Chapter 1Introduction
1.1On 28 September 2022, the Senate established the Select Committee on the Cost of Living (the committee) to inquire into and report on:
(a)the cost of living pressures facing Australians;
(b)the Government’s fiscal policy response to the cost of living;
(c)ways to ease cost of living pressures through the tax and transfer system;
(d)measures to ease the cost of living through the provision of Government services; and
(e)any other related matter.
1.2The committee’s initial reporting date was 30 November 2023. Due to the continuing nature of the cost of living crisis, and the failure of the Labor Government to address it, on 2August2023, the Senate agreed to extend the reporting date to 31 May 2024.
1.3On 26 March 2024, the Senate again agreed to extend the committee’s reporting date to 15 November 2024.
Evidence received in submissions, public hearings and survey
1.4The committee advertised the inquiry on its website, and wrote to organisations and individuals inviting submissions by 15 March 2023. The Senate subsequently agreed to extend the submission closing date to 28March 2024.On the basis of the committee’s reporting date extension, the committee agreed to further extend the submission process until 30 October 2024.
1.5The committee accepted and published more than 1000 submissions from stakeholders, peak bodies, not-for-profit organisations and private Australians.
1.6Formal submissions are listed at Appendix 1. As noted, there were also 1071submissions via the committee’s community survey website, which are also available on the committee’s website.
1.7The committee held the following public hearings:
Sydney, New South Wales on 1 February 2023;
Melbourne, Victoria on 2 February 2023;
Brisbane, Queensland on 3 February 2023;
Box Hill, Victoria on 1 March 2023;
Warwick Farm, New South Wales on 21 April 2023;
Canberra, Australian Capital Territory on 23 June 2023;
Hobart, Tasmania on 10 July 2023;
Canberra, Australian Capital Territory on 4 August 2023;
Adelaide, South Australia on 21 August 2023;
Port Augusta, South Australia on 22 August 2023;
Alice Springs, Northern Territory on 23 August 2023;
Melbourne, Victoria on 28 August 2023;
Perth, Western Australia on 26 September 2023;
Brisbane, Queensland on 2 February 2024;
Canberra, Australian Capital Territory on 9 February 2024; and
Gladstone, Queensland on 19 February 2024.
1.8A list of witnesses that appeared at the hearings is at Appendix 2.
1.9All 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.
Structure of this report
1.10This Second Interim Report of the committee consists of five chapters:
The first chapter sets out the administration of the inquiry and summarises the findings of the committee’s First Interim Report, tabled on 3 May 2024. It then provides an overview of the cost of living crisis, and an analysis of the current Government’s fiscal and regulatory approach;
Chapter 2 outlines growing pressures in the cost of food and groceries, as well as in travel and transport;
Chapter 3 considers energy prices, and the effects of higher prices on households, business and industry;
Chapter 4 sets out issues in housing, both for mortgage holders and for renters; and
Chapter 5 looks at how Government support for the not-for-profit and charity sector could be improved, to address growing need in the Australian community.
1.11All chapters conclude with a section outlining the committee views and any relevant recommendations.
Acknowledgements
1.12The committee thanks all those individuals and organisations who made submissions and gave evidence at the public hearings, as well as the individuals that participated in the committee’s survey.
The committee’s First Interim Report and cost of living survey
1.13As noted above, the committee tabled a First Interim Report on 3 May 2023. This report concentrated on three priority areas identified in evidence to the committee: energy prices; housing; and food and groceries. The committee reached 11 preliminary findings in these areas:
Finding 1: Real wages are not growing and have deteriorated due to high inflation.
Finding 2: The most effective way to reduce inflation is to have monetary policy and fiscal policy working in the same direction.
Finding3: While the cost of living in Australia is being driven by a range of factors, including supply shocks and adverse weather events, domestic policy settings are also major contributors to inflation.
Finding 4: The cost of living crisis is causing an increase in the demand for services provided by the charitable and not-for-profit sector.
Finding 5: As demand for charitable services increases, there is a parallel downturn in the ability of charities to meet this demand due to increased overheads for these organisations and lower levels of charitable giving.
Finding 6: Energy prices have risen and are a major contributing factor to the cost of living crisis in all sectors of the economy.
Finding 7: More supply of energy will reduce the cost of energy.
Finding 8: Housing costs, both in terms of rental and mortgage costs, are a major contributing factor to the cost of living crisis.
Finding 9: Greater supply and reforms to domestic policy settings are required to adequately address the need for additional housing, including community and social housing.
