Peter Dutton incessantly declaims about the cost of living crisis, blaming the government. But what would he do instead?
First, we need to remember that the Albanese Government inherited the cost of living crisis. Indeed, like Dutton does now, Labor similarly complained about the cost of living crisis when they were in Opposition. The difference was that Labor had some policies to ameliorate the cost of living (see more below).
The really important point, however, is that the surge in inflation that we have experienced since 2020 was largely caused by factors beyond Australia’s control. The Covid pandemic led to breakdowns in the international supply chains and the price of energy soared in response to the restrictions on Russian energy supplies following the outbreak of war in Ukraine. Excess demand in Australia played at most a minor role in the inflationary upsurge.
Furthermore, at no point since inflation took off in early 2020 has wage growth exceeded price growth. Indeed, over the whole period from the June quarter of 2020 until the latest data in March 2023, consumer prices increased by 16% while wages only increased by 7¼%. In other words, prices have increased twice as fast as wages, which again does not suggest that the pressure of demand in Australia was the cause of the surge in inflation.
For its part, the Albanese Government has taken some modest measures to try to ease the cost of living pressures. Notwithstanding budgetary pressures, the subsidies for child care and medicines have been increased. Also the wholesale price of gas sold on the domestic market has been capped. Perhaps most importantly, since Labor was elected inflation has peaked and the gap between price and wage increases has narrowed a little, while there is still no sign of a wage-price spiral.
So what would Dutton do instead?
While Dutton grabs headlines seeking to highlight the cost of living crisis and regularly decries Labor’s ‘economic plan’, there is very little of substance to tell us what alternative policies he would offer.
The one possible exception has been Dutton’s focus on energy prices, as if they were the main source of cost of living pressures. According to Dutton, “People’s after tax dollars are dwindling quickly because of the influence of energy policy and because of decisions that they made which have forced up, not driven down the price of energy.”
Frankly that comment is ridiculous. Dutton seeks to justify it by pointing to the large-scale investment that will be needed to achieve the Government’s renewable energy targets. However, apart from its environmental benefits, that investment is economically driven. It would not occur if coal mines were not voluntarily closing because they recognise that they are uncompetitive now that the price of renewable energy has fallen so much, and that this can be expected to continue.
The only specific policy that Dutton has floated is to go nuclear. According to Dutton, “if the Government wants to stop coal-fired power and phase out gas-fired power, the only feasible and proven technology which can firm up renewables and help us achieve the goals of clean, cost-effective and consistent power is next generation nuclear technologies which are safe and emit zero emissions.”
But as the responsible Minister, Chris Bowen, has pointed out in response:
- According to the CSIRO and AEMO small nuclear reactors (as proposed by Dutton) are tracking to be up to five times more expensive than firmed wind and solar in 2030.
- Even the World Nuclear Industry status report tells us that nuclear costs rose 36% between 2009 and 2021 while solar costs fell 90% and wind by 72%.
- Nuclear is slow to build, and as it cannot be easily turned on or off, it is effectively useless for peaking and firming.
In sum, it is safe to assume that Dutton has proposed no real alternative to the energy policies that Morrison took to the last election. In that case, while the cost of power has increased since then, thanks to Labor’s intervention in the gas market power prices have not risen as much as they would have under an alternative Government led by Morrison or Dutton.
Other than nuclear energy, Dutton’s only other hint about what he might do to bring inflation down and fix the cost of living is that he sometimes implies that the Coalition would have managed fiscal policy better.
For example, Dutton said recently “I worry that Labor with two budgets have made it harder for Australians, not easier, and with Labor’s economic decisions that they’ve made, they’re choking our economy and they’re driving up inflation.”
But the Coalition has provided not a skerrick of detail of what their alternative Budget would look like. In particular, would a Coalition Budget have had a smaller deficit, which is what matters most in reigning in demand and thus inflation.
The Coalition, as always, would no doubt like us to trust them to be more economically responsible, although their track record does not support that conclusion. But if we stick with the facts, this Labor Government has managed to finance the introduction of its election polices and the (unexpected) increase in tax revenue has mainly been used to return the Budget to surplus.
On the other hand, the Coalition’s record is that it puts lower taxes ahead of balancing the Budget. Certainly, the Coalition has maintained its commitment to a revenue cap equivalent to 23.9% of GDP. But in that case, if a future Coalition Government does tighten fiscal policy to bring down inflation we can expect it will come at the cost of inadequate public services, which deteriorated a lot under the Morrison Government.
Furthermore, the failure to provide essential services, such as education, health and transport, is a sure way to reduce economic growth and living standards over time.
It is time therefore that Labor presses Dutton about how he would bring down inflation so that prices increased more slowly than wages as this is the best way to reduce the cost of living and restore living standards. Certainly, energy prices are not an important part of the answer, and Dutton’s proposals for nuclear energy won’t work anyway.
But the real fear is that the Coalition has learnt nothing from its past mistakes, and that it would represent a return to the failures of the Abbott and Morrison Governments’ budgets.