Is the cost of living rising in Australia?

To many people, this would seem to be a silly question. Utility bills are going through the roof, healthcare costs are rising, health insurance premiums rise by a ridiculous amount every year, petrol costs three times what it used to, rent is higher than ever.... of course the cost of living is rising.

To the economists who disagree though, the cost of living is stable or even falling. Food is cheaper, clothing, books, toys and music are cheaper, and wages are higher.

My Twitter feed is full of snark about Cashed Up Bogans driving their SUVs to their huge McMansions and whinging about the high cost of gas and water while Brianna and Tyson have every toy and gadget in the world.

Or middle class whingers who complain about petrol and utility bills while unable to appreciate how cheaply they get their clothing.

According to this school of thought, which includes many economists, the middle class has no right to complain about the cost of living when most things they buy are cheaper than ever.

Wrapped up in these arguments are political and moral beliefs too, about the carbon tax, house size, sustainable living, consumption, public vs private school, cars vs public transport, and value judgments about what people spend money on. There is also annoyance or embarrassment at the tendency of Australians to forget we live in a prosperous country whose economy has survived the GFC and the Great Recession lightly compared to most other places. There is also anger from those who are locked out of the housing market and forced into ever-higher rentals, at those who are paying off mortgages daring to complain.

In short, there is more than a touch of judgement from some (who forget they are also, mostly, middle class) at the middle-class who can't see what they are spending every week while complaining about the cost of living.

But...

Most people I know are middle class. I can pretend it is otherwise, and I can pretend to be something I'm not, with my history of low-paid work, my husband who works in hospitality and our 8-year-old car. But we're middle class, as are the majority of people running the commentary on Twitter, on radio and in the newspapers.

I won't pretend to be without privilege. But we don't have savings, our kids go to the local public school, and we live with low-level financial stress on a monthly basis. Like other families we know, we juggle bills: I mean really juggle them, paying the meanest ones first and letting the more lenient ones slide, always playing catch-up and always behind. It depresses me that we don't have more, that at our age we are still living, basically, paycheck to paycheck.

While I don't accept that raising kids is a "lifestyle choice" (it's actually biology), I do accept that we have chosen our way of life. We've chosen to buy a house and spend most of our money paying it off and we know that raising kids is expensive. It's why we have two kids instead of three. (Well, it's most of the reason why).

I know full well that we buy clothes, toys, books, music and stuff pretty cheaply. I know I spend more than I need to by driving to work, and buying my lunch on work days. I know my kids have far too many toys. I know we negated the savings we should have made when we cut out pay TV six years ago, by buying a million DVD kids' movies since then.

But I also know that utility bills, health insurance and the cost of filling my car have increased by 50% or more in the last few years. And our income has dropped - a lot.  My salary is 60% of what I earned before 2008. Looking back now, it seems like I was on a pretty good salary back then. I was, but it was not high for the work I did, in my field, back then. I was always trying to earn more, constantly aware that I was "behind" others who earned more. I may have worked for a big American stockbroker, but I was no fat cat. It was also pre- credit crunch, so I was carrying a lot of debt, and spending way more than I do now.

I'm happier now, and I was very happy to be made redundant and apply a circuit breaker to my life. And I know I was very lucky. I got my redundancy, took a few months off work, and got to start a new job with people who knew me, working fewer hours and doing work I really enjoy. All that is amazing, and I know it.

But even for us lucky ones, the cost of living is higher than it was, and it is harder to manage the budget. The fact we are lucky doesn't make that less true.

Knowing my own experience and our much-reduced income since 2008, I often think of the thousands of others who have been laid off since then, or whose businesses have failed. Try telling them the rising cost of living is all in their heads.


I think while many costs have fallen over the years (things we buy), and we are certainly taxed lower than in the past, bills are higher, and costs in general are more diffuse now.  Thirty years ago you earned less and you might have paid 40% income tax, and you didn't buy as much stuff, but your rent/mortgage payments were lower, utilities were much cheaper, and there were fewer bills to grapple with. You didn't have to compare costs for insurance, let alone "choose" your utility providers, and you had fewer bills and expenses. Bills might be electricity OR gas, water and telephone (no internet, mobile phone, pay TV, and there were fewer types of insurance to cover), and your weekly expenses might be travel/petrol, groceries and an amount set aside to cover clothing and other bits and pieces. I'm not saying things were better. And I have no desire to go backwards.  But there were simpler bills, fewer things to buy and less money to spend, and budgeting was once much, much easier than it is now.