Finding 10: The increasing cost of food and groceries are a major contributing factor to the cost of living crisis.
Finding 11: Supply chain disruptions are a primary driver of increasing food and grocery prices. However, increased input costs to the production and provision of these goods, including energy and fuel, will impact the prices paid by consumers.
Survey on the cost of living
1.14To gauge the impact of the present cost of living crisis, the committee undertook a public survey hosted on the committee’s website. This survey has run throughout the committee’s inquiry, closing on 28 March 2024, receiving 1071responses.
1.15The survey consisted of both multiple-choice questions and opportunities for respondents to provide free-text answers. The multiple-choice questions sought both demographic information on respondents and information on the cost of living pressures they faced.
1.16Respondents could also provide answers to how they had: 're-prioritised or gone without items'; how cost of living pressures had 'affected you or your family'; and what they thought 'could be done by governments to ease [these] pressures'.
1.17Responses to surveys have been collated and published as submissions to this inquiry and are available in full on the committee’s website.
1.18The results of this survey have informed this report and have been referenced throughout to illustrate how everyday Australians are experiencing a rise in the cost of living, and to show where they thought governments should be concentrating their policy and fiscal efforts.
Overview of the growing cost of living crisis
Effects on the community
1.19The First Interim Report showed that many Australians are now doing it tough and facing unprecedented economic pressures. Evidence to the committee showed that the current cost of living crisis has had a very negative effect on many Australians, particularly because of the severity of price rises in key areas of household expenditure, and the prolonged and incremental pressures they have faced on a number of fronts.
1.20This concerning trend was reflected in the vast majority of responses to the committee’s survey. Of the 1071 respondents, the overwhelming majority noted that they had experienced cost of living pressures in the past six months (92percent).
1.21When asked to rank cost of living pressures, responses clustered around the areas set out in the figure below.
Figure 2.1Ranked cost of living pressures, highest to lowest
Source: Select Committee into the Cost of Living Survey
1.22Ninety per cent of respondents to the survey noted they had re-prioritised expenditure or 'gone without' due to cost of living pressures. Many provided detail on particular ways they had reduced expenditure or struggled with necessities, which this report will discuss in relevant chapters.
1.23The findings of this committee are supported by recent research data. For example, Finder, which measures the financial burden on Australian households monthly, has found that current cost of living pressures is still rising, and has been steadily in the 'extreme range' (above 75per cent) since late 2022, currently sitting at 78 per cent.
Figure 2.2Finder's cost of living pressure 2020-24
Source: Finder’s Cost of Living Pressure Gauge (accessed 22 March 2024)
1.24Research also shows that ordinary Australian households have not only had to cut back on discretionary spending but have really struggled to meet the rising costs of essentials such as housing, food and health care. For example, more than half of Australians surveyed in March 2023 were only 'just making ends meet or worse', after two years of unprecedented price rises. Concerningly, most respondents indicated 'they have had one or more challenges in paying bills or putting food on the table in the past three months'.
1.25Evidence clearly shows that some vulnerable cohorts had been particularly affected by cost of living pressures. This included:
Young people, with indications that 1.3 million children are living in food-insecure households, skipping meals or going entire days without eating;
Australians with a disability, 56 per cent of who rely on income support payments as their main source of income, as well as the burden of additional costs to manage their conditions;
Many older Australians, particularly those with chronic illnesses or health issues, who have had to make ‘difficult’ decisions in spending on non-essential items, including cutting back on medication, health services, fresh food, and travel to see family and friends;
Individuals with mental health issues, which are often exacerbated by financial uncertainty and crisis; and
First Nations Australians have been disproportionately affected by rising costs, which risks compounding intergenerational disadvantage.
1.26Much of the evidence suggested that the effects of the cost of living crisis may actually be far worse than initially appears. For example, the Salvation Army’s Major Brad Potter suggested that the scale of need may be far greater than statistics show, due to the perceived stigma of asking for help:
I fear that the cost and human toll has been far greater than numbers will ever indicate, because many struggle in silence, perhaps even feeling an overwhelming sense of humiliation and hopelessness that they just can't cope.
1.27Foodbank noted in its 2023 Foodbank Hunger Report, that as the pressures of food supply relaxed, the cost of living was still the most pressing issue being raised in its annual survey:
Cost of living was the most common reason for food insecurity in 2023. As travel and disaster-driven food insecurity appeared to recede, even more food insecure households now perceive cost of living as the key contributor to their situation.
