the cost of living is impacting our communities, and what practical and implementable solutions governments can put in place to help Australians.
1.3Almost unanimously, the evidence received by the committee has indicated that an increasing number of Australians are experiencing increased financial pressure and that the cost of living crisis is worsening. This evidence includes:
economic indicators;
information reported by food relief charities and the not-for-profit sector;
data and reports on the pressures facing small business; and
broader media coverage on how the cost of living crisis is affecting individuals and households.
1.4The body of evidence received by this committee is clear: Australians are worse off compared to two and a half years ago.
1.5This is the committee's third and final report on the cost of living crisis. Since September 2022, the committee has examined, as set out in its terms of reference:
the cost of living pressures facing Australians;
the Labor Government's fiscal policy response to the cost of living;
ways to ease cost of living pressures through the tax and transfer system;
measures to ease the cost of living through the provision of Government services; and
related matters.
1.6This report provides updates to the issues outlined the Second Interim Report; namely, the cost of food and groceries, energy prices, housing and the demand for services provided by not-for-profits.
1.7The report examines the economic conditions that demonstrate the Australian economy is struggling (including inflation and the labour market) and looks at how the Labor Government has responded to high inflation.
1.8The report then discusses how the cost of living crisis is affecting small business and particular industries, given the centrality of these areas to the Australian economy. The report ends with the committee's views and additional recommendations since the Second Interim Report.
Causes of the cost of living crisis and exacerbating factors
1.9As noted in the Second Interim Report, the COVID-19 pandemic sparked a situation where demand rose above supply as governments around the world enacted widespread lockdowns and movement and manufacturing were restricted.
1.10Governments provided financial support (fiscal stimulus) to ensure their economies did not crash during this period of reduced economic activity. In Australia, the Coalition Government's stimulus packages saved lives and livelihoods, and successfully supported millions of Australians who were unable to work.
1.11Following the COVID-19 pandemic, global factors, including the Russian invasion of Ukraine, pushed Australia's domestic inflation rate higher. The Reserve Bank of Australia (RBA) subsequently decided to increase the cash rate to curb inflation, which led to increased loan burdens for mortgage holders and holders of business loans.
1.12As outlined in the Second Interim Report, Australia's inflation challenge was exacerbated by the Labor Government's fiscal decisions in the 2022–23 October Budget, the 2023–24 Budget, the 2023–24 Mid-Year Economic and Fiscal Outlook and the 2024–25 Budget. All of these budget updates failed to respond to the urgent cost of living crisis and support the RBA's anti-inflationary measures by reducing government spending to dampen aggregate demand and by introducing measures that negatively impacted productivity, including regressive industrial relations changes and new red tape.
1.13Instead, the Labor Government's higher spending policy response actively contributed to inflationary pressures, causing interest rates to remain higher for longer in Australia.
1.14As economist Professor Richard Holden told the committee in evidence, Australia 'failed to get inflation under control as quickly and effectively as other countries have and as we should have … [T]he current Government has handed down multiple highly expansionary budgets. State governments have been even worse, particularly Queensland and Victoria'.
1.15Ultimately, the temporary shocks to the economy caused by COVID-19, the invasion of Ukraine and weather events that occurred in 2022 have largely worked their way through the system. Inflation remains stubbornly high in Australia. As the Governor of the RBA, Michele Bullock, said in September, inflation is 'still too high. It's still not back in the band. According to our current forecasts it's not really forecast to come back sustainably into the band until 2026'.
1.16Further, the RBA articulated risks to their projections that remain in the economy, such as higher consumption, as outlined in Graph 3.9 from the August Statement on Monetary Policy (see Figure 1.1).
1.17As set out in Chapter 2, the persistence, or 'stickiness', of Australia's inflation continues to be a major challenge the Federal Labor Government has failed to address.
1.18The RBA, in its August 2024 Statement on Monetary Policy, was of the view that the 'slow progress on disinflation over the past year suggests that demand continues to exceed the capacity of the economy to supply goods and services, and by a little more so than previously thought'.
1.19This statement also highlighted the significance of government actions among the drivers of inflation, stating that the RBA expects 'a slightly slower return to target than forecast in May and is due to greater inflationary pressures in the economy. In part, this owes to a stronger outlook for domestic demand, led by higher public demand'. It goes on to note that 'public demand is stronger than previously expected, reflecting recent public spending announcements by federal and state and territory governments'.
