Is it true that we are better off ?
Well-off nation cries poor, and demands that its government help
TIM SOUTPHOMMASANE From: The Australian September 03, 2011 12:00AM
POLITICAL debate during the past 12 months has been dominated by the carbon tax. But the terms of the debate indicate that another issue has been defining our politics. I am referring to the cost of living.
Barely a week passes when the news doesn't feature politicians pledging to control the cost of living or expressing their sympathy for working families struggling with rising costs. Politicians ignore households' complaints about rising fuel, electricity and grocery prices at their peril.
However, to what extent do the complaints about the cost of living reflect reality? And should it really be the responsibility of governments to address the cost of living as a specific issue?
Any assessment of the cost of living should be made within the context of a strong Australian economy. Earlier this year the National Centre for Social and Economic Modelling found the average Australian household is $23 a day better off than it was five years ago.
Admittedly, recent Australian Bureau of Statistics figures show the global financial crisis had some effect on incomes (particularly among the richest 20 per cent of households). But Australian households are, on average, doing about as well as they ever have.
This sense of reality isn't always conveyed in our representations of the cost of living. Newspaper headlines scream that the cost of living is spiralling out of control, that households are getting a raw deal, that a struggling nation is pleading for mercy. A content analysis of Australian metropolitan newspapers shows that mentions of the cost of living have multiplied during the past decade, particularly during 2010-11.
It would be misleading, however, to say Australian living standards have taken a recent blow as a result of some creeping cost-of-living crisis. There is simply no such crisis on an objective analysis.
It is true, of course, that many Australians, particularly those on fixed and low incomes, face economic pressures from rising food and electricity prices. Some commentators add that conventional measures such as the consumer price index fail to reflect the actual rises in the cost of living. Namely, the CPI doesn't account for price movements in mortgage interest and consumer credit costs.
Yet even adjusted official measures, such as the analytical living cost indices issued by the ABS (which are adjusted for selected household types, and which include mortgage interest and consumer credit costs), show that trends in the cost of living remain in line with trends in the CPI.
The gap between perception and reality can be explained several ways. People have a behavioural bias, first of all, towards noticing rises in prices disproportionately compared with any falls in prices.
In addition, Australian households are deleveraging. Household savings levels have returned to levels that existed before financial deregulation in the 1980s. Whereas before the global financial crisis in 2008 households on average spent more than they earned, they now save about 10 per cent of their earnings.
The point here isn't to dismiss cost pressures altogether, especially as they exist for those on low incomes, who spend a higher proportion of their income on basic necessities. But it is a stretch to claim that there is some generalised cost-of-living crisis impinging on an Australian's quality of life.
It beggars belief, for example, that some newspapers could seriously suggest that times are tough even for households with an annual income of $150,000 (as happened during the coverage of this year's federal budget). To give some sense of the absurdity, even offensiveness, of this claim, consider that the median household income in Australia for 2007-08 was $67,000, less than half of $150,000.
There is perhaps something cultural at play. Concerns about the cost of living represent a nervous feeling that an Australia lifestyle characterised by easy living is no longer attainable. There is a gnawing feeling that the good times are about to end.
Almost paradoxically, expectations about a decent standard of living have been ratcheting up. Amid uninterrupted economic prosperity, Australians have grown accustomed to living in comfort and luxury. Larger homes, with bigger floor plans, ensuites and spare bedrooms, are becoming the norm. Material acquisition is regarded as an entitlement of belonging to Australian society.
Household consumption and lifestyle patterns will clearly have an effect on the cost of living. If people are living in larger homes, furnished with more electrical appliances and comforts, this will obviously contribute to larger bills and expenses. And if people are consuming more goods and services, sustaining their lifestyles will be more difficult.
The increasing size of Australian homes is certainly striking: new Australian homes are on average the largest in the world in terms of floor size. At an average size of 214sqm, the Australian home is more than double the average size of homes in Ireland and Sweden, and close to triple the average in Britain. Meanwhile, household consumption also exhibits an upward trend, with a particularly significant increase in spending on items such as communication services, recreation and culture, and personal effects during the past two decades or so.
Lifestyles, in large part, may be generating cost-of-living anxieties, but the Australian public sees it as the role of government to alleviate the perceived pressures.
But what is the nature of the duty owed to citizens by the state?
That the state should ensure all citizens have the means to enjoy a civilised standard of living is something no right-minded person would dispute.
As a matter of justice, citizens should have an equal right to basic liberties and some minimal level of resources to participate in the life of their community.
Historically in Australia, the role of the state has been understood as guaranteeing that wages for the average Australian worker are sufficient to provide "a condition of frugal comfort".
In more recent times, citizens' expectations of the state have involved more than just the guarantee of a certain minimum. It is believed that the state must also guarantee a much more comfortable standard of living.