1.28When compared to its 2022 survey, Foodbank found that cost of living pressures was the main reason contributing to food insecurity in a household. This measure had moved from 64 per cent of responses in 2022 to 79 per cent in 2023.
Interest rate rises
1.29Under the economic pressures of the COVID-19 pandemic, the Reserve Bank of Australia (RBA) dropped the cash rate target (the interest rate that banks pay to borrow from other banks) to a record low 0.1 per cent on 4 November 2020. The RBA maintained this rate until 4 May 2022, at which time inflationary pressures prompted the bank to increase the cash rate.
1.30Over subsequent months the cash rate was increased to reach a 12-year high of 4.35 per cent on 8 November 2023 (see Figure 1.3). This is still the case at the time of reporting, and with recent data inflation higher than expected, some economists are forecasting that the RBA may be required to delay expected rate cuts, or even raise rates further.
1.31For example, the Commonwealth Bank of Australia is now forecasting only one 25 basis point rate cut in 2024, down from its previous forecast of 75 basis points set prior to the released inflation data releases.
Figure 2.3Changes in the cash rate target 2010-2024
Source: Reserve Bank of Australia, Cash Rate Target (accessed 13 March 2024). Election date markings subsequently added.
1.32These intense changes in the cash rate target have also exposed the acute vulnerability of many mortgage holders who hold variable mortgages on their homes, or those who have transitioned to higher interest rates after coming off fixed interest loans. The effects of this are discussed later in this report, alongside other pressures on the Australian housing sector.
Declining real incomes
1.33As detailed in the First Interim Report’s Finding 1, real wages (that is, the ability of people to buy things with their pay) have fallen. Australian household inflation-adjusted disposable incomes dropped by over 5 per cent between mid-2022 and mid-2023, constituting what the Australian Financial Review’s financial correspondent, Michael Read, described as the 'largest fall in living standards of any advanced economy' during that period. While on some indicators real wages have begun to increase again, they remain significantly below where they would have been if not for the significant fall between 2022 and 2023.
1.34Many Australians have consequently seen their purchasing power dramatically eroded over recent years. And even those financial reserves that were built up by some households during the COVID-19 pandemic are now reported to have been largely depleted amidst sustained high prices and unprecedented interest rate rises.
Causes of the cost of living crisis and exacerbating factors
1.35As detailed in the committee’s First Interim Report, persistent inflation has been eroding the standard of living for all Australians and is the key driver to this cost of living crisis for nearly two years.
1.36Initially, the COVID-19 pandemic and associated supply shocks played a significant role driving up prices. Demand shifted away from services to certain goods, driving up prices as supply lines diminished, even as public health measures in many economies lowered global levels of production. The pandemic, and the public health measures imposed in response, caused the greatest economic shock to Australia since the Second World War.
1.37In the face of this economic crisis, and the potential long-term economic damage and labour market scarring that might have occurred, governments globally responded with extraordinary stimulus packages and quantitative easing measures to underpin confidence and boost consumption and demand.
1.38In Australia, the Federal Coalition Government delivered a world leading response, saving lives and livelihoods. Australia emerged from the pandemic with one of the lowest COVID-19 fatality rates in the world and the Coalition’s JobKeeper program alone saved up to 800000 jobs that would have otherwise been lost.
1.39Furthermore, labour shortages resulting from a virtual halt on migration during the COVID-19 pandemic and record low interest rates that had fuelled a spike in borrowing both contributed to further domestic price rises.
1.40In parallel, Russia’s invasion of Ukraine in February 2022 reduced global supplies of food and agricultural commodities and drove up global food prices. Sanctions imposed on Russia, and the subsequent withholding of gas and oil in retaliation, triggered increases in global energy prices that added further upwards pressure on transport and production costs.
1.41On the domestic front, adverse weather events in mid-2022 led to food shortages and subsequent higher grocery prices, leading to the busiest year on record for the Red Cross's Emergency Services teams.
1.42The compounding effects of inflation, rising interest rates and ineffective policy responses over the last two years means that, without a significant policy shift, the cost of living will remain a challenge for many Australians for years to come.
Labor’s policy response keeping inflation higher for longer
1.43Evidence to the committee and the public commentary of expert economists has highlighted the need to reduce Government spending to assist in reducing inflation and cost of living pressures.
1.44Professor Peter Robertson, Dean and Head of the Business School, University of Western Australia, emphasised in his evidence to the committee the potential negative effects of excessive public sector spending on inflation:
The more the government spends, the more likely that there'll be inflation. The less the government spends and the more it contracts, the less likely that there's going to be demand-driven inflation through that fiscal policy.
