Opinion
It’s been a rocky start to 2026 on the economic front. US President Donald Trump’s non-stop disruptions have cast a shadow over the global economy. Last month the International Monetary Fund warned economic risks are “tilted to the downside”.
Now price pressures have forced the Reserve Bank to lift interest rates. Tuesday’s 0.25 percentage point increase reversed a cut made only six months ago. In a statement explaining the decision, the Reserve said a “wide range of data over recent months have confirmed that inflationary pressures picked up materially” in the second half of last year.
But there is some good news: the vast majority of households are not experiencing a cost-of-living “crisis” – even with the prospect of higher interest rates.
Yes, many household budgets are under great strain. Surveys show single-parent families are especially prone to financial stress along with those on very low incomes.
But cost-of-living pressures vary greatly between different household types.
Australian National University economist Ben Phillips, who is an expert on income distribution, says rates of “day-to-day financial stress” have not varied much overall for several decades.
“If anything, they may be a bit better at the moment than for much of that period,” he said.
The Household, Income and Labour Dynamics in Australia (HILDA) report, one of Australia’s most comprehensive social surveys, provides an excellent measure of cost-of-living pressures going back almost 25 years. It has tracked seven indicators of financial stress ranging from going without meals to not being able to pay utility bills during that period.
The share of people experiencing at least one of those seven stress indicators climbed from around 30 per cent in 2022 to 34 per cent in 2024. But that was still well below previous peaks in 2001 and 2011.
In 2024, about 12 per cent reported they “could not pay electricity, gas or telephone bills on time” but that was a lower share than every year between 2001 and 2018.
Phillips also points out recent measures of household spending have been fairly strong.
“You wouldn’t think the volume of spending would have gone up if we were having a full-blown cost-of-living crisis,” he said.
Despite the ups and downs of interest rates since the COVID crisis, mortgage stress in Australia has remained very low. A review of financial stability published late last year by the Reserve Bank said the share of borrowers at greatest risk of falling behind on their loan – those with both a cashflow shortfall and low prepayment buffers – stood at just 0.7 per cent of mortgage holders, the lowest in about two years.
According to the HILDA survey, financial stress among home borrowers is lower than that of the overall adult population.
Cost of living zoomed to the top of the nation’s worry list after Russia’s invasion of Ukraine in February 2022 sent the price of petrol and other basics spiralling. Inflation spiked to a 30-year high of around 8 per cent later that year.
The Resolve Political Monitor, published by this masthead, regularly asks voters what the government’s top policy priority should be. In January 2022, just before war erupted in Ukraine, only 16 per cent ranked “keeping cost of living low” at No.1. But by mid-2023, that had surged above 50 per cent.
Financial conditions have since changed – inflation fell to 1.9 per cent last July before climbing back during the second half of last year. Wages growth was higher than inflation over the two years to September. And yet, opinion polls show cost-of-living pressure remains our biggest worry, by far.
That’s despite strong growth in wealth – research published last month by KMPG shows the net worth of the average Australian household has risen more than 50 per cent during the past five years.
“This narrative has emerged that everyone’s finding it tough financially at the moment, but there’s actually very good data showing that’s just not the case,” says Phillips. “It’s a narrative rather than hard data.”
Politicians happily pander to this widespread, deeply held unease about living costs. They’re forever telling voters how much they empathise with those “doing it tough”. But there are problems with our lingering preoccupation with the cost of living.
First, it has encouraged poor government policies. Politicians, state and federal, have been under persistent pressure to deliver cost-of-living relief. But too often it flows to the wrong people.
In the last federal budget, for instance, Treasurer Jim Chalmers chose to give $150 in electricity bill relief to every household (plus 1 million small businesses). This policy cost the government $1.8 billion – money that would have been far better spent targeting low-income households experiencing the most acute financial stress.
The fixation with cost of living is also crowding out other economic problems. The way it has come to dominate political and economic discourse in Australia during the past four years has left less political space for debate about crucial challenges such as the need to boost productivity, the threat posed by wealth inequality and policies to address climate change, especially the clean energy transition.
A 2024 survey by Ipsos found only 8 per cent of voters felt they understood “very well” what was being done to meet Australia’s net zero commitments – a woefully low share considering the scale, cost and importance of that undertaking.
Most thought the transition to net zero was not yet under way, even though nearly 40 per cent of Australia’s electricity generation came from renewable sources that year. Only 60 per cent were confident they understood the causes and impacts of climate change.
Cost of living will always be an issue for voters; it’s time we focus more on other big economic challenges as well.
Matt Wade is a senior economics writer at The Sydney Morning Herald.
Matt Wade is a senior economics writer at The Sydney Morning Herald.Connect via X or email.
