Prices These Days! The Cost of Living in Australia

8/2/2019 Prices These Days! The Cost of Living in Australia

http://slidepdf.com/reader/full/prices-these-days-the-cost-of-living-in-australia 1/44

The cost of living in Australia

AMP.NATSEM Income and Wealth Report

Issue 31 - May 2012

Pricethese days!



Contents

Foreword 2

Introduction 3

Measuringthecostofliving 4

Luxuriesandnecessities 7

Livingcosts 16

Standardofliving 19

Biggerlifestyles 22

Capitalcitycostoflivingcomparison 26

Internationalcostoflivingcomparison 28

Conclusion 31

AppendixA 32

AppendixB 33

Technicalnotes 37

References 38



Inrecenttimes,hoursofairtimehavebeendevotedtothecost

oflivingandhowitaffectsusasindividualsandfamilies.It’sa

subjectthat’simportanttoalmostallofus,whichiswhymedia

storiesconsideringthepriceofeverydayitemslikeelectricity,

petrolandfoodandtheirimpactonthefamilybudgetappear

sofrequently.

Everyyeartheperceptionseemstobethatitgetshardertoafford

thebasics.Butarepricesreallyoutpacingourincomes?While

somepricessuchaselectricityandpetrolhavecertainlyshotup

inrecentyears,manyotherpriceshavefallensuchastelevisions

orclothing.Coulditbethatwe’replacinggreaterexpectationsonourselvesandwhatourstandardoflivingshouldbe?

ThelatestAMP.NATSEMreportPrices these days!exploreshow

thecostoflivinghaschangedsince1984.Thereportrevealsthat

overalltheaveragefamilyisaheadby$224perweekandthe

benefitshavespreadtobothhighandlowincomefamilies.Low

incomehouseholdsareaheadby$93aweeksince1984while

highincomehouseholdsare$429perweekbetteroff.

Australiansearningincomefrominvestments-typicallyself-

fundedretirees-didparticularlywell,experiencingincome

growthof$547perweekabovetheirlivingcostsoverthesame

period,largelyduetostrongdividendgrowthfromshares,superannuationincome,andpropertyincome.

So where are we spending our money?

Notunexpectedlywearepayingmoreonmortgagesandrent

todaythanwedid20yearsago.We’respendingmoreofour

disposableincomeondiscretionaryexpenses,suchasrestaurant

meals,holidaysandprivateeducation.

Around40percentofhouseholdspendingisdiscretionary

spending,upfrom38percentin1984.Lowincomehouseholds

devotearoundoneinthreedollarsondiscretionaryspending

whilehighincomehouseholdsdevotearound45percent.

DoesthismeanAustralianshavere-defined‘luxury’anddoourspendinghabitsrepresentalargerlifestyle?Andwhydo

Australiansfeelasthoughthestruggletomakeendsmeetis

gettingincreasinglytougher?

Todayit’snotuncommontoexpecttoeatatgoodrestaurants,

buythelatesttechnologyandenjoyholidayswhichdon’tinvolve

campingorstayingwithrelatives.Andchildcarehasbecomea

lifenecessityforpeopleofallincomelevelsratherthanaluxury

enjoyedbyonlythewealthy.

Somaybeit’snotthecostoflivingthat’ssoaringoutofcontrol,

butratherouraspirationalselvestellingusweneedmore.Or

becauseourliveshavebecomesofastpacedweneedtospend

moretokeepup,beitonchildcareoreducationorotherservices.

Sowhatisthenewnormal?Hasthelinebetweenbasic

necessitiesandluxuryitemsblurred?Itseemsthemoreweearn,

themorethingswewanttobuy,orhave,oruse.

Somecouldarguethatasanationwe’veneverhaditsogood.

Australianshaveitbetterthanmost,especiallyincomparison

torecession-hitcountriesinEurope.Onaninternationalcomparisonthereportshowsthatwhileourpricesarehigher

thanmostothercountries,ourincomesandgeneralstandard

oflivingarealsoveryhigh.

Whilethereisnodoubtmanyfamiliescontinuetostruggleto

makeendsmeetitishearteningtoseeincomeshavebeenrising

morethanlivingcosts,andthishasbeenspreadacrossall

incomegroups.

Debatearoundthecostoflivingisunlikelytoabateanytimesoon

butit’sreassuringtoknowthatalotofwhatwearespendingour

moneyonarethingsthatallowustospendmoretimewithour

friendsandfamilies.

Ifspendingmoneyonaholidaymeansqualitytimewithour

family,eatingoutmeanssharingamealwithfriendsandthe

latestsmartphonemeansimprovedcommunicationwiththose

thatmattertousthenwearealmostcertainlylivingricherlives.

Craig Meller

ManagingDirectorAMPFinancialServices

Foreword

2



Introduction

InthisreportweinvestigatethecostoflivinginAustralia,anissue

thatdominatespoliticalandsocialdebate.Itisoftensaidthatthe

costoflivingisspirallingoutofcontrol,withfamiliesatbreaking

pointandstrugglingtomakeendsmeet.

Formanygroupssuchastheunemployed,students,pensioners,

thedisabledandlowincomeworkingfamilies,makingendsmeet

isoftenadailybattle.Evenforhigherincomefamiliesmaking

endsmeetcanoftenbeastruggle.Thisreportdoesn’tattemptto

argueagainstthis,butratherconsidersjustwhatthesecostof

livingpressuresareandwhethertheyaregettingworse.Couldit

bethatthesecostoflivingpressuresaredrivenbygreater

expectationsorsocietalchangesorisitthatpricesreallyareout

ofcontrolandfamilyincomesarenotkeepingup?

Mostpoliticaldebateonthetopicofcostoflivingpressures

focusesonanarrowrangeofeasilyidentifiablepricessuchas

petrol,electricity,orthepriceofbananasandotherfruitsand

vegetables.Thesepricesareviewedasbeingofsuchimportance

thattheFederalGovernmentlookedintosettingup‘watchdog’

websitessuchasFuelWatchandGroceryWatch.Thisreport

providesacomprehensiveanalysisofallpricesfacedby

householdsacrossarangeofhouseholdtypesatdifferentends

ofthesocio-economicspectrum.

Therealityisofcoursethatpricesalmostalwaysrise,soit’s

inevitablethiswouldcauseconcerninthecommunity.Asprices

rise,afamily’spurchasingpowerdeclinesandstandardsofliving

fall.Keyfactorsthattendtobeoverlookedarethefactthatfamily

incomesalsotendtoriseaswagesgrow,workinghoursincrease

orfamilieshavemorethanoneincomeearner.

Anotherelementoftenoverlookedisthatmanypriceshave

actuallyfallen.Thepriceofmanyhightechnologygoods,suchas

largescreentelevisions,havefallendramaticallyinrecenttimes.

Thepriceofclothinghasbarelyalteredsincethe1980sasimport

tariffswereremoved.ThemuchstrongerAustraliandollarhasalsoactedasabarriertoinflationforimportedgoods,suchas

carsandcomputers.

Dothesefactorsmorethancompensatefortheinevitableprice

increases?Arecostoflivingpressuresmoretheoutcomeofthat

innatehumantraittokeepupwithourneighboursbybuying

biggercars,televisionsorhouses?Arecostoflivingpressures

relatedtochangesinexpectationsorsocietalchanges?Orare

priceincreasesdrivingcostoflivingpressures?AMPandNATSEM

haveundertakenacomprehensiveinvestigationofprices,

householdexpenditureandincomepatternsovertimetohelp

answerthesequestions.

“The No.1 concern for put-uponfamilies is the cost of living”

The Daily Telegraph

3



Measuring the cost of living

Acuriouselementofthecostoflivingdebateisthatofficial

statisticsrarelybackuptheclaimpricesareoutofcontrol.

Australianinflationrates,asmeasuredbytheConsumerPrice

Index(CPI),haveremainedatstableandverylowratesfor

20years,eversincewageswerebroughtundercontrolviathe

PricesandIncomesAccordinthe1980sandtheReserveBank

becameindependentofgovernmentinthe1990sandtargeted

lowinflation.Sowhat’sallthefussabout?Howcanitbethat

we’vehad20yearsofuninterruptedeconomicprosperitywith

verylowinflationyetthecostoflivingremainsahottopic?

Australia’sofficialmeasureofpricechangeforhouseholdsisthe

AustralianBureauofStatistics’(ABS)CPI,howeveritisnota

measurespecificallydesignedtomeasurethecostofliving.

TheCPI,ameasureofpricemovementsinAustralia,witharound

100,000priceobservationsmadeeverythreemonths,isoneof

themostcontroversialandcloselywatchedeconomicstatisticsin

Australia.Themeasureitselffocusesonpriceinflationofafixed

basketofgoodsandservicesanddoesnottakeintoaccount

changesinconsumerbehaviour.Themeasureisnotdesignedto

specificallymeasurethecostoflivingbutisconsideredbymost

economistsandstatisticiansasagoodindicatorofbothprice

changeandthecostoflivingorhouseholdpurchasingpower.

Forpracticalandtheoreticalreasons,atruecostoflivingindexis

verydifficulttomeasureandnosuchindexiscompiledwithin

Australiaorinternationally.Itmaysurprisemanytoknowthatthe

CPInaturallyoverstatespriceinflationcomparedtoatruecostof

livingindex.Thisiscalledthe‘CPIbias’andhasbeenestimatedby

theABStobearound0.2ofapercentagepointperannumon

average(ABS2010).

AnothercommonconcernwiththeABSCPIisthetreatmentof

houseprices.Thecurrentindexdoesnotincludehousepricesor

mortgagerepaymentsastheyarenotconsideredtobe

‘consumption’items.InsteadtheABSusesausuallylessvolatile

componentcallednewhousepurchase.Fromacostoflivingperspectiveonewouldexpectthatthefamily

mortgageisanimportantelementofafamilybudgetandshould

beincludedinanycostoflivinganalysis.TheABSincluded

mortgageinterestintheirLivingCostIndexfrom1998to

overcomethislimitationandthisseriesispublishedalongsidethe

CPIpublication(ABS2011a).

AfurtherconcernoftheABS’CPIisthatthebasketofgoodsmay

notreflectthetrueexpenditurepatternsoflowerincome

households(SACOSS2012)whotypicallyspendalargershareof

incomeonhouseholdnecessitiessuchaselectricity,rentorpetrol.

Thesepriceshaverisensharplyinrecentyearsandforlowincome

households,wouldtakeongreaterimportanceintheABSbasket

ofgoods.

TheABSlargelyovercomestheseconcernsbyprovidingseparate

LivingCostIndexesforpensionersandemployeesintheirsuiteof

LivingCostIndexes.

ThisAMP.NATSEMreportgreatlyexpandsupontheABS’LivingCost

IndexesbyprovidingindexesforanumberoftypicalAustralian

households,definedbytheirincomelevels,familytype,agegroup,

employmentandtenurestatusandmainsourceofincome.

TodevelopLivingCostIndexesforeachofthesehouseholdtypes

weconsideredthespendingpatternsofeachgroupseparately.