1.45Professor Robertson also noted that in the current inflationary environment, the less the government spends, 'then the easier it's going to be for the Reserve Bank to manage' inflation through interest rate rises. However, he suggested that the Government's current approach spending was instead undermining the effects of the RBA's interest rate rises. He cautioned that this scenario could see the RBA continuing to manage interest rate rises to offset Government spending, which could, in turn, only increase Government spending to offset the impact of interest rate rises. Such a scenario was described by Professor Robertson as a sort of 'conflict between the two branches', which should be avoided.
1.46Independent think tank, the Institute of Public Affairs (IPA) similarly posited that '[rising] government spending is exacerbating inflation', and provided research on the crisis that showed this could be seen to be placing cost pressures on everyday Australians through mortgage repayments:
Aone percentage increase in government spending causes a 0.35 percentage point increase in annual inflation, and that a one percentage point increase in annual inflation causes average household mortgage rates to increase by 0.42 percentage points.
1.47Given this trend, the IPA raised concerns on the size of Commonwealth spending, suggesting it had risen by 28.9 per cent from 2019–2022, from $478.1billion to $616.3 billion, and that 2022-23 Budget forecast a further rise of 18.2 per cent to $728.6 billion by 2026.
1.48Paul Bloxham, Chief Economist at HSBC, succinctly captured this concept following the 2023-24 Budget, noting:
…at a time when the economy is already operating at its full capacity–and inflation is already high–any boost to spending is likely to add to inflation.
1.49This supports Finding 2 of the committee's First Interim Report, which stated the most effective way to reduce inflation is to have monetary policy and fiscal policy working in the same direction.
1.50Professor Robertson also warned of a possible wage-price-spiral as a result of public sector wage growth and other Government initiatives. Evidence from the Treasury suggested that unsustainable wage growth chasing inflation was a 'risk' that they 'watch closely' for, but noted that it was one that they did not see 'evidence of…at this stage' (August 2023).
1.51This concern has not only been noted by commentators, but also within Government. In early 2024, the Australian Financial Review reported alleged confidential Treasury analysis that identified a further economic risk, stating that productivity needs to improve in tandem with wages growth attenuating towards the RBA’s inflation forecast. This commentary suggested:
…the issue now facing the central bank is entrenched wage growth above 3.5 per cent, which would make it impossible to get inflation back to the 2per cent to 3 per cent target band. Wages growth of 3.5 per cent allows 2.5per cent to be passed on to final consumer prices with an additional 1 per cent from productivity gains.
Figure 2.4Treasury analysis of inflation 2018-2023
Source: Ronald Mizen, 'Wage growth drives inflation, average pay tops $100k', AFR Online, 26 February 2024 (accessed 12 March 2024)
1.52The committee considers the domestic policy decisions made by the Labor Commonwealth Government since its first Budget in October 2022, and particularly in the 2023-24 Budget had the effect of prolonging inflationary pressures in the aftermath of these initial international shocks and these factors have pushed inflation to near-record levels, and are resulting in CPI remaining above the target band for longer than originally forecast.
1.53The Labor Government's expenditure in the 2023-24 Budget reflected an increase in spending of $209 billion beyond that proposed by the Coalition in its final Budget, and recent Australian Bureau of Statistics (ABS) data shows that the consumer price index (CPI) remains stubbornly high at 3.64 per cent for March quarter 2024.
1.54Charts published by independent economist Chris Richardson further illustrate the expansionary aspects of the Labor Government’s previous Budget, and specifically demonstrate how spending is driven by decisions of the Government (see Figure1.5).
Figure 2.5Chris Richardson, 'What caused the surplus?'
Source: Chris Richardson, Linked in Post: ‘What caused the surplus?’, 31 April 2024 (accessed 1 May 2024)
1.55Independent and industry economists were quick to point this out following the release of the 2023-24 Budget. David Bassanese, the Chief Economist at Betashares, called the 2023-24 Budget 'unambiguously expansionary', while the Chief Economist of Goldman Sachs cautioned that the spending decisions in the Budget meant that 'the risks are skewed to more tightening being required and potentially as soon as next month’s [RBA] board meeting' (June 2023).
1.56Chris Richardson also noted that he 'had thought that the Reserve Bank was done and dusted but this has notably raised the chance that they will do another swing of the baseball bat'.
1.57This analysis was confirmed on 6 June 2023 when the then-RBA Governor PhilipLowe announced following the Budget that the cash rate would increase by 25basis points to 4.10 per cent, at the time the highest level since May 2012. The RBA increased the cash rate again in November 2023.
