Lower living standards and high inflation: it's what Australians unwittingly voted for

For about a decade, Australia has been governed at both federal and state levels by a succession of either "moderate" Coalition governments or more left-leaning Labor administrations. Both brands of politicians have taken "Nervous Nellie" positions on climate change and Covid. Both (especially Labor) have been woke, and both liked to spend. The difference between the two has largely been a matter of degree.

The only conservative government in recent years was the Abbott government. Abbott and (then Treasurer) Hockey attempted budget repair in the 2014 Budget. They then gave up following defeats in the Senate and internal divisions, that saw the "moderates" eventually prevail. The now Dutton-led federal Opposition is starting to present a more conservative face again.

All this has contributed to the current economic situation, which is characterised by falling real wages, an increase in inflation, large scale immigration, and a big jump in the interest rate burden on borrowers.

The real value of wages declined the most (4.5 per cent) in calendar 2022, the biggest deterioration on record according to the ABC. The rate of decline in living standards has lessened over 2023 but wage increases still lag the CPI. Despite rhetoric by Labor administrations supporting higher wages, and wage increases granted to certain interest groups (e.g. child-care workers), it seems clear that falling real wages will continue for some further time.

The actual decline in living standards for most people has been even greater than suggested by the real wage statistics.

This is firstly because interest rates, and repayments as a percentage of borrowers' disposable income have been soaring.

Secondly, (despite so-called "tax cuts") tax scales have not been adequately adjusted for inflation so that workers are retaining less of their gross incomes. This is particularly the case with the highest bracket of personal income, which is taxed from $180,001. Our top tax rate (very high by international standards) now applies at less than double average male earnings, a threshold that has remained unchanged since (would you believe it?) 2008-9! The CPI has increased by over 40 per cent over this time, and, with the Medicare levy included, our top tax rate (currently 47 per cent and not set to change) provides little incentive for work effort.

Bracket creep has been even worse at state government level. The States/Territories have been raking in huge tax revenues from buoyant property markets by failing to adequately adjust stamp duty thresholds for inflation, and by applying "super" rates for high value properties. Purchasing just an average Sydney house now attracts stamp duty of about $46,000, and houses over $3,194,000 attract stamp duty of 7 per cent at the margin.

NSW stamp duty thresholds are a joke, and the situation is little better in other jurisdictions. The actual thresholds are $14,000, $ 32000, $85,000, $319,000, $1,064,000, and $3,194,000. The lower thresholds bear no resemblance to the prices now actually paid for property and reflect decades of government profiteering by omission. While there are now concessions for first home buyers, there is little for others. There is now some indexation of thresholds, but this has come about too late at threshold levels that are already much too high.

In Australia the main group unaffected by recent falls in living standards are those on welfare, whose benefits are fully indexed to inflation. Real increases were also granted to many welfare recipients in the 2023 Budget. Another group largely unaffected are retired public servants (like myself) on generous defined-benefit pensions, that are both fully-indexed to inflation, and benefitting from tax concessions available for superannuation income.

High inflation and declining living standards are not confined to Australia. Of late, comparable economies like New Zealand, the US and the UK have reported similar issues. All these economies benefited from strong government stimulus during the early stages of the pandemic, but this came at the cost of subsequent overheating. The IMF said, for example, that "New Zealand is in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery", and that "New Zealand is likely to continue slowing in the near term as monetary tightening takes hold".

The root cause of initial economic over-heating followed by policies to curb demand has been attitudes of the public, reflected in the governments they elected. This is most clearly evident in respect of two big issues.

Governments across the world over-reacted to Covid and introduced unwarranted shutdowns and massive monetary and fiscal stimulus. In Australia, the $70 billion Jobkeeper programme was widely rorted by employers, while those on welfare benefitted from multibillion dollar windfall increases.

In the face of mandatory shutdowns that closed large chunks of industries like hospitality, no amount of stimulus could keep affected businesses afloat. Consequently, much of the stimulus money was saved, and only spent when economies fully opened up again. The two jurisdictions that over-reacted the most to Covid were New Zealand and the state of Victoria. Australia is now said to be in a new Covid wave but these days governments and the public are largely unconcerned.

When shutdowns ended in Australia, huge tax revenue windfalls from subsequent booming income tax revenue and soaring commodity prices allowed spend-thrift governments to keep spending in an already overheated economy. While the Reserve Bank tightened monetary policy, the Commonwealth and State governments kept spending like drunken sailors, adding to pressure on interest rates and on the cost of public infrastructure projects. Even the Commonwealth Budget surplus for 2022-23 was unintended, and only came about through commodity prices vastly exceeding budget forecasts.

While the tendency to greatly over-react to Covid has well and truly ended, other factors reducing our living standards look likely to persist for some time.