Figure 1.1Consumption Risks Scenario: Reserve Bank of Australia
Source: Reserve Bank of Australia, Statement on Monetary Policy, August 2024, p. 55.
SMP = Statement on Monetary Policy
1.20The RBA has noted that the root cause of inflation, measured by the underlying inflation rate, has not been materially affected by government cost of living policies which only temporarily lower headline inflation.
1.21Controlling for temporary reduction caused by energy rebates, the August 2024 Statement on Monetary Policy marked the fourth time since Labor came to government that the RBA extended out the timeline for headline inflation to sustainably return to the target band.
1.22Headline inflation is now not forecast to return to the target until at least 2026 (see Figure 1.2).
Figure 1.2Headline Inflation: Reserve Bank of Australia
Source: Reserve Bank of Australia, Statement on Monetary Policy, August 2024, p. 60.
1.23While the Australian cash rate remains at 4.35 per cent, other comparable jurisdictions have already commenced their easing cycle; the failure and culpability of the Government's policy response is clear.
1.24This is further supported by data from the International Monetary Fund, which projects Australia's inflation to be the highest among advanced economies at the end of 2025, with the sole exception of the Slovak Republic (explored further in Chapter 2).
1.25In addition to the cost of living crisis, the parallel and related crisis in housing availability and affordability for both renters and owner occupiers has put further pressures on Australians.
1.26Australia is not alone in experiencing a cost of living crisis, with inflation being a significant issue in many other countries (also discussed in Chapter 2).
1.27Nonetheless, as analysis by the Australian Financial Review in August 2024 illustrated, Australian households have experienced the largest fall in disposable incomes across the Organisation for Economic Co-operation and Development (OECD) over the last two years.
1.28This supports the body of evidence provided to the committee demonstratingthat, in the last two and a half years, the cost of essential goods has increased rapidly while household incomes have not kept pace.
1.29Put simply, Australians are worse off than they were two and a half years ago.
Structure of this report
1.30This final report consists of five chapters:
this chapter sets out the administration of the inquiry, the committee's work since the Second Interim Report and causes of the cost of living crisis;
Chapter 2 gives an overview of broader economic conditions impacting the cost of living;
Chapter 3 provides an update on issues examined in the Second Interim Report, including the cost of groceries, transport, energy and housing;
Chapter 4 examines how the cost of living crisis has impacted business and particular industries, and looks at other key areas of inquiry, such as the impact of the cost of living crisis on children and young people; and
Chapter 5 sets out the committee's final views and new recommendations.
The committee's work since the Second Interim Report
1.31Since the Second Interim Report was tabled in May 2024, the committee has held four public hearings:
Sydney, 7 August 2024;
Canberra, 16 August 2024;
Canberra, 13 September 2024; and
Canberra, 11 October 2024.
1.32The purpose of these hearings was to delve further into the deeper economic trends underpinning the cost of living crisis and to examine the impact of the cost of living crisis on business and industry.
1.33Matters canvassed in those hearings included:
interest rate rises;
the impact of fiscal policy on inflation;
productivity;
factors leading to business insolvencies;
particular industries affected most by inflation and consumer spending changes, such as hospitality and manufacturing;
the Labor Government's manufacturing policies and their impact on industry; and
Australia's supermarkets and their relationship to the cost of living crisis.
1.34In total, the committee received 245 formal submissions (including 15 supplementary submissions) and a number of answers to questions on notice and additional documents, which are listed at Appendix 1.
1.35The committee also received 1275 responses to its cost of living survey. Responses were completed by individual members of the public who shared their stories of the impact of the cost of living crisis with the committee.
1.36In addition, the committee held 21 hearings across all states and territories, hearing testimony from 302 witnesses. A list of witnesses who appeared at the hearings is listed at Appendix 2.
1.37All public submissions and Hansard transcripts of hearings are available in full on the committee's website, along with other documents received and considered by the committee.
Acknowledgements
1.38The committee notes the significant time and effort that has been provided by individuals, organisations and officials to contribute to the First and Second Interim Reports, and this, the Final Report.
1.39The committee extends its sincere gratitude to the individual witnesses and submitters who took time during this cost of living crisis to provide their experiences, and to better inform the findings of the inquiry. These submissions were made while these Australians were struggling with immense financial pressures and uncertainty. It is the hope of the committee that the Government adopts the recommendations of this inquiry to help these individual Australians who are suffering from the crisis.
1.40The committee finally wishes to thank the committee secretariat and other parliamentary staff for their work to support the committee during this inquiry.