1.58With high and persistent inflation, a dramatic spike in interest rates, and declining real wages, there is urgent need for a comprehensive, fiscally responsible economic plan to reduce inflation.
1.59The current Labor Government promised just such a plan when they were in opposition, vowing to cut energy costs and grow real wages. As the First Interim Report noted:
Then Opposition Leader Anthony Albanese MP and his frontbench colleagues made a significant number of statements indicating that cost of living pressures would improve under a Labor Government. These included:
'I’ll say this very clearly. They [Australians] will be better off under a Labor government';
'We’ve got policies about getting power bills down. We’ve got policies…to get real wages moving again';and
'People will be seeing in their bank accounts what the change of Government means. People will be seeing in their bank accounts a wage increase…'.
1.60None of these commitments have been delivered under the current Government. Instead, poorly-targeted government interventions have contributed to higher prices at grocery stores and energy bills, while also undermining the efforts by the RBA to stem persistently sticky inflation.
1.61In particular, the Prime Minister's Future Made in Australia plan, which is built on the 'foundations' of the National Reconstruction Fund, suggests a failure to comprehend and respond to the challenges Australia's economy is currently facing.
1.62The Government's inaugural Chair of the National Reconstruction Fund, Martjin Wilder, emphasised the role of government in determining where investment should be directed, stating ‘Of course we should be picking winners’. However, the Treasurer's own hand-picked Productivity Commission Chair, Danielle Woods, has expressed concern about this approach, as noted in an Australian Financial Review article. ‘We risk creating a class of businesses that is reliant on government subsidies, and that can be very effective in coming back for more’, Woods commented.She separately noted that this approach, championed by the Treasurer, would take jobs and capital investments from elsewhere in the economy where they could generate higher value.
1.63It remains to be seen how these significant payments will assist working Australians that are suffering persistent inflationary pressures.
1.64In this context, economists have raised concerns publicly about the broader need for the upcoming 2024-25 Budget to reduce spending to take the pressure off inflation and assist the RBA. For example, Jonathan Kearns, Chief Economist at Challenger, stated that:
Monetary policy has been doing the heavy lifting, but having contractionary fiscal policy can spread the load. The tighter fiscal policy is, the sooner and faster interest rates can come down.
1.65Jo Masters, Chief Economist at Barrenjoey said that 'with inflation persisting around 3.5 per cent, per cent fiscal need[s] to help monetary policy'.
1.66Independent economist Chris Richardson was even more direct when he noted:
If the government wants to do something about the cost of living, then more than anything else it wants something to be done about inflation...You can play around with the symptoms all you like but the cause here is inflation.
1.67Professor of Economics at the University of New South Wales, Richard Holden, simply said that because of the Government's policies 'inflation is now both homegrown and sticky'.
Committee view: responsible management of Government spending
1.68The Albanese Government was elected on a platform of accountability and reducing the cost of living for Australians. As the economic plight of Australians has dramatically deteriorated over the past two years, it is clear there has been no effective plan to manage the spiralling costs faced by Australian households.
1.69Instead, the Government has pursued policies that has kept inflation higher for longer, and worked contrary to the RBA’s management of economic settings to keep interest rates high.
1.70The remainder of the report will consider these matters in greater depth. However, it is clear from the evidence the committee has heard and from statements from experts that the inflation challenge cannot be met by monetary policy alone. Fiscal policy must also be deployed. The Government must rein in spending, not only as a principal of sound economic management, but also to reduce inflationary pressure on Australian households, businesses, and industry. An expansionary Budget will make the inflation challenge worse and even a neutral Budget stance will keep inflation higher for longer.
1.71The committee recommends that the Australian Government reduce its aggregate spending to support the Reserve Bank of Australia in its efforts to curb inflation.
Improving the tax system
1.72Some evidence suggested that the Australian tax system could be improved to reduce cost of living pressures on ordinary Australian taxpayers. For example, in the recent high inflation environment, bracket creep has eroded some of the increases in wages gained by working Australians. Professor Robertson explained bracket creep and outlined its negative effects for taxpayers:
Inflation is going to push up the tax take—the specified and fixed kind of brackets—so then the government ends up getting a bigger tax income, as it did in this latest budget announcement, with a bigger surplus than expected, because that's just taking real income out of people. It means that people are paying higher taxes than they anticipated. But you also get bracket creep through productivity growth as well. Real growth will also drive people into higher income brackets, and that will also then start stifling.