Climate alarmism and the push for net zero emissions is still the norm across all levels of government here. The "Nervous Nellie" government position on climate change has facilitated the adoption of net-zero emissions targets on the part of Australia (and the rest of the world). The theory is that by switching from fossil fuel generated electricity to that generated by so-called "renewables", CO2 emissions will be largely avoided, and Australia will benefit from almost "free" energy from the sun and wind. With other developed countries doing the same, emissions were supposed to plunge.

Instead of reduced electricity costs, however, Australians now face much higher electricity and gas costs or have spent thousands on rooftop solar to keep costs down. In addition, governments have spent billions on subsidies for green energy and on expanded transmission infrastructure. Many of the new investments are not working as planned, in part because nuclear energy remains off the Australian agenda. Our energy grid increasingly is failing to cope with intermittent supplies, and efforts to store electricity have proved expensive and inadequate. The Commonwealth Bank says that Australia's transition to a net zero emissions economy will now require $2.5 to $3 trillion more investment to 2050.

Despite all the pain, in 2022 greenhouse gases in the atmosphere continued their historically high rates of growth, according to NOAA scientists. 2022 was the 11th consecutive year CO₂ increased by more than 2 ppm. Prior to 2013, three consecutive years of CO_{2 growth} of 2 ppm or more had never been recorded. Australia is responsible for only about one per cent of global emissions, so our actions make virtually no difference. A sobering statistic is that China is now building enough new coal-fired electricity capacity every six months to equal Australia's total coal-fired capacity.

It is clear that Net Zero is unaffordable and will never happen. Instead, the policies of "progressive" countries to reduce emissions are reducing living standards, and merely leading to the transfer of a lot of manufacturing and heavy industry to countries like China and India, who are rapidly increasing their emissions. This situation is slowly becoming recognised by the voting public both here and overseas.

Other aspects of extreme environmentalism also cause a lot of damage to our economy.

The $13 billion Murray-Darling Basin Plan and our lack of sensible water planning for our cities are obvious areas of economic stupidity. Instead of using inland water to grow food and support regional Australia, we are instead sending more and more water to the shallow estuarine lakes in SA, where it mostly evaporates. Similarly, instead of building adequate dams for our coastal cities, governments have wasted billions on energy-hungry desalination plants, that in most cases have been little used.

Excessive "green tape" (for which Australia is notorious) also causes huge economic losses. Development of new mines takes years in this country, as mining companies navigate government delays and the objections of environmentalists through approval processes and (increasingly common) court proceedings. In addition, native title rights have been increasingly used to demand economic rents from miners. Current efforts by some Indigenous groups to stop the $4.7 billion Barossa offshore gas development in the Timor Sea (300km from the coast) seem ludicrous, since those involved rarely venture far into the ocean.

There are also a large number of other factors, that are lowering Australian living standards:

• Australia's fiscal situation is guaranteed to deteriorate. Rising interest costs are increasingly burdening Commonwealth and State budgets, and high commodity prices won't last. Since low unemployment can't last forever either, a rise in welfare costs related to future downturns and an ageing population must also be planned for.
• Exploding public debt is an issue for the future. Particularly at state level, public servant numbers have also been growing rapidly. Bloated bureaucracies, huge taxpayer-funded wage bills, and cushy workplace conditions are setting the stage for a fiscal crisis in states like Victoria. Taxpayers watch out!
• Poorly directed defence spending has been a major contributor to waste. We all know of the French submarine debacle, and issues with major helicopter purchases. It is also widely appreciated that our frigate purchases are inordinately expensive. A desire to pork-barrel South Australia has again been a major contributor. Given frictions with China, defence spending will only need to increase in the future, and strategic considerations need to prevail over party politics.
• For decades many of our major industries (e.g. construction, stevedoring) have been inefficient, being held back by inefficient practices of both unions and big employers.
• Our education system has been performing poorly. Despite vast sums invested in schools, learning outcomes have been disappointing. Australia is also negatively affected by a toxic debate about funding of non-government schools, highly politicised teaching unions, deteriorating classroom behaviours, and low status for our teaching profession. Since the inception of international PISA tests about two decades ago, Australia's educational standing has been shown to be in continuing relative decline.
• Social spending in areas like health and disability is out of control, with no political will to make tough decisions.
• Our superannuation system is dysfunctional. Despite employers now paying a Superannuation Guarantee exceeding 10 per cent of wages, most retirees remain dependent on the Age Pension. Instead the superannuation system has become a tax dodge for the rich, while union control of industry superannuation funds has lined the pockets of union officials and the ALP, and facilitated union influence on corporate decision-making.
• There has been a big decline in individual responsibility in this country, especially in areas like responsibility for children and youth crime. The State rather than parents is now expected to provide for the care of children, while youth crime is allowed to run rampant and school curricula have developed an indoctrination purpose. Raising the age of criminal responsibility is the wrong direction for policy, when child crime is exploding, especially in Northern Australia.

The bottom line is that, if people vote for populist but expensive causes, they must expect consequences. In Australia's case the pain will go on for some time, and policies will only change when they hit the public sufficiently in the hip pocket.