Weknowthatfamilieswithchildrenspendonitemssuchaschildcareorchildren’sclothingcomparedtosingles,sotheirrespective

LivingCostIndexreflectstheseimportantdifferencesin

spendingpatterns.

Bycomparingchangesineachgroup’sdisposableincomeand

livingcostswecandeterminewhichgroupsaresufferingthe

mostfromcostoflivingpressuresandwhichgroupsarewell

aheadofpricechangesandexperiencingimprovingstandards

ofliving.

Ifitisfoundthathouseholdincomesareoutpacingtheircostof

living,thenperhapsthedriverofthisdebateisnotsomuch

prices,butgreaterexpectationspushingfamiliestodemandmore

orbettergoodsandservices.Theliftinexpectationsmayrelatetokeepingupwithourneighboursoritmayrelatetoachanged,

morecomplicatedworldwherefamiliesaretimepoorandface

alteredandlargersocietaldemands.

Forexample,atimepoorfamilymayhavebothparentsworking,

whichoftennecessitatesout-sourcingofservicesthatwerenot

paidforinthepast,suchaschildcare,foodpreparation,

gardeningandhousekeeping.Wealsofacegreaterdemandsin

termsofincreasededucationalrequirements,changed

communicationchannelsandmoresophisticatedtechnology.

Allthesefactorspushfamiliestoincreasetheirspendingbeyond

whatwasrequiredinpastdecades.

4



Comparing aggregate prices and household incomes

Therearevariouswaystocompareincomesandlivingcosts.TheABSprovidesanumberofmeasuresthatcanbeusedtomakebroad

observationsonhouseholds.Asasimplestartingpoint,considerthehistoryofpricesinAustraliaasmeasuredbytheCPI(Figure1).

Figure 1 - Australian CPI (All Groups)

200

180

160

140

120

100

80

60

40

20

0

30%

25%

20%

15%

10%

5%

0

-5%

Sep-48 Sep-54 Sep-60 Sep-66 Sep-72 Sep-78 Sep-84 Sep-90 Sep-96 Sep-02 Sep-08

Price index (1990=100) LHS Price change (annual) RHS

Source:ABSConsumerPriceIndex,6401.0,2011.

Therearethreedistinctinflationaryperiodsevidentinthepost-WWIIyears.Between1950and1972Australianinflationwasrelatively

benign.Inthe1950sand1960sinflationaveraged4.3percentperannumandoverallpricesincreasedby131percent.Aperiodofhighinflationoccurredbetween1972untiltherecessionin1990.Duringthe70sand80s,pricesincreasedbynearly480percent,withan

averageannualrateofinflationof9.2percent.Throughthe1990sand2000s,pricesincreasedbyonly71percent,foranaverage

annualinflationofjust2.7percent.Throughthefirsttwoyearsofthisdecadepricesgrewatanaveragerateof2.9percent.

Inflationinthe70sand80swasbroughtoninitiallybysky-rocketingoilpriceswhichjackeduppetrolpricesandincreasedproduction

costsforbusiness.Itwasnotuntiltherecessionin1990andgovernmentpoliciessuchastheIncomesandPricesAccordand

inflationarytargetingbytheReserveBankofAustraliathatpriceinflationwasbroughtundercontrol.Sowithsuchlowinflationin

Australiaitisindeedsurprisingthatpricesareblamedforcostoflivingpressures.

Whilemuchofthepoliticalandmediaattentionfocusesonpriceincreases,ofgreaterimportanceishowincomeschangerelativeto

prices.Thisiswhatdeterminesthefinancialstandardoflivingforhouseholds.Ifallpricesriseby5percentbutahousehold’sincome

increasesby10percentthenclearlythehouseholdisbetteroffthanifincomesandpriceswerebothflat–eventhoughthismightbe

consideredagoodinflationoutcome.

5



Figure2displaysatimeseriesofincomeandexpenditureforallAustralianhouseholdswhereallmeasuresaredeflated(CPIgrowth

removed)andaveragedacrosshouseholds.Thefigureclearlyshowsthatincomesandexpenditurehaveout-pacedinflation.Infact,

after-tax(disposable)incomegrewoverthelast25yearsby45percent,whichmaygiverisetotheconclusionthatlivingstandardsin

Australiahaveimprovedtremendously.

Figure 2 - Real household income and expenditure (December 2011 $)

$150,000

$140,000

$130,000

$120,000

$110,000

$100,000

$90,000

$80,000

$70,000

$60,000

$50,000

J u n - 8 6

J u n - 8 7

J u n - 8 8

J u n - 8 9

J u n - 9 0

J u n - 9 1

J u n - 9 2

J u n - 9 3

J u n - 9 4

J u n - 9 5

J u n - 9 6

J u n - 9 7

J u n - 9 8

J u n - 9 9

J u n - 0 0

J u n - 0 1

J u n - 0 2

J u n - 0 3

J u n - 0 4

J u n - 0 5

J u n - 0 6

J u n - 0 7

J u n - 0 8

J u n - 0 9

J u n - 1 0

J u n - 1 1

Gross income Disposable income Expenditure

Source:ABSAustralianNationalAccounts,ABSCatNo.6401,2011.

However,thesecalculationsfocusonaggregateoutcomes.Thesenumbersalonedon’trevealifthespoilsof20yearsofsustained

economicgrowthhavebeensharedthroughoutthecommunity.Itmaybethatincomegrowthhasbeenconcentratedamongsthigh

incomehouseholdsorthatlowincomehouseholdsarefacedwithhigherenergybillsorever-increasingpetrolcostswhichtakeupa

largerportionoftheirdisposableincomes.

Subsequentsectionsofthisreportconsiderthesequestionsandseekstoexplainwhetherornotdifferentgroupsinthecommunitytrulyare,inspiteofthisrosyaggregatestory,strugglingtomakeendsmeet.

6



Luxuries and necessities

The big price movers

ThebasketofgoodsusedfortheCPIisanaverageforallhouseholds.Itisnotintendedthatthebasketshouldrepresentlowincome

groups,orpensioners,orjusttheitemsthatmightbedescribedasnecessities.ItisoftensuggestedthattheCPIunderstatesinflation

forlowincomefamilies,workingfamilieswithkidsorpensionerhouseholds,astheydevoteahigherproportionoftheirincometothe

necessitiesoflifecomparedtotheaveragehouseholds.Populardiscussiononthetopicalsosuggeststhatthesefamiliesareforcedto

spendever-increasingamountsontheessentialsoflifewithpreciouslittleelsetospareforluxuries.

Tobetterunderstandthecostoflivingpressuresissue,itisusefultoconsiderwhichitemsintheCPIbasketofgoodsareincreasingin

pricethemostandwhich,ifany,aredeclining.

Figure3showssomepriceshavegrownverystrongly.Tobaccoisacase-in-point,increasinginpriceby9.2percentperannum,or978per

centoverthepast27years.ThisgrowthisdramaticcomparedtotheoverallCPIgrowthforthisperiodof171percentor3.8percentperannumandmostlyduetosuccessivegovernmentsincreasingtobaccotaxation.Somehealthrelatedandinsurancecostshavealso

increasedquitestrongly.Educationexpensesforsecondarystudentsincreasedby4.9percentperannumor264percent.Thesecosts

mostlyrelatetoprivateschooleducationfees.Someotherbasicsoflivingsuchasfruitandbreadhavealsoseenverystrongpricegrowth.

However,notallpriceshaverisen,withaudiovisualandcomputingequipmentnowonlyonetenthofpricesin1984 1helpingtooffset

thesepriceincreases.Anothersignificantareaofpricedeflationisforclothingandfootwearwhereaveragepricesarelittlechanged,and

oftenlowertodaythan27yearsago.Thischangereflectsamovetoimportedclothingandreductionsintariffsontheseimportedgoods.

1.CautionshouldbetakenininterpretingthispricechangeastheABSappliesaconsiderable‘qualitychange’factor.Thispricechangecouldbeconsideredunrealisticasthepricechangeeffectivelyrelatestothepricechangeofasimilaritemin1984whichcouldnowbeconsideredirrelevantgiventechnologicalchangeinthiscategoryofgoods.

7



Small electrical appliances

Footwear for men

Garments for kids/babies

Garments for women

Garments for men

Games, toys and hobbies

Glass, tableware and utensils

Audio visual and computing services

Equipment for sporting and camping

Audio visual and computing

Incomes

CPI

Bread

Spirits

Fruit

Secondary education

Urban transport fares

Lamb and goat

Insurance

Dental services

Medical/hospital

Tobacco

-0.0%

-0.1%

-0.1%

-0.2%

-0.4%

-0.4%

-0.4%

-0.6%

-0.12%

-8.1%

4.4%

3.8%

4.8%

4.9%

4.9%

4.9%

5.1%

5.2%

5.7%

5.8%

7.2%

9.2%

-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

Price drops

Price gains

Figure 3 - Top 10 and bottom 10 price movers

(ABS Expenditure Class)

Average annual change 1984–2011 %

Source:ABSCPI.

8



OtheritemsnotlistedinFigure3butofparticularnoteincludeelectricity(+253percent),rent(+223percent)andmortgages

(+256percent)(seeTableA1).Alltheseitemsgrewmoresharplythanthe171percentincreaseinCPIsince1984.Attheotherend

ofthescale,carsincreasedbyonly19percentandmajorhouseholdapplianceshavenotchangedinpriceoverthepast27years.2

Ifevertherewasasingleitemthatrepresentsthecostoflivingforfamiliesitispetrol.Petrolistheonepricethatpeoplecanidentify

sincemostpeoplefilluptheirpetroltanksonaregularbasis.Petrolhasincreasedinpriceby208percentsince1984.Yetthisisonly

around14percentmorethantheaggregateCPIoverthesameperiod.Furthermore,acrossthedevelopedworldAustralia’spetrolprices

areamongthelowestwithonlyCanada,USAandMexicocheaper.3ComparedwithAustralia’scurrentaverageunleadedpetrolpriceof

aroundA$1.40perlitre,mostEuropeancountriesfacepetrolpricesthatarewellovertheequivalentofA$2perlitrebecauseof

significantlyhighertaxation.

Whileitistruethatthepriceofsomeitems,oftenthenecessitiesoflife,haveincreasedsignificantlymorethantheCPI,thereisalsoarangeofotheritemsthathelptooffsetthesepriceincreasesincludingclothing,sportingandcampingandchildren’stoys.

TheCPIisacomplexassortmentofgoodsandserviceswitheachitemhavingitsownrelativeimportanceinthesocalled‘basketof

goods’.However,consideringonlyafewitemsandascribingbroadstatementsaboutthecostoflivingisnotappropriate.Inthesection

belowweinvestigatetheexpenditurepatternsofthefullrangeofitemsandplacethemincategoriesthathelpidentifyshiftsin

householdexpenditure.