I think we have pretty high marginal tax rates at the top end. So you're just creating a disincentive for people to engage in employment at that high end. They can look for other things to do, like working less. It feeds down into things like what decisions people make when they're at university or at high school and what careers they want, because you're looking at your expected returns into the future. If bracket creep has got a situation where doctors are getting very high rates of tax, then fewer people are going to want to be doctors.
1.73A response to the Cost of Living Survey noted specifically that 'bracket creep is crippling me'.
1.74The Tax Institute advocated a range of measures to assist with cost of living pressures, including addressing rises in taxes on working Australians from incremental bracket creep. It argued that a progressive personal income tax regime would only be:
…effective where the personal income tax thresholds are commensurate to taxpayers’ economic capacity. Wage growth is one contributor to bracket creep, which results in tax being imposed on individuals and families at a higher effective rate. This leaves taxpayers with lower net disposable income. This, coupled with rising inflation, increases the pressure on family budgets. The Tax Institute is of the view that, the personal income tax thresholds should be indexed to the CPI. By taking into account factors such as wage growth and inflation, indexed tax rates may leave taxpayers in an overall better position to deal with current cost of living pressures.
1.75The Business Council of Australia (BCA) criticised the Labor Government’s recent decision to go back on its promise taken to the last election in amending the Coalition’s Stage 3 tax cuts. Its submission recommended:
Standing by its commitment to deliver the stage three income tax cuts in their legislated form. They are an important reform to the income tax structure that simplifies the system, provides better incentives to work and will hand back bracket creep over time, increasing household disposable income.
1.76Following the Government’s complete redesign of the Coalition’s tax reforms, commentary has suggested that bracket creep is still a major problem, particularly for lower income earners.For example, Andrew Podger AO, the former senior public servant and Public Service Commissioner, commented:
The Albanese Government’s proposed change to the Stage 3 tax cuts is clearly a broken promise; or, put another way, where was the political courage to offer an alternative when Stage 3 was announced (well ahead of the 2022 election)?...
While the Government’s new proposal does reduce the benefit at the top end and redistribute the money to the lower end and the middle, inflation [and bracket creep] will mean that some of those at the low end will still pay more tax in 2024-25 than they did before Stages 1 and 2. With only those on middle incomes who will truly benefit, it is hard not to be a little cynical about the Government’s motives.
1.77Some evidence noted the difficulties in meeting household budgets given the incremental chipping away of income from rises in income tax, including bracket creep. For example, the St Vincent de Paul Society submitted that:
…inflation also exacerbates bracket creep, resulting in more household incomes being eaten away by income tax. As noted by the Reserve Bank, incomes have not kept pace with inflation, with the CPI growing faster than households’ disposable incomes, resulting in an overall decline in real incomes.
1.78Treasury evidence suggested that it was 'supportive of bracket creep being returned in the appropriate circumstances'. Additionally, it also suggested that there would be a way to address bracket creep, in a way that provided 'broad cost of living relief and do so in a way that did not add to inflationary pressures'.
Committee view: tax reform to give Australians more of their own money
1.79The committee’s work so far has demonstrated that the relentless rise of goods, services and utilities prices has driven a cost of living crisis. However, this cost of living crisis is also exacerbated by tax settings that badly inhibit growth by enshrining unfair thresholds in the system, which diminishes the take-home pay of many Australian workers and stifles aspiration more broadly.
1.80One way of addressing this situation is through addressing bracket creep, which forces many taxpayers to pay more to government than they should.
1.81Stakeholders suggested in evidence that this was a basic reform that could significantly ease the cost of living for many, including those on modest wages, where any relief goes a long way. In this, the committee was encouraged by Treasury evidence that confirmed fixing tax thresholds to address bracket creep could be possible without further driving inflationary pressures.
1.82More broadly, the committee notes the Government’s amendments earlier this year to stage three of the Coalition’s Personal Income Tax Cuts. This brought not only the integrity of the Albanese Government into question, but also raises questions regarding its fiscal responsibility.
1.83Amending stage 3 of the Coalition’s tax framework broke repeated commitments by the Albanese Government to maintain it, but also represented a failure to guarantee Australians a lower, simpler and fairer tax system that enshrines aspiration and fights bracket creep.
1.84The committee recommends that the Australian Government, in keeping with the principles of the original Personal Income Tax Cuts, legislate to deliver a lower, simpler, and fairer tax system that fights bracket creep and enshrines aspiration in our tax system.
