By Stephen Johnson, economics correspondent for Daily Mail Australia
00:14 November 13, 2023, updated 01:49 November 13, 2023
- “It won’t be easy under Albanian rule,” was the coalition’s electoral taunt.
- Inflation is very high due to national and international factors
- Prices of food and basic commodities are high
- Domestic factors include higher levels of migration post-Covid
- The Reserve Bank has raised interest rates 13 times in 18 months
- Read more: How Jim Chalmers can tackle high inflation now
Anthony Albanese appears to be living up to a Liberal Party election campaign taunt – “It won’t be easy under an Albanese” – as economic data shows Australians are worse off.
Since the election of the Albanese government in May 2022, Australians have experienced high inflation rates – with the cost of essential goods such as gas, electricity and groceries rising. This causes wages to fall in real terms.
Inflation is rising sharply as the national population grows at the fastest pace since the early 1950s due to rising immigration rates. More than 400,000 people moved to Australia in the year ending in August.
Meanwhile, Australians are suffering from a housing shortage and experiencing some of the highest levels of mortgage and debt stress in the world. The Reserve Bank last week raised interest rates for the 13th time in 18 months, sending the cost of mortgages higher.
So why was there so much pain for working-class Australians while Mr Albanese was Prime Minister – and why?
Inflation rate rises and scores
By the time Albanese won last year’s election, Inflation has been rising due to several factors, including the Morrison government’s large stimulus spending, the ongoing war in Ukraine, Covid-related supply chain constraints, and historically low interest rates of 0.1 per cent.
To combat rising inflation, the Reserve Bank raised interest rates 13 times in 18 months.
R.B.A.GGovernor Michael Bullock on Tuesday raised interest rates by a quarter of a percentage point, bringing the cash rate to a 12-year high of 4.35 percent and adding $131 a month to an $800,000 mortgage.
She hinted that there will be more interest rate increases in the future, which will put more pressure on already distressed families.
“Inflation in Australia has passed its peak but remains very high and is proving to be more stable than expected a few months ago,” she said.
“Whether further monetary policy tightening is needed to ensure inflation returns to target within a reasonable time frame will depend on data and evolving risk assessment.”
Warwick MacKibbin, a former Reserve Bank of Australia board member, said that while Labor ran a $22.1 billion surplus in 2022-23, its policies were stoking inflation because they were not designed to reduce demand in the economy.
Mr McKibben said the federal government had a budget that was “neutral” towards inflation, but he said it was only neutral “in the context of not adding demand to the economy”.
“What we have is excess demand, so either consumers spend less or the government spends less,” he told Daily Mail Australia.
“Something has to be adjusted when you have excess demand.” Right now, we have so much demand in the economy that we have to get rid of it.
Immigration rates rise: ‘fastest since 1950s’
More than 400,000 migrants moved to Australia during the year ending in August, following an influx of skilled migrants and international students.
If this level is maintained, migration will far exceed the level of 315,000 that the Treasury forecast for 2023-24 in the May Budget.
AMP’s chief economist, Shane Oliver, said Australia’s net out-migration level was set to pass the 500,000 mark in 2023. He called for it to be halved to the pre-mining boom level of 200,000 in the mid-2000s.
“It appears to be the fastest population growth since the early 1950s,” he told Daily Mail Australia.
“Net migration is currently around 500,000 – ideally you would bring it back to around 200,000.”
The Treasury expects 260,000 net arrivals from abroad in 2024-2025.
High immigration rates also increase inflationary pressures and lead to higher interest rates.
“High immigration is one of the problems at the moment, as it keeps aggregate demand high – stronger than it would otherwise be – and thus keeps inflation high,” Dr Oliver said.
“When more people come into the country, that pushes demand up, and of course, the Reserve Bank responds to that – so not only does that drive up prices, it also drives up interest rates.”
The cure would be to slow population growth, taking pressure off demand. It takes some of the pressure off the housing sector, and therefore makes life a little easier for the Reserve Bank.