Discretionary and necessary expenditure

WeusetheABSHouseholdExpenditureSurvey(HES)toinvestigatehouseholdspendingandtherelativesharedevotedtodiscretionary

versusnecessityexpenditure.TheHESisthemostcomprehensiveexpendituresurveyinAustraliawiththelatest2009–10surveyasking

nearly10,000householdstoreportonover600expenditurecategories.Thisallowsdetailedanalysisofthespendinghabitsofdifferent

households.WealsoanalyseallHESsbackto1984,whichallowsustoinvestigatetrendsandbetterunderstandcostoflivingpressures.

Toinvestigatethequestionofdiscretionaryandnecessityspending,wesplitthedetailedcategoriesofexpenditureintothree

separatecategories:

1. Basicnecessities

2. Relativenecessities

3. Discretionary

Thisisafarfromsimpleexerciseandrequiressomesubjectivity.Asastartingpoint,Table1offersexamplesofitemsineachcategory.

Thebasicnecessitiesdescribeitemsthathouseholdscannotdowithout.Theseitemsareforbasicsurvivalsuchasshelter,food

andclothing.

Relativenecessities,whilenotitemsforbasicsurvival,areusuallyconsideredessentialformoderndayliving.Theseitemsincludethose

usedformodernsocialcommunication,whileitemssuchascomputersmaybeconsideredaspirationalitemsastheyareimportantforeducationoremployment.

Discretionaryitemsarethedollarswespendwithwhatisleftoverafterthesenecessaryexpenses.

2.TheABSappliesasignificantqualityadjustmenttocarswhichwouldmeanthatactualpricesofnewcarsincreasedbyalargerfactorthantheCPIsuggests.

3.Source:AustralianPetroleumStatistics,DepartmentofResources,Energy&Tourism.

9



Table 1 - Commodity categories (selected examples)

Basic necessity Relative necessity Discretionary

Rent Television Alcoholandtobacco

Mortgage(interestpayments) Mobilephone Preparedfoods

Basicfoods(bread,meat,cereal,etc) Computer Restaurantmeals

Electricity Childcare Householdservices

Clothing CDplayer Airfares

Publictransport Suits Holidays

Thegroupingissubjectiveandmaychangethroughtime.Forexample,mobilephoneswerealuxuryiteminthe1980sbut,today,verge

onbeingabasicnecessity.IntheHESweonlyknowthecategoryofpurchase-wedonotknowanythingaboutthebrandorpricepaid

forthepurchase.Assuch,someitemscouldspananyofthethreecategoriesabove.Asanexample,amortgageforapenthouseonthe

GoldCoasthasacleardiscretionaryelement,whileafirsthomebuyer’smortgageinoutersuburbanMelbourneisabasicnecessity.

Inspiteofthecomplexities,the600pluscommoditiesintheHESweregroupedaccordingtothethreecategoriesandexpenditures

talliedforvarioushouseholdtypes.Wefoundthatoverall,householdsdevotearound40percentofexpendituretodiscretionaryitems,

38percenttobasicnecessitiesand22percenttorelativenecessities.Overtime,thisrelationshiphasbeenquitestablewithasmall

shifttowardsdiscretionaryitemsandnecessitiesandawayfromrelativenecessities.

ForAustralianhouseholdsonthewhole,wethereforefindlittleevidencethathouseholdsarespendingagreaterproportiononbasic

necessities.GiventheprosperityofAustraliaandstronggrowthinincomerelativetopricelevelsdepictedinFigure2theshifttodiscretionaryitemsshouldnotsurprise.Economistsgenerallyexpectthatasincomelevelsrisesotoowouldexpenditureon

discretionaryitems.Thenextsectiondelvesintoamoredetailedstorytoinvestigatewhetherthisisthecaseforallhouseholdtypes

orwhetherthisisjustastorythatholdsforcertaingroupsthathelpdraguptheaverage.

Income levels

Figure4demonstratestheproportionsofexpendituredevotedtodiscretionaryincomeandbasic/relativenecessitiesbyincomelevel.

Unsurprisingly,wefindthatlowincomehouseholds(quintileoneorthebottom20percent)spendasmallerfractionofexpenditure

ondiscretionaryitems.However,westillfindthatlowincomehouseholdsdevotearoundoneinthreedollarstodiscretionaryitems.

Thosehouseholdsinthetopquintileofincomedevote45percentofexpendituretodiscretionaryitemsandonedollarinthreeon

basicnecessities.4

ThenumbersinFigure5toFigure7showthetrendsthroughtimesince1984indiscretionary,necessaryandrelativenecessityspending.Bothhighandlowincomehouseholdsareincreasinglyspendingmoreondiscretionaryitems,whileexpenditureonbasic

necessitiesisrelativelyunchangedasaproportionoftotalspend.Figure7demonstratesthatallincomegroupsarespending

proportionatelylessonlife’snecessities.Themaindriverofthischangeisthatmostoftheseitemshavesignificantlyreducedinprice

soit’snotthathouseholdsarebuyingless,theyarejustcheaper.5

4.TheOECD‘modified’equivalisedincomeadjustmentisappliedtoincometoaccountfordifferenthouseholdsizesandstructures.Seetechnicalnotesforfurtherinformation.

5.TheactualfiguresbehindFigure5toFigure7andresultsforotherhouseholdtypesaredisplayedinAppendixB.

10



Figure 4 - Discretionary vs necessary expenditure by Income Level, households 2009–10 %

Q1 (low) Q2 Q3 Q4 Q5 (high)

50

45

40

35

25

20

15

10

5

0

Discretionary Relative necessity Necessity

33.5

47.0

42.9

38.936.6

33.1

36.3

39.6 40.5

44.6

20.819.4

21.523.0 22.3

Source:Author’scalculationsfromABSHouseholdExpenditureSurvey2009–10.

Figure 5 - Household income quintile discretionary purchase %

50

48

46

44

42

40

38

36

34

32

30

Q1 Q2

1984 1988 1993 1998 2003 2009

Q3 Q4 Q5 (highest) All


11



Figure 6 - Household income quintile basic necessity purchase %

50

48

46

44

42

40

38

36

34

32

30

Q1 Q2

1984 1988 1993 1998 2003 2009



Figure 7 - Household income quintile relative necessity purchase %

29

27

25

23

21

19

17

15

Q1 Q2

1984 1988 1993 1998 2003 2009


Source:Author’scalculationsfromABSHouseholdExpenditureSurveys,1984–2009.

12



Source of income

Itwouldbeexpectedthosehouseholdswhosemainsourceofincomecomesfromgovernmentbenefits,suchaspensionsand

allowances,woulddevotethebulkoftheirexpendituretobasicnecessities.Figure8demonstratesthisisnotnecessarilythecase,with

thesehouseholdsdevotingaroundoneinthreedollarstodiscretionaryitems.Thissharehasbarelychangedbetween1984and2009–10.

Figure9demonstratestheshareofexpenditureonbasicnecessitiesingovernmentbeneficiaryhouseholdshasincreasedfromaround

43percentto48percentduringthisperiodalthoughtherehasbeenstatisticallynochangesince1998(seeFigure8).

Agroupthathasincreasedspendingdramaticallyondiscretionaryitemsarebusinessowners.In2009–10,discretionaryitemsmadeup

around44percent,wellupon1984levelsof38percent.

Wageandsalaryearnersfollowthegeneraltrendandareincreasinglyspendingmoremoneyondiscretionaryitemsbutalsoamoderatelylargershareonbasicnecessities.

Figure 8 - Household main source of income, discretionary purchase %

50

48

46

44

42

40

38

36

34

32

30

W&S Business Other

1984 1988 1993 1998 2003 2009

Government benefits

Source:Author’scalculationsfromABSHouseholdExpenditureSurveys,1984–2009.

13



Figure 9 - Household main source of income, basic necessities %

50

48

46

44

42

40

38

36

34

32

30

W&S Business Other

1984 1988 1993 1998 2003 2009

Government benefits

Source:ABSHouseholdExpenditureSurvey,1984–2009.

Figure 10 - Working families, necessities vs discretionary expenditure %

45

43

41

39

37

35

33

31

29

27

25

Necessities Discretionary

1984 1988 1993 1998 2003 2009

Source:AuthorscalculationsfromABSHouseholdExpenditureSurveys,1984–2009.

14



Thissplitbetweennecessaryanddiscretionaryitemsissomewhatlimitedinthatitdoesnotdetailtheoverallexpenditurelevels,only

relativelevelsofspending.Theanalysisdoessuggestthattherehasbeennolargeincreaseintherelativeexpendituredevotedtothe

basicnecessitiesoflifeasmightbecommonlyperceived.Thesharesdevotedtothesecategorieshavebeenstableoverthepast

25yearsandthatstabilityappearstoextendthroughoutincomelevelsandsourcesofhouseholdincome.

ThetableinAppendixBshowsthefullsetofresultsforthenecessitiesanddiscretionaryexpenditureanalysis.Wefindthathouseholds

whoownahouseoutrightorhaveamortgagespendamuchlargerportionondiscretionaryitemscomparedtorentersandthis

percentagehasincreasedsharplyovertimedespiteknownmortgagestressissuesand‘mortgagebelt’costoflivingpressures.6

Between1984and2009,rentersspentproportionatelyless(32percent,downfrom37percent)ondiscretionaryitemsandmoreon

necessities(47percent,upfrom42percent).

Costoflivingpressuresarealsooftenassociatedwith‘workingfamilies’.Thesefamiliestypicallyhaveamortgageandchildrenwhereatleastoneoftheparentsworksfull-time.ThehistoricaldatainFigure10showsthatthisgroup,morethananyother,hasincreased

spendingtowardsdiscretionaryitemswhilemaintainingasteadyproportionofbasicnecessities.

Thissuggeststhatinspiteofknownpricerisesinmanyhighlyvisiblecommoditiessuchaspetrol,electricity,rentsandmortgagesand

fruitandvegetables,whichareoftenlumpedtogetheraslifeessentials,householdsarenotdevotinganincreasingshareofexpenditure

tothebasics.Itcouldbethatotheressentialsarecheaperorhouseholdsarepurchasingsmallerquantitiesofthesehigherpriced

essentials.Whiletherewassomeincreaseintheproportionofexpenditureallocatedtothenecessitiesinthe1990sforlowincomeand

governmentbeneficiaryhouseholds,thistrendflattenedoutduringthelastdecade.

Cost of living pressures arealso often associated with‘working families’

6.TheAMP.NATSEMReport29onhousingaffordabilityshowedthatmortgagepressuresarefeltmoststronglybyrecentpurchasers,suchasfirsthomebuyers,ratherthanthevastbulkofhouseholdswithamortgagewhopurchasedtheirfirsthousepriortothehousingboomsince2000whooftenhavequitesmallmortgages.

15



Inthefirstsectionwediscussedtherelationshipbetween

householdincomesandtheCPI.Figure2(onpage6)showsclearly

thathouseholdsareearningmoreandspendingmorethanever,

evenafterinflationistakenintoaccount.

Thissectiontakesadetailedlookattheincomesofdifferent

householdtypesandcomparesthoseincomeswithlivingcoststo

seeiftheprosperityofournationhasbeenspreadevenlyoris

disproportionatelyfallingintothelapsofthewealthy.