Political posturing from both main parties in Australia on kitchen table economics has encouraged this belief. When, in 2007, then opposition leader Kevin Rudd campaigned relentlessly against John Howard on the rising cost of living and the lack of housing affordability, he created a new kind of political debate.
Many Australians began believing that the nation's economic prosperity didn't translate to better personal economic circumstances. Thus, despite Australia's enviable economic position compared with other OECD countries, many believe today that they are "doing it tough". It has become an iron law in our politics that politicians must pledge to ease the pressures of the cost of living.
Admittedly, there may be another historical or ideological reason Australians have such high expectations of the state.
Australia remains defined by a Benthamite political culture, which understands the state in utilitarian, materialistic terms.
This is underlined by the debate about so-called middle-class welfare. The apparent public backlash against the federal government's decision earlier this year to freeze family tax benefit payments to households earning more than $150,000 highlights a new sense of entitlement in Australian attitudes. Many middle-income households believe they should receive government transfer payments that assist with the cost of raising a family (most notably in the form of family tax benefits).
But are governments justified in providing benefits to households earning about $150,000? It is difficult to see how they are. An annual income of $150,000 would place a household among the richest 15 per cent or so of Australian households.
Some conservatives argue that social assistance of this kind is legitimate since there are good policy reasons to encourage families among middle-income earners.
However, historically, an Australian welfare state has been guided by the principle of need, not moral desert. It has aimed to provide a safety net for citizens who, by virtue of illness or unemployment, cannot participate fully in the life of the national community.
With our system of income and asset-tested payments funded from general taxation revenue, Australian social assistance has never reflected a generous and universalistic welfare state. Our welfare state can't assume this form unless we are prepared to pay much higher taxes to support a Nordic-style social democracy (even many Australian social democrats would demur to this).
It is only right that the state should prioritise need. The state has strong reasons to make targeted interventions to alleviate cost-of-living burdens where they affect the least well-off. It stands on weaker ground when interventions rest on contested notions of moral desert.
Indeed, governments shouldn't succumb to the political temptations of middle-class welfare, however loud the complaints about the cost of living. It isn't a good idea for the state to protect or subsidise lifestyles that are attained by living beyond one's means. To do so would corrupt the proper role of the state, which is to guarantee equal opportunity, provide certain public goods, and offer assistance in time of genuine hardship. Governments shouldn't be beholden to the demands of the profligate.
Well-off nation cries poor, and demands that its government help
TIM SOUTPHOMMASANE From: The Australian September 03, 2011 12:00AM
POLITICAL debate during the past 12 months has been dominated by the carbon tax. But the terms of the debate indicate that another issue has been defining our politics. I am referring to the cost of living.
Barely a week passes when the news doesn't feature politicians pledging to control the cost of living or expressing their sympathy for working families struggling with rising costs. Politicians ignore households' complaints about rising fuel, electricity and grocery prices at their peril.
However, to what extent do the complaints about the cost of living reflect reality? And should it really be the responsibility of governments to address the cost of living as a specific issue?
Any assessment of the cost of living should be made within the context of a strong Australian economy. Earlier this year the National Centre for Social and Economic Modelling found the average Australian household is $23 a day better off than it was five years ago.
Admittedly, recent Australian Bureau of Statistics figures show the global financial crisis had some effect on incomes (particularly among the richest 20 per cent of households). But Australian households are, on average, doing about as well as they ever have.
This sense of reality isn't always conveyed in our representations of the cost of living. Newspaper headlines scream that the cost of living is spiralling out of control, that households are getting a raw deal, that a struggling nation is pleading for mercy. A content analysis of Australian metropolitan newspapers shows that mentions of the cost of living have multiplied during the past decade, particularly during 2010-11.
It would be misleading, however, to say Australian living standards have taken a recent blow as a result of some creeping cost-of-living crisis. There is simply no such crisis on an objective analysis.
It is true, of course, that many Australians, particularly those on fixed and low incomes, face economic pressures from rising food and electricity prices. Some commentators add that conventional measures such as the consumer price index fail to reflect the actual rises in the cost of living. Namely, the CPI doesn't account for price movements in mortgage interest and consumer credit costs.
Yet even adjusted official measures, such as the analytical living cost indices issued by the ABS (which are adjusted for selected household types, and which include mortgage interest and consumer credit costs), show that trends in the cost of living remain in line with trends in the CPI.
The gap between perception and reality can be explained several ways. People have a behavioural bias, first of all, towards noticing rises in prices disproportionately compared with any falls in prices.
In addition, Australian households are deleveraging. Household savings levels have returned to levels that existed before financial deregulation in the 1980s. Whereas before the global financial crisis in 2008 households on average spent more than they earned, they now save about 10 per cent of their earnings.