Words for Wednesday - 4 September

'Words for Wednesday' is a writing prompt held by Delores at Under the Porch Light.
I did this for the first time last week, and enjoyed it a lot.

Last Wednesday's words were:

crystallize

morbid

fragrance

cling

instant

blueprint

Here is my contribution. 

In those dying days Alan took calls from a hundred desperate clients.  They rang at all hours, in a panic, some weeping. There were others he called, who were unable to make a decision, silent on the other end of the phone in their shock. Some were still strategizing, taking a hit here or there to crystallize a loss for a write-off, or scanning value stocks with a buyer’s eye even as everything went to hell. In the office things were frantic for a couple of weeks, and then quiet, as the money ran out and the phones stopped ringing. Some of the advisers took a holiday, or stayed home. But Alan was salaried and anyway had nowhere to go. So he stayed at his terminal, watching the lines of red numbers with morbid, daily obsession.

There were moments, even days, where things seemed to pick up, as a few stocks bounced up from rock-bottom and the market pounced. When these bounces lasted more than a day, the office became vibrant. Even though everyone knew it was nothing it was good to be busy; good to remember the excitement and the happiness from past times – the sweet fragrance of wealth.  It was easy to cling to that buzz and that hope, and everyone did.

Alan was young and had missed the bull market. “You’ll catch the next one,” they told him. They even said his timing was perfect because he was building up clients and knowledge right now, and when the market took off – as it would, finally – he’d be in on the ground floor.

But meantime the perks were all gone. The cars, the lunches, the drinks, the gym memberships, the couriers and the dry cleaning – not to mention the cash bonuses. All gone. They were never coming back, everyone said.  Of course, they probably would, eventually. Just not to this generation.

Companies struggled not to sink and withheld that truth from their staff. All over the city, companies sank or merged or were bought out, and people lost their jobs. Alan had no idea how his company was faring. No one did, either inside or outside the dealing room.   Internal communications insisted all was well.  Prospects were good, said the emails, and the company’s strengths and market share were keeping them in the black even as others sank around them. Things were tight, no question – and it was true that some serious cuts would need to be made. But if everyone stayed focused and kept doing what they were doing, then the company would continue to do well, buoyed by its greatest asset: its people.

The communications never mentioned the company’s balance sheet. They were light on detail and never included a specific dollar amount, target figure, future date or indeed any number of any kind. They were all words – words and no numbers. In an industry which was usually, proudly, all numbers and formulae, someone had changed the language. 

Outside the dealing room and away from the numbers, priorities had changed in an instant. Gone without mention were the old roadmaps, goal sheets and mission statements. The policies and procedures page kept moving on the intranet, and whole sections were gone. The only direction now was to survive. The blueprint was secret. 

The End of the Ford Falcon

Big companies have responsibilities to their communities, especially when they have provided jobs for thousands and custom for other businesses for so long that families and towns identify with them.

Ford is meeting those responsibilities, from what we know so far.

Ford Australia has been operating in Geelong since 1926. Ford cars have been a huge part of the Australian landscape since then.

by Hugo90 via Flickr

by racin jason via Flickr

by Highway Patrol Images via Flickr

Every big corporation makes bad decisions. Every US head office of every multinational has misjudged  their overseas markets and kept business going when they shouldn't have or pulled the plug at the wrong time or failed to take the local conditions and culture into account. That's global capitalism, and it's part of the pay-off we accept in return for jobs, markets, economies of scale, choice and convenience.

Ford has given its workers three years' notice and will I am sure provide good redundancies and assistance with training or job search.

Not that that doesn't mean that the next few years won't be awful for Ford workers. They will.

But the news of Ford's closure here has been greeted by most with a sort of sad inevitability. Even its workers were "shocked but not surprised".