Living costs index

Aspreviouslydiscussed,theCPImeasureisnotdesignedasacost

oflivingindex.SowehavemodifiedtheCPIdatatobetterinform

thecostoflivingdiscussion.Todothiswehaveusedasimilar

methodologytothatoftheABSwiththeirLivingCostIndexes.

ThemajordifferencebetweentheLivingCostIndexesandtheCPI

istheinclusionofmortgageinterestpayments;thisdifferenceis

incorporatedinourlivingcostmeasure.Wealsorecalculatethe

LivingCostIndexestosuitthehouseholdexpenditurepatternsof

awiderangeofhouseholdtypes.7

Analysingthesehouseholdtypesovercomestheconcernthatthe

CPIdoesnotadequatelymirrortheexpenditurepatternsof

certaingroupsinsociety.Forexample,manyarguethat

pensionersandotherlowincomehouseholdshavemuchhigher

costoflivingpressuresthanothergroupsinsociety.By

developingseparateindexesthatreflecttheexpenditurepatterns

ofeachofthesegroupswecantestthisargument.Ouranalysis

providesLivingCostIndexesforthefollowinghousehold

categories:

– Incomequintiles

– Familytype

– ‘Working’families

– Mainsourceofincome

– Tenuretype,and

– Age

Beforedetailingeachhouseholdtypeitisworthconsideringhow

theseLivingCostIndexescomparewiththeCPIhistoricallyforall

householdsinaggregate.Figure11showsthattheLivingCost

IndexdidincreasemoresharplythantheCPIoverthelastdecade.

Between2003and2009livingcostsincreasedby3.5percent

eachyear,whiletheCPIincreasedbyonly2.9percent.The

differencebetweenthetwocanbelinkedtothestronggrowthin

mortgageinterestrepayments.

Aparticularlyinterestingcomparisoncanbemadethroughtime

regardingwhichgovernmentwasmostsuccessfulincontaining

costoflivingpressures.DuringtheHawkeyears(1983to1991)thecostoflivingindexgrewbyanannualrateof6.2percentwhile

mortgageinterestratesincreasedto17percentandthecountry

wasstillinthegripofthelegacyofmanyyearsofhighinflation.

TheKeatingGovernment(1991to1996)managedthelowestliving

costincreaseswithanaverageannualgrowthrateofjust2.7per

cent.TheKeatingyearswerenodoubtboostedbyinterestrates

comingoffnearrecordhighsandarecessionthatstymiedinflation.

Suchhasbeenthestabilityoflivingcostssince1996,thateachof

theHoward,RuddandGillardgovernmentsaveragedannual

growthinlivingcostsof2.9percent.

Inrealitytheinflationstoryisacomplexoneand,whilepoliticallyinteresting,itisdifficulttoascribeinflationarypressurestoany

onegovernment.Bytheirverynature,inflationarypressuresare

dynamicandimpactedbyarangeoffactorslargelyoutofa

government’scontrol,suchasexchangeratesorthestateofthe

globaleconomy.

TheoverallstoryforlivingcostsinAustraliaoverthepasttwo

decadeshasbeenoneofbeingincontrol,notoutofcontrol.With

theexceptionofthelate1980s,wheninflationwasstillaserious

matterfortheAustralianeconomy,livingcostsinaggregatehave

remainedrelativelysubdued.

Living costs by income

Conventionalwisdomsuggeststhatlivingcostpressuresare

becomingagreaterissueforlowincomehouseholds.These

householdsspendproportionatelymoreoftheirincomeonitems

suchaspetrolandenergyandpriceinflationforthesegoodshas

beenstrong.

Earlier,weshowedthatsince1984,lowincomehouseholdshave

infactnotincreasedtheirexpenditureshareonthebasicsof

livingwhichsuggeststhatwhilethesehouseholdsdodevotetheir

expenditurestocertainitemsthatareincreasingstronglyinprice,

suchasenergy,healthcostsorfreshfruit,theyalsodevotean

equallylargeportionofexpendituretoitemsthatarenowrelativelycheapersuchasclothingandaudiovisualand

computingequipment.

Tobetterunderstandthelivingcostsofhouseholdswithdifferent

incomes,Figure12showsthelivingcostsastheyrelateto

differentincomelevels.Thegraphshowsthatoverall,changesin

livingcostsdonotdivergegreatlybasedonincome.

Throughouttheentire27yearsanalysed,thegapinthegrowthof

pricesfacedbetweenthebottomquintilehouseholdsandthetop

quintileisonly4.9percent.Since2003,thelowestincome

householdshaveexperiencedannuallivingcostincreasesof

3.4percent,moderatelyhigherthanthehighestincomegroups

livingcostincreasesof3.1percent.

Living costs

7. TheABS’PBLCI(PensionerandBeneficiaryLivingCostIndex)providestheLivingCostIndexspecificallyforpensioners,self-fundedretirees,andemployees.

16



Figure 11 - CPI and Living Cost Indexes - annual growth %

1984 to 1988 1988 to 1993 1993 to 1998 1998 to 2003 2003 to 2009 2009 to 2011

9%

8%

7%

6%

5%

4%

3%

2%

1%

0

CPI Living costs

8.2 8.2

3.6

3.1

2.1 2.2

3.9

3.22.9

3.5

2.9

2.4

Source: ABSandNATSEM.

Figure 12 - Living Cost Index by income quintile, 1984 = 100

330

280

230

180

130

80

1984 1988 1993 1998 2003 2009 2011

Q1 (low) Q2 Q3 Q4 Q5 (high)

Source: ABSandNATSEM.

17



Living costs by household types

Table2providesadetailedprofileoflivingcostchangesbetween

1984and2011andthemorerecentperiodfollowing2003.Itis

themorerecentperiodwheremediaandpoliticalattention

intensifiedsoitisinstructivetoconsiderboththelongerterm

pictureandthemorerecenthistoryoflivingcostsfordifferent

householdgroups.

WecanseeinTable2thatthelowerincomegroupsexperienced

largercostoflivingincreasesthanhigherincomehouseholdsover

boththeshortandlongerterm.Considerableattentionisalsogiventothecostoflivingpressures

facingpensionerhouseholds.Pensionersareoftenconsideredto

spendlargeportionsofincomeonelectricityandessentialfood

items,bothofwhichhavegrownsharplyinpriceinrecentyears,

howeverTable2showsthatintermsofchangesinlivingcosts

thereisverylittledifferencebetweengovernmentbeneficiaries

(mostlypensioners)andotherhouseholds.

ThefiguresinTable2suggestthatsince2003workingfamilies

facedmoderatelyhigherincreasesinlivingcoststhanother

households.Thesemoderatelyhighercostsarelikelytobelinked

tomortgagecostswhich,asidentifiedearlier,haveincreased

sharplyoverrecentyears.Overthelongerterm,wedonotfindanydifferenceinchangesbetweentheirlivingcostpressuresand

anyothergroup.

Wefindverylittledifferencetochangesinlivingcostsbetween

agegroups.Recently,householdsheadedbyyoungerpersons

haveexperiencedmildlyheavierlivingcostincreases.Thisislikely

toberelatedtostrongerexpenditureshareinmortgages,rent

andeducation,allofwhichhaveinflatedheavilyinrecenttimes.8

Householdswithamortgageorwhorent(about70percentof

allhouseholds)tendtohaveexperiencedhighercostofliving

pressuresoverthepastdecadeashousingcostshaveincreased

substantially.9

Summarisingalltheseresults,wegenerallyfindthatcostofliving

pressureshavealteredlittlebetweenthedifferenthousehold

typessince1984.However,costoflivingpressurestendedtobe

greatestforlowincomesingles.

Itshouldbenotedthattheanalysisaboverelatestopressuresas

theyrelatetolivingcostchanges.Thereisnodoubtthatmany

familiesarecurrently‘doingittough’.Thepointofthisreportisto

considerwhetherornotit’sgettingtougher,whichiswhatthe

costoflivingdiscussiongenerallyfocuseson.Theresultsabove

showthattherearenorealstandoutgroupsthatarefacingcost

oflivingpressuresthathaveacceleratedbeyondthatofother

householdseitherrecentlyoroverthelongerterm.

Table 2 - Average change in the Living Cost Index

% change per year

1984to2011 2003to2011

Income level

Q1(low) 3.95% 3.40%

Q2 3.88% 3.31%

Q3 3.87% 3.30%

Q4 3.87% 3.24%

Q5(high) 3.77% 3.09%

Source of income

WageandSalary 3.85% 3.25%

Business 3.92% 3.39%

Government 3.93% 3.34%

Other 3.66% 2.84%

Family type

Coupleandkids 3.84% 3.30%

Singleparents 3.88% 3.29%

Coupleonly 3.82% 3.11%

Lonepersion 3.92% 2.32%

Other 3.87% 3.21%

Age of head

15to34 3.87% 3.30%

35to49 3.87% 3.31%

50to64 3.81% 3.13%65plus 3.84% 3.15%

Tenure

Ownoutright 3.76% 3.01%

Mortgage 3.88% 3.34%

Renter 3.90% 3.30%

65plus 3.84% 3.15%

Working families 3.89% 3.39%

ALL HOUSEHOLDS 3.85% 3.24%

Source:ABSandNATSEM.

8.Theincreaseineducationcostsforyoungerhouseholdsmostlyrelatestohighereducationcosts.

9.Theremaining30percentofhouseholdsowntheirhouseoutright.

18



Asalertedtoearlierinthisreport,pricesareonlyonepartofthe

picturewhenitcomestomeasuringthefinancialstandardof

living.Whatreallymattersishowwellincomescovercosts.If

incomesaregrowingmorequicklythanthecostofliving,this

indicateshouseholdsareabletoexpandtheirpurchasesand

increasetheirstandardofliving.Thissectionconsidershowwell

thegroupsintheprevioussectionhavefaredinthisregard.

Again,thefocusisonchangesinstandardofliving,orwhether

livingstandardsareimprovingordeterioratingfordifferent

groupsinsociety,notlevelsofstandardofliving.Clearlythereare

groupsinsocietythatenjoyasubstantiallyhigherfinancialstandardoflivingthanothers.Forexample,theaverageincome

ofthetop20percentofAustralianhouseholdsismorethanfive

timesthatofthebottom20percentandgovernmentbeneficiary

householdincomesarelessthanhalfaveragehouseholdincomes.

WealreadyknowfromFigure2thathouseholdincomesatthe

aggregatelevelhavegrownmorequicklythantheCPI.Thisshould

comeasnosurpriseastheeconomyinAustraliahasprosperedin

thelast20years.Hasthisincomegrowthbeenspreadevenly?

Howwellareourhouseholdscoveringtheirlivingcosts?

Ourprevioussectionsuggestedthatlivingcostsbetween1984

and2009–10increased164percent,or4percentperannum

whilesince2003livingcostsincreased23percentor3.5percent

perannum.

Usingthesamedatasources(theHES)datingbackto1984,

averagedisposableincomesincreasedby217percentshowing

that,onaverage,householdincomeshavegrownbyaround

20percentbeyondthecostoflivinginaggregatesince1984.

Indollarsperweek,thismeansthatonaverage,inthefinancial

year2009–10,householdshavearound$224perweekextra

spendingmoneythanwasthecasein1984.

