The cost-of-living crisis in Australia is a complex issue, and a recent analysis by the McKell Institute has shed light on a hidden driver: the privatisation of essential services. This is a critical insight, as it challenges the prevailing narratives around the Reserve Bank of Australia's (RBA) rate hikes and the focus on wages as the primary cause of inflation. Personally, I think this analysis is a wake-up call for policymakers and the public alike, as it highlights the unintended consequences of privatising public services and the need for a more nuanced approach to tackling inflation.
The Hidden Cost of Privatisation
The McKell Institute's research, which analyzed two decades of Consumer Price Index (CPI) data, reveals a stark picture of rising costs for everyday essentials. While the average CPI inflation rate was 2.9% per year, the fastest-rising costs were in privatised services, including gas (5.9% annualised inflation), electricity (5.7%), medical and hospital services (5.5%), secondary education (5.2%), water and sewage (4.6%), and housing, preschool, and primary school care (3.9%).
What makes this particularly fascinating is that these essential services were once delivered publicly, free or at a low cost. The transfer of these services to private companies has led to a 20-year transfer of income from workers to these companies, as noted by McKell Institute economist Alison Pennington. This raises a deeper question: What happened to price stability when we handed essential services to for-profit providers?
The Impact on Working Households
The consequences of this privatisation are felt most acutely by working households. As NSW Teachers Federation president Henry Rajendra pointed out, teachers see the impact of rising costs of essentials every day. Families in school communities are being squeezed by the rising cost of utilities, health, education, and housing. This is not just a financial burden but also a social and economic one, as it affects the overall well-being and stability of these households.
The Role of Government
The analysis also highlights the critical role of government in addressing this crisis. Rebuilding public provision and strengthening the role of government in regulating prices is essential to tackling inflation and boosting living standards. In my opinion, this means rethinking the privatisation of essential services and finding ways to make them more affordable and accessible to the average person.
The Way Forward
The RBA's focus on sticky domestic inflation and the debate around wages is not the whole picture. As Pennington argues, the answer lies in the data: rising out-of-pocket costs driving economy-wide inflation. The solution, therefore, is not just in rate hikes but in addressing the root causes of inflation, including the privatisation of essential services. This requires a more holistic approach that considers the broader implications of privatisation and the impact on working households.
Conclusion
In conclusion, the cost-of-living crisis in Australia is not just a financial issue but a social and political one. The privatisation of essential services has led to a hidden cost that is being borne by working households. As an expert, I believe that addressing this crisis requires a rethinking of our approach to essential services and a stronger role for government in regulating prices. Only then can we truly tackle inflation and boost living standards for everyday people.