Most people understand that manufacturing is increasingly difficult here. Few of those who commented agreed with this angry rant in The Age, for example. We all see what has happened over the years to manufacturing - and to cars. The days of the big corporate fleets and the big family sedan are over. Most people accept Ford's statement that manufacturing their cars in Australia is no longer affordable.

So what of the government's propping up of the car industry here with stimulus and assistance packages?

Well, there were reasons for those.

Firstly, while it's logically a waste of money to prop up losing industries, in practice it's not that simple. Whole industries can't just be cut off and left to fail without causing massive upheaval economically and socially. It's not just politically unsound to let that happen, it is wrong.  So all reasonable governments end up spending too much on losing deals propping up failing industries, and are no doubt as irked at having to do so as the public are at having to bear the cost. (Though of course, the actual cost to any non-involved individual is close to nil, while the benefits of not having a huge industry suddenly fail are real).

Secondly, post-GFC, all governments in a position to do so threw money at stimulus programs to keep the economy moving, and that included much dubious spending, because the spending was more important than the product, at that time. No one was especially happy at propping up car manufacturers during this period, especially in the US where the government had already suffered the political fallout from propping up banks, and where the car company reps flew to Washington for their bailouts in their private jets.

But that's how it all works.  Otherwise we'd be Greece.


Until 2011, I too worked for a US multinational, and I was made redundant after long months of uncertainty, stress and misery. The packages were good (not as generous as they had been in the past, but times had definitely changed), and the company provided a career counselling service which gave employees resume help and access to office space for a month.

I was not in the same industry as the workers facing redundancy at Ford. I was lucky to get another job in the same industry working with people and a company I knew well. So I don't pretend to be in the same boat. But say what you will about multinationals (and most of what you say is justified) - at least they are big enough to provide entitlements and protection to workers. Unlike small businesses, which tend to leave workers stranded when they go under.



I have quite fond childhood memories of being driven around in Ford sedans. My dad and grandfather loved Ford cars, and in the seventies my parents drove a Cortina, a Falcon, a Fairlane, and memorably in America, a huge Lincoln Continental.

The family sedan was good for Sunday drives to the Dandenongs and for family holidays. We drove to the Central Coast in New South Wales or the Gold Coast in Queensland, epic two or three-day family journeys involving car sickness, counting games, roadhouse stops, seat belts chafing against childhood necks, sweaty backs sticking to vinyl seats, and my sister and me sleeping with pillows propped against the armrest while we sped through the night.

My dream car when I was a kid was the red and white Ford Gran Torino in Starsky and Hutch.


But those days are long gone. No one wants a sedan any more, and no one can afford to make them in this country.

by aidenjewell via Flickr

Not the right time for banking reform

I hesitate a little to put this out there because SURELY the men making the noise and the decisions know what they are doing and understand all this stuff better than us. Surely... Don't they? Oh that's right - they don't.

Background: Since the "end" (huh!) of the GFC, Australian banks have been moving their interest rates [on loans not deposits!] "independently" of the Reserve Bank. This mostly means that when the RBA raises the cash rate by a certain amount (usually 0.25%), the Big Four banks are these days raising theirs anywhere from 0.10 to 0.50 above the "official" rise.
This has caused shock and anger and there has been a lot of talk about banks gouging customers and price signalling, and the fact that there is limited competition in Australia among banks.
So first the opposition shadow treasurer and then the actual treasurer have proposed various measures to reform the banking system and force banks to be nicer.

All of which are wrong-headed in my mind and doomed to fail.

Now speaking personally, we have a hefty mortgage, which we have made precisely NO headway in reducing, and we are feeling the rate rises - but here's my view.

Yes no doubt the banks are taking advantage where they can - it's in their nature, plus they probably feel compelled to "catch up" for the low interest rates during the stimulus period of the GFC.

Banks face increasing funding costs due to the GFC and tighter credit in the global markets, blah blah blah insert bank press releases here - which is true but it is equally true that the funding processes provide a nice cushiony less-than-transparent way for banks to add a little extra without exposing this to their customers.

Those rate rises get smaller again - at some point the GFC will pass or abate, banks will get less jittery and the normal competitive urges between the banks [limited as they are] will re-assert themselves.