Figure13showsthestrongestgainsinhouseholdlivingstandards

werefrom2003–04to2009–10.Thegainsduringtheprevious

15yearswerebalancedoutbythefallinthelate1980swhere

mortgageandinflationarypressuresateintofamilybudgets.

Figure12showsthatcostoflivingpressuresinAustraliawere

mostacuteinthelate1980s.Evenduringthedifficulteconomic

timesof1988to1993householdswere,onaverage,betteroff.

Standard of living

Figure 13 - Income gains above the cost of living, $0 pw, households

1984–88 1988–93 1993–98 1998–03 2003–09

250

200

150

100

50

0

-50

-100

-150

-$115

$21

$44

$224

$50


19



Table3showsthatboththelowestandhighestincome

householdsgainedrelativetotheirlivingcosts.Thehighest

quintileincomehouseholdsexperiencedverystrongincome

growthparticularlyinthelate2000s,likelyduetothemining

boomanditsdominoeffect.

Since1984theaverageincomeofthehighestincomehouseholds

grewby$429perweekor$61aday.Lowincomeearnershave

alsodonewellwithgainsof$93aweeksince1984.

Aparticularlysurprisingresultisthatintermsofpercentagegain

overthecostoflivingwefindthelowestincomehouseholdshaveactuallymanagedasmallclawbackcomparedtothehighest

incomegroup.Quintile1incomegrowthexceededthecostof

livingoverthepast27yearsby27percent,whilethetopincome

quintileoutpacedbyonly19percent.Whileasmallstepinthe

rightdirection,thelowincomegroup’sgrowthiscomingoffa

significantlylowerincomebasethanthehigherincomegroupas

suggestedbytheabsolutedollarincreasesmentionedabove.

Whenwesplithouseholdsintotheirmainsourceofincomewe

findthatallhouseholds,onaverage,easilycovertheircostof

livingincreases.Increasedgovernmentpaymentstopensioners

arelikelytohavecontributedtothestronggainsingovernment

beneficiaryhouseholdswithincomesof$69aweekbeyondtheirlivingcostsoverthesixyearsto2009–10.Overthelongerterm

theyare$61aweekbetteroff,albeitthisiscomingoffalowbase.

Wageandsalariedandbusinessincomehouseholdshavealso

faredwellwithincomegainsbetween2003–04and2009–10of

$228and$208perweekrespectively.

Bothmadetheirlargestgainsinthisperiodandwere,onbalance,

worseoffduringtheperiodpriorto2003–04.Householdswith

‘other’income,typicallyself-fundedretireesandthoseearning

incomepredominantlyfrominvestments,experienced

tremendousgrowthinincomebeyondtheirlivingcostsduring

boththeprevioussixyears($426perweek)andsince1984

($547perweek).Thisgroupwasboostedbyverystronggrowthindividendsflowingfromshares,superannuationincome,and

propertyincome.

Coupleswithchildrenandsingleparenthouseholdincomeshave

grownby37percentand34percentmorethantheirrespective

livingcostssince1984.Coupleswithchildrenhouseholdsdid

particularlywellinrecentyearswithincomegrowthof21.2per

centbeyondtheirlivingcosts.Thestronggrowthinincomeof

singleparentsoccurredpriortothewelfare-to-workreformsand

theirincomegrowthsincewasthepoorestofanygroupinTable3

withamoderate6.6percentgrowthsince2003–04.

Ofdifferenttenuretypehouseholds,thebigwinnerswere

householdswhoowntheirhouseoutright.Thiswasexpected

giventhehigherweightingtheLivingCostIndexesplaceon

mortgagerepaymentsandrent.Throughtheperiod2003–04and

2009–10theirincomesgrewby25percentmorethantheirliving

costs,comparedtoaround17percentforbothrentersandthose

withamortgage.Overthelongerterm,renterhouseholds

experiencedthesmallergains,beingaheadbyjustunder11per

centoverthepast27years.

Themuchdiscussedworkingfamilyoutpacedtheircostofliving

pressuresbyahandy22.1percentoverthelongerperiodand16.4percentsince2003–04.

Anewpressureonhouseholdbudgetswillbecarbonpricingthat

theFederalGovernmentwillintroduceonJuly1,2012.For

households,theimpactwillbefeltmostdirectlyonutilitybills

suchaselectricityandgas.Thecarbonpriceisexpectedtolift

electricityandgasbillsbyaround10percent,orabout$200

perannumonaverage,forhouseholds.Foraroundsevenin

10householdstheassociatedincometaxcutsand/orincreased

governmentpaymentswillmorethancompensateforthe

increasedutilitybillsandotherpriceincreasesassociatedwith

thecarbonprice(Phillipsetal2011).

Thecarbonpricepackagewouldnotappeartoalterthecostof

livingpictureinAustraliagreatly.Forthosefamiliesmostexposed

tosuchpressures(lowandmiddleincome)itislikelytoleave

thembetteroffwhileatthesametimeprovidinganincentiveto

reducetheiremissions.

20



Table 3 - Incomes gains after living cost changes

1984 to 2009–10 2003–04 to 2009–10

$pw** %gain* $pw %gain

Income quintile

Q1(low) $93 27.1% $42 10.7%

Q2 $191 30.5% $105 14.7%

Q3 $200 19.5% $153 14.2%

Q4 $211 14.6% $250 17.8%

Q5(high) $429 19.1% $576 27.4%

Source of income

Wagesandsalaries $170 11.3% $228 15.9%

Business $175 15.6% $208 19.1%

Governmentbenefits $61 11.9% $69 13.7%

Other $547 64.8% $426 44.1%

Family type

Coupleandchildren $475 34.0% $328 21.2%

Singleparents $257 37.4% $59 6.6%

Coupleonly $181 16.0% $220 20.0%

Loneperson $86 14.0% $115 19.8%

Otherfamily/group -$74 -4.0% $266 17.4%

Tenure type

Outrightowner $241 27.0% $228 25.2%

Purchaser $254 16.8% $254 16.9%

Renter $112 10.7% $173 17.5%Other $199 23.9% $197 23.7%

Working families $306 22.1% $238 16.4%

ALL $199 19.9% $224 19.9%

* Equivalisedincome(seetechnicalnotes).

**Actualincome.


21



Bigger lifestyles

Theobviousquestionthatremainsisifwearealldoingsowell,

howcanitbethatcostoflivingpressuresremainsofrontof

mind?Thissectionexploreshouseholdpatterns.Welookatthe

typesofgoodsandservicespurchasedandcomparewithearlier

times.Perhapsitisallthisspendingthatmakesusstressabout

thecostofliving?Keepingupwithourreferencegroup(often

named‘theJoneses’)maybeasourceofstresstosome.Friends

purchasingthatnewplasmascreentelevision,afivebedroom

housewithahometheatreroomorashinynewSUVcanalllead

tofeelingsofenvy.Forothersitmaybethattheworldtoday

demandsmorefromusintermsofeducationalrequirements,morehightechnologyequipmentorleanersparetimemeans

outsourcingchildcareandchores(AMP.NATSEM2011b).

Figure14comparesbroadexpenditurepatternsin1984with

2003–04and2009–10.Since2003–04householdsdevotegreater

expendituretohousing,recreation,holidaysandairfares,health,

educationandaudiovisualequipment.Wespendlessonalcohol

andtobacco,food,clothingandfootwear,andhouseholditems.

Overthelongerterm(1984–2009),thesepatternspersist.We

spendmuchlessonclothingandfootwearandhouseholditems.

Thesetrendsaredrivenmainlybymuchlowerprices.Wespend

moreontransport,recreation,health,educationand

communicationandmoderatelymoreonaudiovisualandcomputingequipment.Asignificantchangeweobservehereis

themovetoaservicesbasedeconomy.

TheHESprovidescomprehensiveexpendituredetailsallowingus

toidentifymoreclearlytheproductsthatarebeingdemandedin

thehighexpenditureenvironmentthathasbeencreatedin

Australiasince2003.

Table4liststheclassesofgoodsandservicesthathaveincreased

(decreased)themostintermsofexpendituregrowth.Thetable

alsoprovidesthepricechangeelementofthisgrowthand,by

subtractingthepricechange,thevolume,orquantitychangeof

eachclass.Itisimportanttodistinguishbetweenpriceand

volumechange.Acostoflivingimpactwouldusuallyrelatetothe

componentofincreasedexpenditurethatrelatestopricesincreasingwhilethevolumechangedenoteshouseholdschoosing

todemandagreaterquantityofsomegoodorservice,

irrespectiveofprice.

Theitemsthathaveincreasedmoststronglyincludecarpartsand

accessories,babyshoes,sportparticipation,childcare,various

services,mortgagesandeducation(privateschooling).

Expendituregrowthonmostoftheseitemshasmorethan

doubled.Byremovingthepricechangeelementwecandeduce

theactualvolumechange–orhowmuchmoreofeachitemwe

arebuying.Wearemorethandoublinguponbabyshoes,carparts

andchildcare.Wearealsoholidayingandparticipatinginsport

likeneverbefore.Anotableomissionfromthetablebelowisaudiovisualandcomputingequipment.Duetomassivepricedeclines

thiscategorydoesnotfeatureintopexpenditureitemsinTable4.

Involumeterms,thisisthehighestgrowthexpenditureclass.

10. FormoredetailsonthisfindingseeRBA(2011).

22



Figure 14 - Expenditure shares (1984, 2003–04, 2009–10), % total expenditure

Utilities

Other

Housing

Food

Clothing and footwear

Alcohol and tobacco

Transport

Recreation

Personal care

Holidays and airfares

Health

Education

Communication

0% 5% 10% 15% 20%

Household contentsand appliances

Audio visual andcomputing

2009–10 2003–04 1984

Source:ABSandHouseholdExpenditureSurveyandNATSEM.

23



Table 4 - Expenditure growth detailed expenditure classes (2003–04 to 2009–10)

% change

Top 15 expenditure classes Expenditure Volume Price

Carparts/accessories 154% 102% 26%

Footwearforbabies 129% 132% -2%

Sportparticipation 123% 75% 28%

Otherservices-cars 122% 59% 40%

Childcare 106% 131% -11%

Otherhouseholdservices 105% 59% 29%

Secondaryeducation 101% 34% 50%

Holidaytravelandaccommodation 91% 73% 11%

Preschool/primaryeducation 79% 28% 40%

Mortgageinterest 75% 22% 43%

Restaurantmeals 68% 35% 25%

Rents 68% 27% 32%

Hair/personalgrooming 61% 32% 22%

Games/toys/hobbies 57% 56% 1%

Pharmaceuticalproducts 57% 37% 15%

Bottom 15 expenditure classes % change

Alterationsandadditions(housing) -29% -52% -48%

Carpetsandotherfloorcoverings -20% -31% 16%

Tools-houseandgarden -9% -14% 6%

Footwearformen -7% -1% -6%

Cars -5% 1% -6%Majorhouseholdappliances 8% 10% -2%

Tobacco 8% -15% 27%

Furniture 11% 7% 4%

Garmentsforbaby/children 11% 13% -1%

Papers/magazines/stationery 14% 1% 12%

Milk 14% -9% 25%

Garmentsformen 14% 16% -1%

Veterinaryservices 17% -6% 25%

Smallhouseholdelectricalappliances 18% 25% -6%

Pork 18% 4% 14%


24



Attheotherendofthescalehouseholdsspendlessonaverage,bothinactualdollarsandafterinflation,onandaroundthehousewith

lowerexpenditureonrenovations,carpetsandotherflooringandtools.Wealsospendlessonnewcarpurchasesandhavehadonly

moderatelyincreasedexpenditureonmen’sclothingandfootwear,majorhouseholdappliances,tobacco,milkandfurniture.

