How to assess a cost-of-living claim

The short answer

assess a cost-of-living claim

Specify the household, basket, timeframe and policy channel. A national average can conceal different effects by income, housing tenure, location and consumption pattern.

This is a method for assessing public claims, not a verdict on a party or a direction on how to vote. Conclusions should change when the underlying law, data or implementation evidence changes.

The useful question is not only “what is the rule?” but also “who administers it, which document controls it, and when might it change?” That distinction prevents an accurate general explanation from becoming wrong advice in a particular election, chamber or policy setting.

Evidence review

Why cost-of-living claims need precise specification

Few phrases in Australian political debate are used more frequently and more loosely than cost of living. A politician may claim that their policy will reduce the cost of living for Australian families, while their opponent claims that the same policy will increase it. Both statements can be partially true depending on how cost of living is defined, which households are considered, which expenses are counted, and over what time period. Without precise specification, a cost-of-living claim is not falsifiable and therefore not informative. OzPolitics requires four specifications before assessing any cost-of-living claim: the household or households affected, the basket of goods and services being measured, the timeframe of the analysis, and the policy channel through which the claimed effect operates.

The Australian Bureau of Statistics provides the authoritative framework for measuring price changes through the Consumer Price Index, published at abs.gov.au. The CPI tracks changes in the price of a fixed basket of goods and services representing the expenditure of Australian metropolitan households. But the headline CPI number is an aggregate that necessarily conceals variation across household types, income levels, locations, and consumption patterns. A cost-of-living claim that rests on the headline CPI alone is insufficiently specified for meaningful policy assessment. The ABS also publishes selected Living Cost Indexes, which measure the impact of price changes on the out-of-pocket expenses of different household types, including employees, age pensioners, and self-funded retirees. These indexes are a more appropriate tool for assessing distributional effects.

Evidence review

Specifying the household: who is affected?

The first specification required is which households are being considered. A policy that reduces energy bills benefits all households that consume electricity, but the benefit as a share of income is larger for low-income households because energy represents a higher proportion of their total expenditure. A policy that reduces the cost of private health insurance benefits only those households that hold private health insurance, who are disproportionately higher-income. A policy that reduces public transport fares benefits households in cities with public transport systems and does nothing for households in regional areas that rely on private vehicles.

We examine cost-of-living claims against the ABS Household Expenditure Survey and the Selected Living Cost Indexes to determine which household types experience which price pressures. The ABS publishes expenditure data by income quintile, by household composition, by housing tenure, and by geographic region. A claim that is true for the average Australian household may be false for a single-parent household in outer-suburban rental accommodation or for a retiree couple who own their home outright. We require proponents of cost-of-living claims to specify which households they are describing, and when they do not, we note that the claim is too general to evaluate.

Evidence review

Specifying the basket: what is being measured?

The second specification is the basket of goods and services included in the cost-of-living measure. The CPI basket, weighted to reflect the spending of an average metropolitan household, includes food, housing, transport, health, education, recreation, and other categories. But a given household may spend differently. A household with a mortgage spends more on housing and is sensitive to interest rate changes; the CPI includes mortgage interest charges indirectly through the construction of new dwelling purchase costs but does not directly track mortgage repayments. A household with young children spends more on childcare and education. A household in a remote area spends more on transport and groceries.

Different policy interventions affect different parts of the basket. A change to the fuel excise affects transport costs. A change to the Medicare levy affects health costs. A change to rent assistance affects housing costs for a specific subset of the population. When assessing a cost-of-living claim, we identify which expenditure categories are affected by the policy and check whether the claim's measure of the cost of living aligns with those categories. A policy that reduces the cost of prescription medicines cannot be accurately assessed using the headline CPI, in which health represents only about six percent of the basket. The effect on households that spend a large share of their income on medicines is much larger than the CPI impact would suggest.

Evidence review

Specifying the timeframe: over what period?

The third specification is the timeframe over which the cost-of-living effect is measured. A one-off payment, such as an energy bill rebate or a bonus payment to welfare recipients, reduces measured living costs in the quarter in which it is paid. But it does not affect costs in subsequent quarters. A legislated tax cut produces an ongoing increase in disposable income, but its real value erodes over time if wages do not keep pace with inflation. A policy that caps price increases for a regulated service may suppress measured cost growth in the short term but lead to higher costs later if the price cap reduces investment in supply.

The ABS CPI provides quarterly and annual data, and the budget papers published at budget.gov.au include forward estimates of the fiscal impact of cost-of-living measures over four years. We use these sources to assess whether a cost-of-living claim holds for the period claimed. A government that announces a cost-of-living package in the May budget and claims it will reduce pressure on households must specify whether the effect is measured in the budget year, over the forward estimates, or over a longer horizon. We check whether temporary measures are being presented as permanent relief, and whether measures that are back-loaded in later years are being attributed to the current period.

Evidence review

Specifying the policy channel: how is the effect transmitted?

The fourth specification is the channel through which the policy is claimed to affect the cost of living. Government can influence household living costs through multiple channels: direct transfers such as tax cuts or welfare payments; indirect subsidies that reduce the price of specific goods or services; regulatory changes that affect market prices; public provision of services that substitute for private expenditure; and macroeconomic policy settings that affect inflation, interest rates, and the exchange rate. Each channel operates differently, affects different households, and involves different lags.

We distinguish between policies that change the prices households pay and policies that change the incomes households receive. A reduction in the price of electricity reduces the cost of living as conventionally measured. An increase in the rate of JobSeeker increases disposable income but does not change the CPI. Both improve a household's material circumstances, but they are different economic mechanisms and should not be conflated. When a political claim asserts that a policy improves the cost of living, we check whether the claimed mechanism matches the specified measure. If the policy changes income rather than prices, the appropriate measure is not the CPI but real household disposable income, which the ABS publishes in the Australian National Accounts.

Evidence review

Using ABS and budget data to test cost-of-living claims

To test a cost-of-living claim, we begin with the ABS Consumer Price Index at abs.gov.au to establish the baseline price changes for the relevant expenditure categories. We consult the Selected Living Cost Indexes to see how the effect varies across household types. We cross-reference with the budget papers at budget.gov.au to identify the fiscal measures that are claimed to affect living costs and the Treasury's own estimates of their impact. For legislative measures, we check the relevant Acts on legislation.gov.au to verify the legal mechanism, including commencement dates and eligibility criteria.

We assemble these data points into a structured assessment that states clearly: the households considered, the expenditure categories affected, the time period of the analysis, and the policy channel. We then check whether the claimed cost-of-living effect is consistent with the data. A claim that energy bill relief will reduce living costs for all households by a given percentage, for example, can be tested by checking the relevant budget measure, dividing the aggregate cost by the number of eligible households, expressing it as a share of average energy expenditure for different household types, and comparing with the ABS energy price index. This analytical structure is reproducible and transparent, allowing readers to verify our reasoning.

Common questions

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