What’s the biggest lie in an election chock full of big lies? It could be the Coalition’s many claims about being a better economic manager. It could be Tony Abbott’s commitment to reducing greenhouse gases. Conservatives can rightly point to Labor’s completely unsubstantiated claims that the Coalition will raise the GST once in office.

But for my mind, the really big lie in 2013 is that hoary cliché, “cost of living pressures.” And by acquiescing to it, the Government has done plenty of damage to its own cause.

The idea that ordinary Australians are gripped by inexorably rising prices is an attractive one. Focus groups, we are told, constantly speak of it. Talkback radio is full of it. Both major parties have expended plenty of effort telling voters that they feel our pain. The Coalition has even built a special cost of living widget on its Facebook page, which can reliably spit out methodologically biased figures to scare ordinary voters.

There’s just one problem with the cost of living controversy: it’s not true.

On any sensible analysis, inflation in Australia is low. Ordinary households are not seeing prices for essential goods and services shoot out of reach. Yes, it’s true that some prices have risen quickly in recent years. But others have fallen. Overall, as the Australian Bureau of Statistics data confirms, consumer inflation is below 2 per cent.

If prices are steady, what about wages? As first-year economics teaches, what counts for consumers is their wages compared with prices. In a time of high unemployment or falling wages, even small price increases for food and shelter can mean real hardship.

But we’re not seeing falling wages or high unemployment. Since the global financial crisis, wages have risen steadily, while unemployment has held below 6 per cent. The ABS’ wage price index saw growth of 3 per cent between June 2012 and June 2013. We're not quite living in the boom atmospherics of the later Howard years. But we're not Spain, Greece or Ireland either.

None of this is to say the economy is in rude health. The Treasury and the Reserve Bank both expect unemployment to trend upwards in coming months, and the falling Australian dollar will make some imported goods more expensive. Despite this, economic conditions in 2013 are benign. Australia’s fundamentals are as sound as any rich country, and there is every chance that the economy will rebalance from mining and towards housing and exports, driving the next phase of growth. Even the budget is not in nearly the dire state often described. The real driver of Australia’s deficit is low taxes. The federal budget would be in healthy surplus if it weren’t for all the income tax cuts handed out by John Howard and Kevin Rudd.

Recent work by Ben Phillips at the respected National Centre for Social and Economic Modelling (NATSEM) bears this out. Phillips examined real wages and standards of living data in Australia back to 1988. His findings showed good news. Real wages have risen. Standards of living have improved. And those dreaded costs of living? They’re growing much more slowly than household incomes. The five-year cost of living increase or the major capital cities is below 2 per cent. As a result, ordinary households are around $5300 better off since 2008.

It’s hard to square economic data like this with the dominant narrative of ever-increasing costs. So why does the cost of living debate hold us in such a grip? The answer, as ever, lies in politics.

There’s plenty of political advantage to be gained from incessantly banging the cost of living drum. But unlike other types of political debate, no pressure group speaks for low inflation. Attacking the mining industry with new taxes guarantees sophisticated response from lobbyists and paid pro-mining advertising. Attacking prices themselves? Well, it’s in no-one’s interest to insist on some accuracy in inflation data.

That includes much of the media, which has neither the expertise nor the inclination to burst the cost of living bubble. We’re all aware of the shamelessly biased campaign run by the Murdoch tabloids during this election. But, despite a number of sound fact-checks of the cost of living furphy from Politifiact, the ABC and others, those analyses have not filtered out to the general community.

Perhaps they never will – many academic researchers think the cost of living debate is really a proxy for “affluenza”, a set of broader anxieties about the “hedonistic treadmill” of capitalism itself. Or maybe it’s just that our politicians are far too timid to tell voters, in the immortal words of post-war British prime minister Harold Macmillan, that “most of our people have never had it so good.”



Whatever the cause, the cost of living anxiety in the general public is real, and it’s having big impacts on this federal election. Because Labor has so disastrously lost the debate on which party is a better economic manager, a campaign framed around cost of living pressures was never likely to play in the government’s favour. And so it has proved. While Kevin Rudd has made much of his government’s economic track record – which is indeed strong – the topic seems to merely remind voters of their view that the Coalition would do a better job.

The cost of living line worked for Labor from opposition in 2007. But quite why the government decided to run on cost of living pressures as a second-term government is another of those mysteries of this quite confusing campaign. Why Labor has not concentrated on areas of clear weakness in the Opposition’s policy agenda, like health and education, is a question that will await the post-mortem.

Labor’s real chance to arrest the cost of living juggernaut was early in its first term, when the global financial crisis opened up an opportunity to question the very nature of modern global capitalism itself. Rudd seemed to recognise this, for instance penning a long essay in The Monthly setting out some sophisticated criticisms of contemporary neoliberalism. But Labor then lost the stimulus debate, and went on to lose the confidence of the electorate after a string of broken promises about returning the budget to surplus.

It’s not all doom and gloom for Kevin Rudd and his government. After a dismal few weeks in which Labor struggled to land a punch, Labor staged a strong campaign launch in Brisbane, and the Prime Minister turned in a confident and at times convincing performance last night on the ABC’s Q and A. But the polls continue to slide backwards, and many voters appear to have made up their minds. A strong final week probably won’t be enough to arrest Labor’s flagging momentum, or to keep Tony Abbott out of The Lodge.