Addressing over-regulation
1.85Evidence presented to the committee suggests that Australia is being held back economically by an unprecedentedly large burden of regulations on business, which creates flow-on costs for consumers.
1.86For example, a BCA report of September 2023 found:
…the cumulative burden of regulation is a significant issue for companies around Australia. It adds costs, causes delays for customers, and limits flexibility.
Businesses face duplication and inconsistency across the Federation. Frequent changes to laws and regulations, and a poor understanding from policymakers and regulators of the complexity, time and cost of implementing these changes, is adding to the pressure. The patchwork of regulation across the nation discourages investment and is a barrier for companies to expand and trade across state lines or overseas. A competitive tax system and effective and efficient regulation are part of the economic fundamentals necessary for a more resilient, diversified, and dynamic economy.
1.87The BCA submitted that the Government should reduce the cost of living crisis by implementing a raft of measures, including several relating to making the national regulatory environment more streamlined and effective:
Freeing up housing supply by incentivising states to liberalise planning and zoning requirements to take upward pressure off rents and house prices…
Renewing the focus on microeconomic reform to make it easier and less costly to do business by removing the structural impediments to long-term and sustained economic growth.
Clarifying clear pathways to grow the economy, including via enhanced productivity, increased economic dynamism, better regulation, enhanced training and skills, better coordination of infrastructure decisions and rebooting a program of long-term tax reform to deliver a system fit for purpose that better incentivises investment, innovation and hiring.
1.88Similarly, an IPA report of November 2023 found that Commonwealth regulations had increased by 88 per cent since 2005 to a record high, arguing:
Red tape created by state and federal governments is currently at the highest level in recorded history. With economic growth weak and government debt continuing to rise, Australia’s political leaders must cut red tape to unleash prosperity… Since 2005, 97% of all new regulations have been implemented by ministers and regulators, rather than normal parliamentary processes… There are currently over 370,000 regulatory restrictions currently imposed on businesses and individuals. This compares to less than 200,000 restrictions in 2005.
1.89The IPA also presented research to this inquiry that called for Government to promote productivity by cutting regulation, noting the inflationary effect of red tape:
This rising cost of living pressure highlights the need for urgent government action, including… Cutting red tape and regulation to increase business investment, and in doing so alleviate supply chain pressures which are pushing up prices.
1.90This red tape and inflation nexus was described by the NSW Business Chamber in evidence to the Committee as a 'cost of doing business crisis'.
1.91The Tasmanian Small Business Council also noted that Australia was suffering from too much red tape from all levels of government, which it suggested was anti-competitive, limited productivity and placed an uneven burden on business that complied while advantaging those that did not. It suggested a large number of regulations are 'symbolic and not policed', and that 'if a regulation is not worthy of policing, it can hardly be necessary'.
1.92The Master Builders Association submitted that:
To improve business productivity, especially small business productivity, Master Builders calls on the Government to simplify regulatory requirements. Repealing unnecessary regulation, removing the technical jargon in favour of simple English, and ensuring Regulator Impact Statements assess the cumulative burden of regulation on small business will go a long way to freeing up some of the limited resources small businesses have.
1.93Some stakeholders from the resources sector commented that poorly targeted regulation adds risk and cost to their operations. Examples of such regulation can include inefficient or duplicative approvals processes and workplace relations reforms which, even if they are a modest burden singularly, are a substantial burden when accrued. As Ms Fiona McLeod, General Manager Government and External Affairs for ConocoPhillips, told the committee:
Layer upon layer of regulation does impact our ability to assess risks associated with bringing new supply online, and ultimately [as other evidence has stated] that does flow on to the consumer at the end of the day.
1.94The Government’s recent changes to workplace relations represents a significant increase in red tape, particularly for small and medium sized businesses. These present a very real risk of driving up costs for businesses, which will be passed on to consumers, and increase the cost of living pressures they face.
1.95Evidence provided to the committee argued that the Government’s new Industrial Relations (IR) framework would be inflationary and exacerbate cost of living pressures, particularly burdening already-struggling businesses with compliance costs that would inevitably be passed on to consumers.
1.96Ms Tania Constable, Chief Executive Officer (CEO) of the Minerals Council of Australia, observed that the Government’s approach to easing cost of living was fragmented and inconsistent, citing this new workplace legislation:
While the government assures the community it is addressing cost of living, there appears to be no definitive, tangible road map on the table to appease concern. Most alarming are the policies that will do the exact opposite. The government's latest upheaval of industrial relations law represents an enormous threat to the cost of living, rendering any attempts to relieve the pressures on households and small business, as we have just heard, futile. Perversely, these changes will compound cost-of-living pressures, ensuring this uncomfortable period of high cost and high stress is unnecessarily prolonged, if not enshrined.