Overthelongerterm,Table5showsasimilarpatterntotheshortertermdatainTable4.Servicesagaindominatewitheducation,child

careandsportparticipationallexperiencingsignificantincreasesinexpenditurereflectingsocialchangesandreactionstogovernment

policy(suchashigherHECSfees)occurringasAustralia’sstandardoflivingincreases.Anitemlikechildcareisaclassicexampleofthe

realnatureofcostoflivingpressures.Childcareprices(aftergovernmentassistance)havebeenbenignwithnetpricesactuallyfalling

between2003and2009.11Itisdemand(orvolume)forchildcarethathasshotupwithhouseholdsspendingmorethandoubleonthese

servicesinjustsixyears.

Table 5 - Expenditure growth detailed expenditure classes (1984 to 2009–10)

Top 10 items Expenditure multiple

1. Tertiaryeducation 18.7

2. Childcare 11.9

3. Restaurantmeals 9.7

4. Preschool/primaryeducation 9.6

5. Sportparticipation 8.1

6. Secondaryeducation 7.7

7. Otherservices-cars 6.8

8. Pharmaceuticalproducts 6.3

9. Veterinaryservices 5.5

10. Mortgageinterest 5.3


Whilecautionneedstobetakenwiththesenumbersduetotheoftensmallsamplesizes,generaltrendsareapparent.Wearespending

bigonservicessuchaseducation,childcare,holidays,restaurantmealsandsportsparticipation.Wearedevotingasmallerportionof

expendituretosomeofthebigticketgoodsitemssuchascars,renovations,majorhouseholdappliancesandfurniture.Andwespend

lessontobacco.Comparedto1984,household’svolumeoftobaccoexpenditurehasdroppedback75percentwitheducationprograms

andhighertaxespayingahealthydividend.Withtheexceptionofhousing,theitemsmostlikelytobecoveredbycostoflivingstories,suchaspetrol,energypricesandfreshfood,

arenotthemainstory.Noneoftheseitemsarenotableareasofrealexpendituregrowth.Itisservices-outsourcingsuchaschildcare

orrestaurantmealsorinvestingineducationthroughuniversityorprivateschooleducationthataretherealpinchpointsofcostof

livingpressure.Someofthisexpendituregrowthisthroughpersonalchoice,suchasprivateschoolswhilesomeisthroughnecessity,

suchaschildcaretofacilitatelabourforceparticipationofwomen.Housingcostsareagenuinecostoflivingpressurepointwithstrong

growthinrentsandveryhighhousepricespushingupinterestrepaymentsforhouseholdswhorecentlypurchasedeithertheirfirst

houseoranupgradedhouse.

11. ThemaindriveroflowernetchildcarecostsistheincreaseintheFederalGovernmentchildcaretaxrebatefrom30percentto50percentonout-of-pocketexpensesin2008.

25



TheCPIandLivingCostindexesprovideinformationonthe

changeofpriceswithincities,butdon’tdescribetheactual

pricelevel.

TheABSprovidedacomparisonofpricelevelsinanexperimental

pieceofresearchin2003(ABS2007).Table6updatesthisresearch

byincludingadditionalinformationonhousingcosts(excludedin

theABSwork)andupdatingthepricechangestoDecember2011.

ThetableprovidesthecostofafixedbasketofgoodsforSydney

andcomparesthecostofthatsamebasketineachothercapital

city.Thetablebreaksthesecostsintoexpenditurecategories.Inaggregate,Sydneyisthemostexpensivecapitalcitytolivein,

costingonaverage,$71,426forthestandardbasketofgoods.

Adelaideisthecheapestcapitalcitywheretheaveragehousehold

wouldspend$4,442peryearlessrelativetoSydney.Brisbaneand

Melbournealsorateasconsiderablycheapercitiestoliveinthan

Sydneyspendinglessthan$2,439and$3,228peryearrespectively

oftheirSydneycounterparts.Thevastmajorityofreduced

spendingrelatestorentandmortgagecosts.Beyondthosetwo

elementsthecostsarequitesimilar.TwoexceptionsareBrisbane

andAdelaidewherenon-housingcostsare$1,365and$938per

yearlessthanSydneyrespectively.

OfthestatecapitalsPerthisthesecondmostexpensivecity,however,duetohigherincomesthanotherstatecapitals,Perth

hasthehighestfinancialstandardofliving.Theminingboomhas

nodoubtplayedanimportantroleinboostingtheincomesof

Perthhouseholds.

Thisstandardoflivingstoryisimpactedbydifferingaverage

incomes.WhileSydneyhashighercosts,itisalsolikelythat

incomesaresomewhathigherassistingtomakeupforthe

costdifferential.ThestandardoflivingcomparisoninTable

6comparestheindexofcostandtheindexofincomefor

householdsineachstatecapitalcitytoformafinancialstandard

oflivingcomparison.12Thiscomparisonchangestherankingof

capitalcitiescomparedtothecostIndexwithSydneyranking

aheadofAdelaideandHobart.Canberrahasthehigheststandard

oflivinginAustraliatakingintoaccountbothaveragecostsand

income,followedbyDarwinandthenPerth.Brisbanehasthehigheststandardoflivingofourthreelargestcities.Inspiteof

havingrelativelylowcosts,onceweaccountfortheloweraverage

incomes,Hobarthaseasilythelowestfinancialstandardofliving

ofAustralia’scapitalcities.

Capital city cost of living comparison

12. Boththeindexforcostandincomearebasedonaveragehouseholdsandtakeintoaccounthouseholdsizedifferences.

26



Table 6 - Cost of Sydney ‘basket of goods’ - capital city comparison

December 2011 per annum Sydney Melbourne Bri sbane Ade lai de Perth Hobart Darwin Canberra

Food $11,074 $11,285 $10,745 $10,592 $11,281 $11,515 $12,247 $10,931

Alcoholandtobacco $4,515 $4,626 $4,580 $4,556 $4,981 $5,067 $5,141 $4,758

Clothingandfootwear $2,673 $2,816 $3,040 $2,879 $2,848 $2,910 $2,652 $2,793

Housing

Rent $4,769 $3,598 $4,132 $2,936 $3,628 $2,660 $3,950 $4,981

Electricity $1,166 $1,018 $1,050 $1,077 $846 $946 $794 $963

Otherutilities $801 $872 $890 $793 $820 $722 $712 $881

Otherhousing $2,357 $2,643 $2,271 $2,409 $2,594 $2,447 $2,321 $2,494

Mortgageinterest $4,086 $2,952 $2,860 $2,415 $3,046 $2,087 $4,024 $3,344

Householdcontentsandservices $6,793 $6,493 $6,422 $6,4 44 $6,651 $6,838 $6,136 $6,826

Health $3,559 $3,829 $3,378 $3,734 $3,439 $3,619 $3,582 $3,671

Transportation $9,356 $8,701 $8,633 $8,855 $8,793 $8,557 $8,905 $9,296

Communication $2,362 $2,355 $2,357 $2,339 $2,356 $2,375 $2,375 $2380

Recreation $8,475 $8,412 $8,460 $8,315 $8,355 $8,419 $8,075 $8,442

Education $1,970 $1,961 $1,885 $2,078 $1,988 $1,850 $1,539 $1,668

Financialandinsuranceservices $7,471 $7,425 $7,493 $7,561 $7,603 $7,381 $7,727 $7,598

Total cost $71,426 $68,968 $68,198 $66,983 $69,227 $67,391 $70,178 $71,024

Costindex 1 0.966 0.955 0.938 0.969 0.944 0.983 0.994

Incomeindex 1 0.973 0.994 0.895 1.040 0.829 1.060 1.230

Standardoflivingcomparison 1.000 1.008 1.041 0.954 1.073 0.879 1.079 1.237

2011 comparison with Sydney

Food 212 -329 -482 207 441 1,173 -143

Alcoholandtobacco 111 65 41 466 552 626 243

Clothingandfootwear 143 366 206 174 236 -22 119

Housing

Rent -1,170 -636 -1,832 -1,140 -2,109 -818 212

Electricity -148 -116 -89 -320 -220 -372 -203

Otherutilities 71 90 -7 20 -79 -88 80

Otherhousing 286 -85 52 237 90 -36 138

Mortgageinterest -1,135 -1,227 -1,672 -1,040 -1,999 -63 -743

Householdcontentsandservices -300 -371 -349 -142 45 -657 33

Health 271 -180 175 -120 60 23 112

Transportation -655 -723 -501 -563 -799 -451 -60

Communication -7 -4 -22 -5 14 13 18

Recreation -63 -15 -160 -120 -56 -400 -33

Education -9 -84 108 18 -120 -431 -302

Financialandinsuranceservices -46 22 90 132 -90 256 127

Total -2,439 -3,228 -4,442 -2,198 -4,034 -1,247 -401

Rentandmortgage -2,305 -1,863 -3,504 -2,181 -4,108 -881 -531

Other -135 -1,365 -938 -17 74 -366 129

Source:ABSandNATSEMcalculations.27



International cost of living comparison

Internationalcostoflivingcomparisonsaremoredifficultto

estimatethanacomparisonofAustralianstatecapitals.Large

differencesexistbetweenthequalityofproductsandthetask

ofappropriatelydealingwiththesedifferencesandobtaininga

broadselectionofgoodsthattrulyrepresentthepurchasing

patternsindifferentcountriesisprohibitivelyexpensive.

Comparingafixedbasketofgoodsbetweencountriesalsomakes

littlesenseaswhatisimportantinonecountrymaybeirrelevant

inanother.

Inspiteofthesedifficultiesindexesdoexistthatattemptto

compareinternationalcostsofliving.Forexample,theEconomicIntelligenceUnit(EIU)hasdevelopedanindexthatpricesa

representativebasketofgoodsintermsofasinglecurrency

(EIU2012).

AstheEIUpointsout,thisindexisdesignedforthoseinthe

internationaljobmarkettocomparerelativecostsofliving.The

mostimportantdriverofchangeinthisindexistheexchangerate

ofindividualcountriesasexchangeratesusuallydeviatefarmore

thandomesticprices.ForAustralia,thismeansthatinrecent

yearsasourcurrencyappreciatedourcostoflivingpositioninthe

indexalsoincreased.