Dr Oliver said immigration was under the control of the federal government, noting that Treasury had underestimated the increase in migration that would follow Australia’s reopening in December 2021.
“Ultimately, it is the government’s responsibility to provide higher standards of living – on a per capita basis, that should be the focus,” he said.
“You can’t necessarily raise living standards by putting more and more people in Australia.”
Dr Chalmers said immigration levels were not something the government controlled or set targets for – something Dr Oliver disputed.
“You might think that immigration levels are something the government controls,” he said.
Housing crisis
The housing crisis is hurting more borrowers and renters, as the pace of migration outpaces construction activity.
The median house price in Sydney has risen 12.1 per cent since January, reaching $1.397 million in October, an unsustainable amount.
After Hong Kong, Sydney is already the most unaffordable housing market in the world when median household income is compared to the median house price.
An individual borrower or couple would need to earn more than $186,000 between them to avoid being hit with severe mortgage pressure, with someone owing more than six times what they earn to the bank.
Australia’s level of household debt to income, at 197.6 percent, is the highest in the world after Switzerland.
But economist Saul Eslick, director of economic consultancy Corina, said Swiss borrowers could claim mortgage interest on tax – unlike Australians unless they were landlords.
“That’s why the Swiss don’t pay off their mortgages because it doesn’t make sense to do so,” he told Daily Mail Australia.
Eslick said Australia’s strong population growth due to high immigration rates was hurting potential renters and homebuyers.
“It contributes to the inflation of rental and home purchase costs,” he said.
New PropTrack data for October showed that the national rental vacancy rate reached a record low of just 1 percent.
REA Group, which also owns Flatmates.com.au, has revealed suburbs with no rooms available. Clovelly in eastern Sydney has 516 people looking for a flatmate while in eastern Perth there are 350 people looking for a house share.
Claudia Connelly, community manager at Flatmates.com.au, said the housing shortage was clear.
“There continues to be a need for more property listings across the country to keep up with the growing demand for cohousing,” she said.
Separate data from SQM Research showed capital city rents rose 16 per cent over the past year.
This has brought the weekly house rent in Sydney’s midpoint to $996. The average house rent in Melbourne rose 20.7 per cent to $702.
During the last financial year, just 168,231 private homes were built, with rising construction costs causing builders to collapse.
With an average of 2.5 people per household in Australia, the theoretical number of 420,578 people to be housed was well below the annual population increase of 563,200 in March, which covers net overseas migration and births minus deaths.
Australians are getting poorer
Since Prime Minister Anthony Albanese took power, each household’s after-tax income has fallen by 5.1% – making it the worst decline among developed countries.
Real wages are also falling because wage increases of 3.6 percent lag behind the inflation rate of 5.4 percent – meaning real wage cuts of 1.8 percent.
But unemployment remained low at 3.6 percent in September, rivaling levels not seen since 1974.
“It seems like everything that could go wrong has gone wrong except strong growth in employment,” Dr Oliver said.
“We have seen strong employment growth, and wages have not kept up with inflation, so real wages have fallen.”
Labor’s time in power also coincided with Australia plunging into a per capita recession as output per Australian fell for the first time since the 2020 Covid lockdowns.
The economy contracted by 0.3 percent in the June quarter, on a per capita basis, followed by a 0.3 percent decline in the March quarter.
High gas, petrol and electricity bills
Labor in opposition last year promised to cut energy bills by $275 by 2025, only for electricity prices to rise by 18 per cent in the year to September.
Treasurer Jim Chalmers responded in the May budget with rebates of up to $500 from the Energy Bill Relief Fund.
However, it is important to note that the discount only applies to certain groups, including retirees, veterans, seniors, family tax benefit recipients and other concession card holders.
Gasoline prices have also risen by more than seven percent in the past three months, as volatility in oil markets and a weak Australian dollar threaten to keep prices low.
Motorists usually pay more than $2 per litre.
Gas prices rose 12.7 percent, despite the federal government’s December 2022 intervention in the gas market and setting wholesale prices at $12 per gigajoule for a year.
Mr Albanese has been contacted for comment.