One in four Australians is struggling to make ends meet on their current income with average household earnings falling behind pre-pandemic levels in real terms.
Those are the findings of an Australian National University survey of almost 3,500 adults that confirms inflation is harming Australians’ economic wellbeing, with many registering a real pay cut despite working more hours.
The Centre for Social Research and Methods study found that average household income fell from almost $1,800 in February 2020 to $1,629 in October 2022, adjusted for inflation.
The study confirming the strain on household incomes comes as the Reserve Bank raised interest rates for the seventh consecutive month and warned it is prepared to go higher to combat inflation, projected to reach 8% this year and 4.75% next year – well outside the banks 2-3% target band.
The Albanese government’s first budget in October contained funding for election promises including to cut the price of medicines and improving childcare subsidies, but no new cost of living relief measures.
Anthony Albanese and treasurer Jim Chalmers explained on Wednesday Labor had opted against cash handouts for fear of fuelling inflation and pushing rates higher.
The ANU research found “evidence that real income has started to decline since April 2022 as inflation has increased”, with a 3.1% decline since that month.
The incomes of the highest quintile of households dropped by $229 or 6.1% on average, but the bottom quintile was hardest hit with a 7.8% decrease, or $37 in February 2020 dollar equivalents.
Asked how they felt about their household’s current income, one quarter (25.1%) of respondents said it was “difficult” or “very difficult” to get by on – up from 17.3% November 2020 when incomes were boosted by the doubling of jobseeker and jobkeeper wage subsidies mid-pandemic.
The study found a “large increase” in the proportion of Australians who think prices have gone up “a lot more”, from 21.6% in January to 48.4% in October. More than half of Australians, 56.9%, said rising prices were a problem in October 2022, up from 37.4% in January.
The study’s co-author, Prof Nicholas Biddle, said it contained some “encouraging news” as “for the first time since the virus hit our shores Australians are working more hours on average than before the pandemic”.
“When Covid hit Australia the number of hours each adult worked on average plummeted from 21.9 hours per week in February 2020 to 18.5 hours per week in May that year,” he said.
“Average hours worked per week now sit at 22.6 hours per week.”
But a co-author of the study, Prof Matthew Gray, said: “Despite Australians working more on average, they have told us that what they earn now buys them less in the face of rising inflation and living costs. This is putting them under increasing financial stress.”
The ANU poll found a “significant and substantial increase” in Australians reporting the country was headed in the right direction in May 2022, followed by a “small but statistically significant decline” to October 2022.
Nevertheless, 70.7% of Australians remained satisfied with the direction of the country, appearing to confirm a honeymoon period for the Albanese government.
On Wednesday Albanese told FiveAA Radio that central banks were hiking interests around the world to fight the “common challenge of inflation”.
Albanese warned that if governments “work against that” with policies such as “cash handouts … then what that will do is just encourage central banks to push up interest rates even further”.
“So, it ends up being counterproductive,” he said.
Albanese acknowledged inflation of 8% was “tough” for households, but said Australia was doing “a lot better” than double digit rates in Europe and North America.
Chalmers told the economic and social outlook conference the budget was “influenced primarily by inflation”.
Chalmers said inflation limited aspiration, eroded the purchasing power of take-home pay, and reduced the value of savings.
“It also corrodes the real return on investment. It threatens the growth prospects of countries like ours. And eats away at the foundations of opportunity.”
Chalmers explained the government had banked “92% of improved tax receipts to the budget over the forward estimates including 99% over the next two years when inflation is most problematic” because treasury had estimated “inflation would have increased by up to an additional 0.5% over the next year” if it had spent the windfall instead.
On Wednesday, the shadow treasurer, Angus Taylor, said inflation was “eating away at national gains” while the budget “fails to treat the inflation problem at its source”.