SinceAustralianspurchasegoodswithAustraliandollars,thefactthatourdollarhasappreciatedagainstmostcurrenciesdoes

notmeanthatAustralianhouseholdsaredisadvantaged–infact

quitetheopposite.ForanAmericantravellingtoAustraliato

work,theirpurchasingpoweroftheir$USinlocalcurrencyterms

certainlydoesshrink,howevertheircostoflivinginAustralia

alsodeclines.

Withtheseconcernsinmind,Table7showsthatSydneyand

Melbournearetwoofthemostexpensivecitiesintheworldfor

theinternationalworker.Accordingtotheindex,thecostofliving

inSydneyis45percentmorethanNewYork,183percentmore

thanMumbaibut14percentlessthanZurich.

Inanycomparisonofpricelevelsitisalsoimportanttoconsider

relativeincomes.Figure16providestheGDPperpersonforthe

25richestnations(outof183measured).Australiaranks11thin

thistableoutrankingotherwealthycountriessuchasSweden,

Canada,Germany,andtheUnitedKingdom.

WhileTable7suggeststhatAustraliancitiesarenearlythree

timesmoreexpensivethanacitysuchasMumbai,thishidesthe

factthatAustralianincomesarealsomorethan10timeshigher

thanIndia.Onecouldmovetocountrieswithalowercostof

livingbutyou’llsoonnoticeyourstandardoflivingdropwhen

youlookatyourpaypacket.

28



Table 7 - Cost of living international city comparison

Top 10 most expensive cities

Rank Country City Index (New York=100)

1 Switzerland Zurich 170 1

2 Japan Tokyo 166 2

3 Switzerland Geneva 157 =3

4 Japan Osaka,Kobe 157 =3

5 Norway Oslo 156 5

6 France Paris 150 6

7 Australia Sydney 147 7

8 Australia Melbourne 145 8

9 Singapore Singapore 142 9

10 Germany Frankfurt 137 10

Top 10 least expensive cities

1 Amman Muscat 63 120=

2 Bangladesh Dhaka 61 123

3 Algeria Algiers 59 124

4 Nepal Kathmandu 58 125=

5 Panama PanamaCity 58 125=

6 SaudiArabia Jeddah 57 127

7 India NewDelhi 56 128

8 Iran Tehran 54 129

9 India Mumbai 52 13010 Pakistan Karachi 46 131

Source:EconomicIntelligenceUnit2012.

29



Figure 16 - Top 25 (out of 183) GDP per capita countries, IMF (2011), $ per year

Korea, South

Japan

France

United Kingdom

Finland

Belgium

Denmark

Taiwan

Germany

Iceland

Ireland

Canada

Sweden

Kuwait

Australia

Austria

Netherlands

Switzerland

United States

United Arab Emirates

Hong Kong

Brunei

Norway

Singapore

Luxembourg

Qatar

0 20,000 60,000 80,000 100,000 120,00040,000

Source:InternationalMonetaryFund-WorldEconomicOutlookDatabase,September2011.

GDPmeasuresaregenerallyconsideredtocorrelatewellwithacountry’sstandardofliving.ThedrawbackofGDPmeasuresarethat

theytakeanarroweconomicperspectiveanddonotnecessarilytakeintoaccountotherimportantmeasuresofstandardoflivingsuch

aseducationlevels,qualityoflife,lifeexpectancyandinequality.

TheHumanDevelopmentIndexdevelopedbyTheUnitedNationshelpstoovercometheseproblemsbyincludingsuchmeasures

(UnitedNations2011).WiththisindexAustraliaperformsparticularlywellrankingsecondoutofthe188countriesmeasured.Only

resource-richNorwayoutranksAustralia.13

Whileourpricesarehigherthanmostothernations,ourincomesandgeneralstandardoflivingareexceptionallyhigh.

13. AustraliarankssecondonboththerawHDIandtheinequality-adjustedHDI.

30



Conclusion

Costoflivingpressuresdominatepoliticaldebate.However,theevidenceofhouseholdbudgetsexaminedinthisreportshowsthatthepressuresarelesstodowiththepoliticallysensitivepricesofpetrol,energyorfreshfruitandmoretodowithchangesinourspendinghabitsandexpectationsandoutsourcingtothe

servicesindustry.

Inspiteofcostoflivingpressures,priceinflationinAustraliaandlivingcostsappeartoberelativelybenignandhavebeenforthepasttwodecades.WithincomesrisingmoresharplythanlivingcostsAustralianfamilieshaveahigherstandardofliving.The

averagefamilyisaheadby$224perweekandthisgrowthinaverageincomeshasbeenspreadacrossallendsoftheincomeandsocio-economicspectrum.

Householdsarespendingmoremoneyondiscretionary

expenditureandwefindthatevenlowincomeandpensionerhouseholdsspendoneinthreedollarsondiscretionaryitems.Theproportionofhouseholdexpenditureonthebasicessentialsofliferemainvirtuallyunchangedsince1984ataround38percentofhouseholdbudgets,approaching50percentforlowerincomehouseholds.

Thestabilityofexpensesorlivingcostsover-timeuncoveredinthisreportareconsistentlydemonstratedinspiteofsomeitems

experiencingstrongpriceinflationsuchashealth,tobaccoandeducation.Otheritemscompensatewithmuchlowerornegativepriceinflation,suchasaudiovisualandcomputingequipmentandclothingandfootwear.

Indexesdevelopedspecificallyformeasuringthelivingcostsfordifferenthouseholdtypesshowthatalmostwithoutexception,regardlessofthetypeorsocio-economicpositionofhouseholds,incomeshavegrownwellbeyondlivingcosts.

Australianhouseholdsnowdevoteagreatershareofexpendituretoservicesanditemsofadiscretionarynaturethaninthepast.Someofthisexpenditurerepresentsaspirationalpurchasessuchasprivateeducationandhighereducation,somerelateto

expenditureonservicesthatweremorecommonlyperformedin-housesuchaschildcareorfoodpreparation.

Housingisoneareaofnecessaryexpenditurewherepriceshaveimpactedonthecostofliving,butevenheretherearedistinctionsbetweendifferentgroups.Thosewithrecent

mortgagesorwhorentarepayingamuchhigherpricethanindecadespast.

Ifyouwanttoescapethesesocalledcostoflivingpressures,AdelaideandHobartaretheleastexpensiveoptions,butaverageincomesarealsomuchlowerhere.VeryhighhousingcostsmeanthatSydney,inspiteofhigherincomes,hasalowerfinancialstandardoflivingthanotherlargecapitalcities.Canberraoffers

thebestfinancialstandardoflivinginAustraliawithincomes23percenthigherthanSydneybutwithacomparablepricelevel.

Thecarbonpriceisnotexpectedtoalterthecostoflivingpicturewithpriceincreasesmetwithcompensationintheformofreducedincometaxandhighergovernmentpayments

adequatelycompensatinglowandmiddleincomefamilies–thefamiliesmostatriskofcostoflivingpressures.

Onaglobalcomparisonofarepresentativebasketofgoodsandservices,Australiancitiesrankamongthemostexpensive.The

strongAustraliandollarinrecentyearshasmadeAustraliaamoreexpensivedestinationforinternationaltravellersandworkersbutthisdoesnottranslatetoAustraliancitizenspaidinAustraliandollars.Australiaremainsoneoftherichestnationsandenjoysastandardoflivinghigherthanmostoftheworld.

Costoflivingpressuresareperhapsafactoflifeformanyhouseholdsbuttheyaren’tprimarilysourcedfrompetrolpricesorelectricitybillsorthepriceofbananas.Infact,theymostly

donotrelateto‘pricesthesedays’atall.Instead,theyrelatetohouseholdshavinglargerincomesandspendingmoremoneyonawholerangeofnewgoodsand,inparticular,servicesthatareeitheraspirationalinnatureornecessaryindealingwiththedemandsofamodernsociety.

FocussingpolicyonanarrowcostoflivingdebatearoundthepriceofelectricityorpetrolmissestherealpressurepointsfacingAustralianhouseholdssuchaswork/lifebalanceandtakes

thespotlightoffothermorepressingmattersthatwillactuallyhelptomaintainAustralia’senviablestandardoflivingforyearstocome.

31



Table A1 - CPI price inflation by expenditure class

Rank(out of 86)

Top 10 inflation 1984 to2011 %

Rank Top 10 deflation 1984 to2011 %

1 Tobacco 978 1 Audiovisualandcomputing -90

2 Medical/hospital 560 2 Equipmentforsportingandcamping -27

3 Dentalservices 356 3 Audiovisualandcomputingservices -15

4 Insurance 346 4 Glass,tablewareandutensils -11

5 Lambandgoat 289 5 Games,toysandhobbies -11

6 Urbantransportfares 288 6 Garmentsformen -11

7 Secondaryeducation 264 7 Garmentsforwomen -5

8 Fruit 262 8 Garmentsforkids/babies -4

9 Spirits 261 9 Footwearformen -2

10 Bread 256 10 Smallelectricalappliances -1

Notable others

11 Mortgageinterest 256 12 Majorhouseholdappliances 0

13 Electricity 253 13 Footwearforbabies/kids 0

17 Rents 223 16 Footwearforwomen 11

23 Petrol 208 18 Books 16

Householdincome 217

Source:ABSCPIDecember2011andNATSEM.