The point here isn't to dismiss cost pressures altogether, especially as they exist for those on low incomes, who spend a higher proportion of their income on basic necessities. But it is a stretch to claim that there is some generalised cost-of-living crisis impinging on an Australian's quality of life.
It beggars belief, for example, that some newspapers could seriously suggest that times are tough even for households with an annual income of $150,000 (as happened during the coverage of this year's federal budget). To give some sense of the absurdity, even offensiveness, of this claim, consider that the median household income in Australia for 2007-08 was $67,000, less than half of $150,000.
There is perhaps something cultural at play. Concerns about the cost of living represent a nervous feeling that an Australia lifestyle characterised by easy living is no longer attainable. There is a gnawing feeling that the good times are about to end.
Almost paradoxically, expectations about a decent standard of living have been ratcheting up. Amid uninterrupted economic prosperity, Australians have grown accustomed to living in comfort and luxury. Larger homes, with bigger floor plans, ensuites and spare bedrooms, are becoming the norm. Material acquisition is regarded as an entitlement of belonging to Australian society.
Household consumption and lifestyle patterns will clearly have an effect on the cost of living. If people are living in larger homes, furnished with more electrical appliances and comforts, this will obviously contribute to larger bills and expenses. And if people are consuming more goods and services, sustaining their lifestyles will be more difficult.
The increasing size of Australian homes is certainly striking: new Australian homes are on average the largest in the world in terms of floor size. At an average size of 214sqm, the Australian home is more than double the average size of homes in Ireland and Sweden, and close to triple the average in Britain. Meanwhile, household consumption also exhibits an upward trend, with a particularly significant increase in spending on items such as communication services, recreation and culture, and personal effects during the past two decades or so.
Lifestyles, in large part, may be generating cost-of-living anxieties, but the Australian public sees it as the role of government to alleviate the perceived pressures.
But what is the nature of the duty owed to citizens by the state?
That the state should ensure all citizens have the means to enjoy a civilised standard of living is something no right-minded person would dispute.
As a matter of justice, citizens should have an equal right to basic liberties and some minimal level of resources to participate in the life of their community.
Historically in Australia, the role of the state has been understood as guaranteeing that wages for the average Australian worker are sufficient to provide "a condition of frugal comfort".
In more recent times, citizens' expectations of the state have involved more than just the guarantee of a certain minimum. It is believed that the state must also guarantee a much more comfortable standard of living.
Political posturing from both main parties in Australia on kitchen table economics has encouraged this belief. When, in 2007, then opposition leader Kevin Rudd campaigned relentlessly against John Howard on the rising cost of living and the lack of housing affordability, he created a new kind of political debate.
Many Australians began believing that the nation's economic prosperity didn't translate to better personal economic circumstances. Thus, despite Australia's enviable economic position compared with other OECD countries, many believe today that they are "doing it tough". It has become an iron law in our politics that politicians must pledge to ease the pressures of the cost of living.
Admittedly, there may be another historical or ideological reason Australians have such high expectations of the state.
Australia remains defined by a Benthamite political culture, which understands the state in utilitarian, materialistic terms.
This is underlined by the debate about so-called middle-class welfare. The apparent public backlash against the federal government's decision earlier this year to freeze family tax benefit payments to households earning more than $150,000 highlights a new sense of entitlement in Australian attitudes. Many middle-income households believe they should receive government transfer payments that assist with the cost of raising a family (most notably in the form of family tax benefits).
But are governments justified in providing benefits to households earning about $150,000? It is difficult to see how they are. An annual income of $150,000 would place a household among the richest 15 per cent or so of Australian households.
Some conservatives argue that social assistance of this kind is legitimate since there are good policy reasons to encourage families among middle-income earners.
However, historically, an Australian welfare state has been guided by the principle of need, not moral desert. It has aimed to provide a safety net for citizens who, by virtue of illness or unemployment, cannot participate fully in the life of the national community.
With our system of income and asset-tested payments funded from general taxation revenue, Australian social assistance has never reflected a generous and universalistic welfare state. Our welfare state can't assume this form unless we are prepared to pay much higher taxes to support a Nordic-style social democracy (even many Australian social democrats would demur to this).
It is only right that the state should prioritise need. The state has strong reasons to make targeted interventions to alleviate cost-of-living burdens where they affect the least well-off. It stands on weaker ground when interventions rest on contested notions of moral desert.
Indeed, governments shouldn't succumb to the political temptations of middle-class welfare, however loud the complaints about the cost of living. It isn't a good idea for the state to protect or subsidise lifestyles that are attained by living beyond one's means. To do so would corrupt the proper role of the state, which is to guarantee equal opportunity, provide certain public goods, and offer assistance in time of genuine hardship. Governments shouldn't be beholden to the demands of the profligate.
