Rising prices dominated politics for three years and will be top of mind at the ballot box. But how much blame should the federal government really wear?
In the dying months of 2021, John Scales began hearing more and more stories of people falling behind and not catching up.
Australia was still in the grip of the pandemic; international flights had just restarted, towns were still entering and exiting lockdowns, and the first two Omicron cases had just been detected in Sydney.
And for the first time, Scales’ polling company JWS Research found the main concern of voters was no longer the hospital system, but the rising cost of living.
“I had been hearing it and hearing it. This was the quantifiable evidence that it had taken over and it had started to bite. Just the level of pain, and anger and frustration … and making hard choices about what they do.
“People were already struggling. Then your kid gets sick, you’ve got to drive 400km [to a hospital], stay the night, take a day off work which you can’t afford — and it gets people behind and they’re stuffed.
“Then you start getting mums talking about not eating but not telling the kids. It’s awful.”
Scales was among the first to notice that more Australians were struggling to keep up with daily life.
It was still months before Russia’s invasion of Ukraine, the moment often pointed to as the catalyst for the global inflation crisis, in tandem with the pandemic.
The cost of living has now dominated politics for three years, and Scales says he has begun watching for when voters may move into the next phase of “grief”, from anger to disappointment, as people reflect on the things they used to do that they no longer can.
It will be on the top of people’s minds when they consider who to put first at the ballot box.
But how much blame should the current government really wear for the past three years — and how much can Australians fairly expect of government in the next term?
‘We are still in denial’
If you stumbled upon a manky old Woolworths catalogue from 2021 pushed into a street gutter, you would see quickly how much has changed in three years.
In November of that year, the supermarket giant was advertising its classic mud cake for $4.50 (now $6.60), loose cup mushrooms for $8 per kilo (now $12.50 per kilo) and beef scotch fillet steak for $38.30 per kilo (now $50 per kilo).
Economist Angela Jackson had been struck with a similar realisation when the latest round of inflation figures landed just before Christmas of 2021.
“I thought, ‘Woah, it is coming, and we are still in denial,'” Jackson said.
“I remember that moment very clearly and thinking, ‘Time to fix [our] interest rates,’ having that conversation with my husband, because it was pretty obvious what was about to happen.”
What happened next was a freight train of rising expenses that Australia was slow to jump away from.
Jackson says late in 2021 there was still a view that because Australia had re-opened to the world later, it might avoid what the rest of the global economy was experiencing, a view that in part prompted the Reserve Bank to delay its eventual decision to begin lifting the cash rate.
Living standards may take a decade to recover
It’s not just that the price of groceries, mortgages, rents, petrol, power, insurance premiums and everything else has gone up — it’s that wages have improved much more slowly.
Inflation since the end of 2022 has risen by a cumulative 14.9 per cent to the end of last year — while wages have risen just 11.3 per cent in the same time, meaning the average person’s wages are 3.6 per cent worse in real terms.
While that figure might sound smaller than the price pinch has felt, other figures illustrate the impact it has had.
A majority of households in about 120 of the nation’s 151 electorates are in deep financial stress — meaning they have less than 5 per cent of their cash left after covering essentials.
Disposable income has worsened more sharply for Australian households than any other nation in the OECD (though it fell from a higher base).
“To be honest, Australians are really feeling it. I think higher interest rates in particular for Australian households, given our high levels of household debt, have been really really tough,” Jackson says.
“It’s easy to dismiss it, and it’s often dismissed, but the actual drops in living standards during this period have been significant.”
In the words of Deloitte Access Economics, real wages are now “grinding higher”, but it won’t be until 2030 that Australian worker living standards return to a pre-pandemic level.
‘Are you better off?’
It sets up a potent question for voters that was used with great success in the United States by Donald Trump when he was on the campaign trail: are you better off now than you were before?
Peter Dutton, too, has tried it on for size.
The simple, indisputable answer is that no, the average person is not better off than they were in 2022 when Australia last voted.
The more complicated answer is whether that can really be blamed on the government and whether an alternative government would have fared any better.
Since inflation began running hot, the government has had to balance competing interests — every ounce of support risks prolonging the problem.