The GFC is a total, global, unprecedented, once-in-three-generations event which has had eye-popping and massive impacts which are still playing out like the ripples from a stone thrown in a pond (or a meteor slammed into the sea). Not a good time to legislate as a reaction to the fall-out.

Both our government finance ministers and the opposition ones are, well, somewhat new, shall we say, to
the worlds of banking and finance and perhaps are not quite qualified to make sweeping reforms...? (Though to be fair I will add that I don't think anyone can manage this very well)

We should keep in mind the law of unintended consequences here; on a small scale look at what happened when the Reserve Bank brought in the new ATM fee system which notified customers using a "foreign" ATM of the fee that would be charged. Transparency increased - but so did the fees. Where some banks decreased the fees or stopped charging them, they started charging others instead.

[I am reminded here of the story of a daycare centre related in the first Freakonomics book which increased late pick-up fines to try and reduce the number of parents running late to pick up their kids. The result of the increase was more parents running late more often - because once they were paying a premium to be late they no longer felt so guilty about it and were happy to "buy" the right to come later when it suited them].

If banks are legislated against applying certain fees, they will just apply others, or increase costs to borrowers in less transparent ways. Obviously. John Locke pointed this out back in 1692.

Banks are entitled to charge some fees. Switching mortgages, paying out a fixed loan earlier than the maturity date, going into overdraft, or basically doing anything that requires extra funding by the bank can reasonably attract a fee.
However there is no doubt banks take advantage. In the old days you couldn't easily go into overdraft - the bank would not honour payments. Now they honour them and charge you an overdraft fee. People are reasonably angry about this. Under pressure, the banks have reduced (and in one case removed) these charges, and to my mind a small (single digit!) charge is reasonable for this "service". But a better way would be giving customers an option when they set up their accounts: do you want payments honoured into overdraft for a small fee, or do you prefer the bank to dishonour any payment which would send your account into overdraft (for no fee). Even better, charge different fees depending on the amount into overdraft, time taken to bring the account back into credit, etc. Most clients would pay minimal fees (a few cents or dollars a time say). Banks have very sophisticated systems and it is not difficult to set up algorithms to manage this type of charge. There is little administrative burden and the charges are not really designed to discourage overdrafts - at least this way the charges would be honest and useful (larger fees for larger overdrafts would serve to discourage overdrafts as well as cover the bank's risk, where the customer had chosen this option rather than the option not to honour payments).

Similarly for switching mortgages - yes the charges to switch are outrageous, but the government is correct to look for adding ways to make switching easier, rather than outlaw the fees. (Some sort of fee is reasonable unless another aspect of switching allows banks to recoup costs from each other - as remember when you pay out a loan early you are [in theory if not always in practice] disadvantaging the bank which has borrowed money to fund your loan using a rate based on the value and time of the original loan life). As well as the amount of the fee, one of the big disincentives to switch is "bundling" - the process banks have of getting you hooked up to linked transaction, saving, credit and loan accounts at the same time as you get your mortgage. Switching would be easier if "unbundling" was as easy as the "bundling". There should also be easier options to set up a mortgage and retain transactional accounts at other banks (though this is not necessarily advantageous currently, what if same-day transfers between different banks were possible without the cost?)

I do believe there must be legislation and watchdogs over banking - but the legislation has to be fairly "light". You can't legislate fairness completely. And you can't concoct fake competition into a market that doesn't have much. New Zealand chose to set up a state bank to increase competition - I'm not convinced that's a solution (and obviously neither is our government as they have ruled it out); we all know how nimble and competitive state-run institutions are (not)!

We do have to accept that there will always be costs associated with banking. There must be minimum legislation to keep basic fairness and retain competition, but in general when it comes to rules and legislation around finance, the required basic rules are already in place. You have to think very carefully about any new ones as after hundreds of years of commercial banking and finance, there is not really anything new and new rules and legislation are seldom actually needed. (Similarly, repealing or removing existing rules is not always a good idea either - there are reasons for rules that have been in place for decades or more).


Here is a great quote to finish off, on the law of unintended consequences:

"The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it."
- Rob Norton, "Unintended Consequences", The Concise Encyclopedia of Economics - at:
http://www.econlib.org/library/Enc/UnintendedConsequences.html