1.97Other stakeholders from industry and business concurred that the new workplace relations laws would push up compliance costs, which would be passed on to consumers. For example, Mr Luke Achterstraat, the CEO of the Council of Small Business Organisations Australia (COSBOA), told the committee that, alongside higher labour costs:
The ability for small businesses to delight their customers is being undermined by this additional red tape—this cost of compliance [from the new laws]. Not only are there higher costs to pass on but also you're potentially seeing a bit less innovation, a bit less creativity and a bit less excitement from your small businesses because they're worried about this big new rule book….when we're talking about introducing hundreds of pages of legislation, when a lot of our small businesses are trying to keep the lights on, the recipe will be higher prices to consumers, whether it's coffee, transport or whatever it may be.
1.98This position was supported by Professor Robertson, from the University of Western Australia’s Business School, who noted that the industrial relations system 'could be a little bit more flexible, but we don't want to step back to one that's less flexible'.
1.99Ordinary Australians also let the committee know they were in favour of reducing the regulatory burden on our economy. Some respondents to the committee’s survey commented:
Reduce red tape and restrictions on gas/high energy black coal exploration and development, bringing resources to market as expeditiously as possible… Reduce regulation, red tape and associated costs for businesses, as these costs are merely passed on to consumers in the form of higher prices.
Decisions by all state and federal governments over the past 20 years affecting heavy intervention in the free market on issues like electricity, fuel, climate change, health, health and safety superannuation and education. We need less regulations and less intervention. We don’t need more levels of regulations based on someone’s race as is the case now in Victoria.
The heavy regulations on the power industry has meant that base load power has skyrocketed in cost. This is causing base load power to become less reliable. The regulations affecting the building of more dams for both water and hydroelectric power is a disincentive for this excellent resource.
Reduce red tape, reduce taxation putting more money in people’s pockets not government coffers.
Run balance budgets, both federal and state. Cut down public service to what is essential, same with red and green tape. Too many regulations, many adding to costs for no or minimal benefit. Promote businesses and competition.
Remove green tape and red tape that prevents ordinary citizens from trying to better their personal circumstances via their own assets.
I think the government has already done enough to cause most of the problems, instead of owning and managing our natural resources and infrastructure. The best thing the government can do now is back off and reduce bureaucracy and regulations. The market can sort itself out and poor people can find ways to survive if they are allowed to make small businesses and arrange affordable shelter.
…industrial relations and red tape regulation reform to increase supply.
Remove payroll tax, red tape and restrictions to businesses. Stop wasting money and direct it to health care.
1.100The issue of over-regulation is discussed in greater detail in the following chapters of this report, when it was raised in evidence regarding particular policy areas including energy, resources and housing.
Committee view: reducing the burden of red tape
1.101The Albanese Government has claimed that it intends to cut red tape and reduce duplicative processes across all levels of government.
1.102However, recent research shows that Australian businesses and industry currently face an unprecedented regulatory burden, which is at a record high. This acts as a significant brake on productivity and the wider economy.
1.103Rather than making any meaningful attempt to wind this back, the Albanese Government has also added a plethora of unnecessary and unwarranted legislative changes to make things more difficult for employers, businesses, and everyday Australians, such as:
It has made sweeping changes to workplace relations laws, which adds complexity and compliance burden to all enterprises from small to large; and
It has clumsily initiated poorly targeted privacy laws, which will impose costs and complexity for small business, which will compound existing financial pressures at a time when they are already struggling.
1.104Unsurprisingly, the committee took evidence from business, industry and agricultural producers who expressed frustration with this situation. However, it was also clear that many ordinary Australians have recognised that over regulation is a significant economic drag on our nation, that it impinges on their employers, impedes crucial services and goods they rely upon, and significantly drives up their cost of living.
1.105The Albanese Government should address this significant drag on the nation’s economic health, and the quality of life that Australians should enjoy.
1.106The committee recommends that the Australian Government conduct a stocktake of Commonwealth regulation relating to small-to-medium enterprises, with a view to reducing the ‘costs of doing business’ that have exacerbated the cost of living crisis.
1.107The committee recommends that the Australian Government repeal business harming industrial relations policies, particularly for small-to-medium sized businesses, and focus on delivering a more flexible and more productive workplace.