Across the government’s four budgets, only one was deemed slightly “expansionary” by the Reserve Bank — though Governor Michele Bullock in August last year did point to a “stronger outlook for public demand” thanks to recent spending by both the states and the Commonwealth.
The government could have offered other measures to drive down headline inflation, though the RBA still accounts for policies artificially suppressing inflation (as it did when the government offered power bill rebates, which on paper helped reduce inflation by about 0.25 per cent).
Jackson, who was recently appointed by the government to the Productivity Commission, suggests there are few winning answers for governments caught by inflation.
“The natural thing for governments to want to do is alleviate that pressure, take some of that pressure off, but anything governments try to do to take some of that pressure off is going to add to inflation further,” Jackson says.
“It is very much, in economic terms, a wicked problem.”
The search for villains
So could the band-aid have been ripped off instead? Jackson says even the RBA has conceded it should have acted sooner on rising inflation but suggests there wasn’t much room to go harder.
“Growth is barely positive in Australia at the moment, it just tipped 1 per cent in December last year. If growth is going that slowly, if the Reserve Bank had gone much harder in terms of monetary policy, or the federal government had gone much harder in terms of fiscal policy then we probably would have been in recession.
“Broadly speaking the settings were right, even if there are specific policies I might have designed a bit differently.”
Through the crisis people have searched for villains to pin the crisis on — energy companies, airlines, supermarkets, landlords, RBA governor Philip Lowe — and since July 2021, the public’s view of how the government has handled it all has steadily declined according to JWS Research, from an effective 42 per cent rating it positively to 24 per cent by February this year.
Successive polls by multiple pollsters over the government’s term suggests it was wearing some of the blame for inflation and the cost of living, with Labor’s popularity eroding over the term until recently.
The good news for the government is that while cost of living remains the single highest priority issue for voters, its importance is abating and so if voters are still seeking to blame government, that sentiment appears less red hot than it was earlier in the term — and a recent turnaround in the polls would support that theory.
And the fundamental question on May 3 will not be whether the government was to blame for the past three years, but rather who will best handle the next three years.
Deep cynicism that life will not get better
The government has celebrated that Australia has, in its view, turned a corner with interest rates beginning to fall and inflation almost back within its normal range.
But after years of pain, voters appear hesitant to accept that message.
Scales, who has spent a lifetime probing minds to learn what voters really think, says the raw economic numbers don’t match neatly with what people are feeling.
“The perception hasn’t caught up with that story. Because prices are still high,” he says.
“It’s not getting better. I hear no evidence in research of people saying actually we have turned a corner, it’s getting better, and I am very ears out for anything that says things are changing.
“There’s a deep level of cynicism about that story, that messaging because it doesn’t match lived experience. People go, that’s not my life, my life is tough, my life is hard.”
Scales says market research suggests the last “nail in the coffin” for believing the government could improve living standards was the failure to achieve a $275 reduction in power bills as promised by Albanese.
“He made so much of it, and the opposition has made so much of it in return now, I don’t think either side can reasonably say ‘we are going to make it better’ and be believed. The default cynicism across the board is so high.”
After COVID, there is also a question of whether expectations have changed.
The pandemic proved that governments, if they wanted to, could intervene intimately into people’s lives, including who they could visit, where they could go, supplementing pay packets and forcing people to leave their jobs if they refused vaccinations.
It also saw unprecedented spending in support that flowed out to everyone: rich, poor, big business and small, those who desperately needed it and those who did not (at an enormous cost to the budget).
“The pandemic was different, because there has always been these two halves [in Australian society] and depending on which half you’re on, you’re either getting it or you’re giving it — but this meant everyone was getting it. It was a very fundamental change in what we get from [government],” Scales says.
When the next crisis roared around, some expectations for another intervention went unmet.
Deloitte describes how it all may wash out at the election as a Rorschach test — people will see what they want to see.
And while people might not feel that Australia has turned a corner, and a dark economic cloud from the United States hangs over the nation, Jackson says there are reasons to believe Australia is through the worst of it.
“This current crisis in terms of inflation, we’re pretty much there right, and inflation will continue to come down,” she says.
“Things will start to look up and people will start to feel the benefits of that as their living standards do start to increase again.”
Credits
Words: Jake Evans
Illustrations: Emma Machan