Appendix A

32



Table B1 - Discretionary and necessary expenditure shares %

Outright owner Purchaser Renter Other All

Discretionary

1984 39.5 36.4 36.5 44.0 37.7

1988 42.1 37.4 38.5 41.3 39.7

1993 43.1 39.2 38.7 47.7 40.8

1998 41.3 36.3 32.7 40.3 37.2

2003 40.2 40.3 31.5 38.1 38.0

2009 43.1 43.1 32.3 42.3 40.1

Basic necessity

1984 38.2 32.2 42.9 29.8 36.7

1988 36.4 31.8 40.7 37.4 35.6

1993 35.2 31.0 40.6 30.6 35.1

1998 36.6 32.2 47.4 33.8 37.6

2003 38.2 35.4 47.8 35.3 39.4

2009 36.9 33.1 47.3 35.0 38.1

Relative necessity

1984 22.3 31.5 20.7 26.2 25.6

1988 21.5 30.8 20.9 21.3 24.8

1993 21.7 29.8 20.6 21.6 24.1

1998 22.1 31.5 19.9 25.9 25.1

2003 21.7 24.2 20.8 26.6 22.6

2009 20.0 23.8 23.8 22.4 21.8

Wage and salary Business Governmentbenefits

Other

Discretionary

1988 40.1 41.4 35.2 41.7

1993 41.2 41.4 38.4 42.4

1998 37.2 40.5 33.9 41.4

2003 38.8 38.0 32.8 40.5

2009 40.6 44.6 32.9 44.6

Appendix B

33



Wage and salary Business Government

benefits

Other

Basic necessity

1988 34.0 33.8 44.7 38.8

1993 32.9 35.2 41.5 37.2

1998 35.7 35.6 47.6 38.0

2003 37.6 38.6 48.4 38.7

2009 36.6 35.7 48.3 35.9

Relative necessity

1988 26.0 24.9 20.1 19.5

1993 25.9 23.4 20.1 20.4

1998 27.1 23.9 18.5 20.6

2003 23.6 23.5 18.7 20.9

2009 22.8 19.8 18.7 19.5

Other households Working families

Discretionary

1984 38.1 35.0

1988 40.2 35.4

1993 41.2 38.0

1998 37.5 35.4

2003 37.7 40.0

2009 40.0 41.2

Basic necessity

1984 37.3 33.0

1988 35.9 33.3

1993 35.5 31.2

1998 38.4 33.0

2003 40.0 35.4

2009 38.8 33.8

Relative necessity

1984 24.6 32.0

1988 23.9 31.3

1993 23.3 30.8

1998 24.1 31.6

2003 22.3 24.6

2009 21.2 25.1

34



Couple and children Single parents Couple only Singles Other households

Discretionary

1984 36.4 33.7 39.1 38.1 39.8

1988 38.1 35.2 40.6 42.9 40.8

1993 40.5 38.8 41.9 38.8 42.6

1998 38.1 33.8 38.2 35.6 36.0

2003 39.0 33.2 39.4 33.9 38.4

2009 41.1 34.2 42.1 35.8 40.2

Basic necessity

1984 36.1 44.7 35.9 40.3 35.1

1988 35.5 41.8 35.0 31.9 36.3

1993 33.5 38.1 35.5 39.3 34.2

1998 34.9 43.0 37.8 43.2 38.3

2003 37.4 45.8 38.9 46.4 36.7

2009 36.0 45.2 37.3 44.6 37.1

Relative necessity

1984 27.6 21.6 25.0 21.6 25.1

1988 26.5 23.0 24.4 25.3 22.9

1993 26.0 23.1 22.5 21.9 23.2

1998 27 23.3 24.1 21.2 25.7

2003 23.6 21.0 21.7 19.7 24.9

2009 23.0 20.6 20.6 19.7 22.7

35



Quintile 1 (low) Quintile 2 Quintile 3 Quintile 4 Quintile 5 (high)

Discretionary

1984 31.3 35.4 36.6 39.3 40.6

1988 35.3 37.3 38.3 39.7 43.6

1993 37.9 37.9 39.2 42.2 43.6

1998 34.4 34.7 36.6 37.7 39.5

2003 31.9 35.9 37.1 38.2 41.92009 33.5 36.3 39.6 40.5 44.6

Basic necessity

1984 46.4 40.2 37.0 34.3 33.2

1988 43.1 38.5 36.6 33.9 31.7

1993 40.2 39.8 36.0 33.0 31.8

1998 45.3 42.7 38.0 35.9 33.5

2003 47.9 43.3 39.3 37.7 35.5

2009 47.0 42.9 38.9 36.6 33.1

Relative necessity

1984 22.2 24.4 26.5 26.4 26.2

1988 21.6 24.2 25.1 26.4 24.6

1993 22.0 22.3 24.8 24.8 24.9

1998 20.3 22.6 25.4 26.4 27.0

2003 20.2 20.7 23.6 24.1 22.6

2009 19.4 20.8 21.5 23.0 22.3

Source:ABSHouseholdExpenditureSurveyandNATSEM.

36



Technical notes

DataABS Survey Data

MuchofthedatainthisreportcomesfromtheAustralianBureau

ofStatistics(ABS)HouseholdExpenditureSurvey.Thissurveyis

performedbytheABSabouteveryfiveyears.Thesurveyhasa

surveysamplesizeofbetween5,000and10,000households

dependinguponthesurveyyearchosen.Thesurveyyearsinthis

reportrangefrom1984to2009–10.

Thedetailofexpenditureclassificationsallowsaround600

differentclasses(commoditycodes)ineachsurvey.Theclassificationsaresubjecttominoralterationsfrombetween

surveys.NATSEMhasusedABSconcordancestomatchtheclasses

asaccuratelyaspossible.NATSEMaggregatedthecommodity

codestotheABSCPIexpenditureclassusinganABSconcordance

andaddedclasseswherenomatchingwaspossible–forexample,

thereisnoABSexpenditureclassformortgageinterest

repaymentsassuchexpenditureisnotincludedintheCPI.

Living Cost Index

TheLivingCostIndexwasdevelopedinbroadlythesamemanner

astheABSLivingCostIndex.Foreachhouseholdtypewe

calculatetheimportance(expenditureshares)ofeachABSexpenditureclass(asdefinedbytheABSCPI)throughtimeusing

therelevantABSHouseholdExpenditureSurvey.Weapplythe

knownCPIpricemovementsatanationallevelforeachofthese

expenditureclassesusingtheexpendituresharesasweights.The

maindifferencebetweentheCPIandtheLivingCostIndexisthe

removaloftheexpenditureclass‘housepurchase’andthe

inclusionofmortgageinterestpaymentsonowneroccupier

housing.Tomeasurepricechangeinthiscomponentweusedthe

growthinrepaymentsrequiredfortheaveragehousingloanin

AustraliaasmeasuredbytheABS’HousingFinancepublication.

TheinterestrepaymentusedtheRBA’sstandardvariableloan

interestrateandaonepercentperannumfactorwasappliedto

accountforqualitychangeinthestockofhousing.

ABS CPI Data

TheABSConsumerPriceIndex(CPI)showshowconsumerprices

havechangedforafixedbasketofgoodsandservicessince1948.

TheABSproducestheCPIeverythreemonthsandcompilesthe

indexusingaround100,000priceobservationscollectedincapital

citiesaroundthecountryeachquarter.TheABSaveragesthese

pricechangestakingintoaccounttherelativeimportanceofeach

iteminthe‘average’Australianhousehold’sbudget.Greatcareis

takentoremovetheimpactsofqualityorvolumechange.This

qualitychangeinvolvescheckingeachsampleditemforchanges

fromthepreviousquarterlypriceobservationforfactorssuchassize,weightormorecomplexfeaturessuchasmemoryorspeed

ofacomputer.ForamoredetailedexplanationoftheABS

publicationConsumer Price Index (ABS2011b).

TheABS’CPIhasaknownupwardbiasthatiscausedbytheABS

onlyupdatingtherelativeimportanceofitemsinthebasketof

goodsroughlyeveryfiveyears.CycloneYasiontheNorthCoastof

Queenslandprovidesthebestrecentexample.Bananaprices

increasedwildlyfromanormalpriceofaround$3akilogramto

$15akilogram.TheABSCPIassumesthatpeoplearestillbuying

thenormalquantitiesofbananasasprescribedintheABSbasket

ofgoods.Ofcourse,peoplesensiblystopbuyingbananasand

switchtoanotherfruitsuchasapples.So,sincetheABShasnoinformationonthedeclineinbananasalestheirCPIoverstates

therealimpactofgoodsandservicesthatincreaseinprice

relativetoothergoods.

Equivalised Income

Throughoutthereportthehouseholdincomemeasureused

removesthehouseholdsize–thisisoftencalledequivalising

income.NATSEMusestheOECDmodifiedmethodwhichdivides

householdincomebyanequivalisingfactorsuchthatthefirst

adultreceivesaweightofone,subsequentadultsaweightof

0.5andchildrenunder15aweightof0.3.Equivalisedincomeis

considered‘equivalent’toalonepersonhouseholdincome.

37



References

AustralianPetroleumStatistics,DepartmentofResources,

Energy&Tourism.

ABS(1984)HouseholdExpenditureSurvey1984,6531.0.

ABS(1989)HouseholdExpenditureSurvey1988–89,6531.0.

ABS(1995)HouseholdExpenditureSurvey1993–94,Second

Edition,6531.0.




ABS(2007)ComparingLivingCostsinAustralianCapitalCities,

ResearchPaper.

ABS(2010)Outcomeofthe16thSeriesAustralianConsumerPrice

IndexReview,Dec2010.

ABS(2011a).Cat6463.0-AnalyticalLivingCostIndexesfor

SelectedAustralianHouseholdTypes,Dec2011.

ABS(2011b).Cat.6401.0.ConsumerPriceIndex,December2011.

ABS(2011c).Cat.5206.0.AustralianNationalAccounts,

December2011.

AMP-NATSEM(2011a)TheGreatAustralianDream:JustaDream?

AMP-NATSEMReport29.

AMP-NATSEM(2011b)RaceAgainstTime–HowAustralian’s

SpendTheirTime,AMP-NATSEMReport30.

EconomicIntelligenceUnit(2012)WorldwideCostofLiving2012:

Whichcityisthemostexpensivetolivein?Whichcityisthe

cheapest?

IMF(2011)WorldEconomicOutlookDatabase,September2011.

PhillipsB....2011.CarbonTaxAnalysis,NATSEM,University

ofCanberra.

RBA(2011)InsightsfromthehouseholdExpenditureSurvey.

SouthAustraliaCouncilOfSocialService(2012)CostofLiving

Update,February2012.

UnitedNations(2011),HumanDevelopmentReport.

Recent AMP.NATSEM Income and Wealth Reports

– BabyBoomers-Doingitforthemselves(March2007)

– GenerationwhY?(July2007)

– HoneyIcalculatedthekids...it’s$537,000-Australianchild

costsin2007(December2007)

– WhereverIlaymydebt,that’smyhome-Trendsinhousing

affordabilityandhousingstress1995–1996to2005–2006

(March2008)

– AdvanceAustraliaFair?-Trendsinsmallareasocio-economic

inequality2001–2006(July2008)

– Whatpricetheclevercountry?ThecostoftertiaryeducationinAustralia(November2008)

– Sheworkshardforthemoney-Australianwomenandthe

genderdivide(April2009)

– Healthy,wealthyandwise?-Therelationshipbetweenhealth,

employmentandearningsinAustralia(July2009)

– Don’tstopthinkingabouttomorrow-Thechangingface

ofretirement–thepast,thepresentandthefuture

(November2009)

– SavingTomorrow–Thesavingandspendingpatternsof

Australians(April2010)

– ThePursuitofHappiness(July2010)

– CallingAustraliaHome(November2010)

– LittleAustralians.DifferencesinEarlyChildhoodDevelopment

(April2011)

– TheGreatAustralianDream-JustaDream?(July2011)

– Raceagainsttime:HowAustraliansspendtheirtime

(November2011).

Alltheabovereportsareavailablefrom

www.amp.com.au/ampnatsemreports

38



Thispagehasbeenleftblankintentionally.



This report was written by Ben Phillips from the National Centre for Social and Economic Modelling (NATSEM) atthe University of Canberra and published by AMP. This report contains general information only and although theinformation was obtained from sources considered to be reliable, the author, NATSEM and AMP do not guarantee that it

is accurate or complete. Therefore, readers should not rely upon this information for any purpose including when makingany investment decision. Except where liability under any statute cannot be excluded, NATSEM, AMP and their advisers,employees and officers do not accept any liability (where under contract, tort or otherwise) for any resulting loss ordamage suffered by the reader or by any other person.Suggested citation: Phillips B, Li, J, Taylor, M (2012), Prices these days! The cost of living in Australia.AMP.NATSEM Income and Wealth Report, Issue 31, May 2012, Sydney, AMP.

Prices These Days! The Cost of Living in Australia

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