Economic modelling disproves the general perception that prices in Australia are skyrocketing, with households actually better off

The political consensus that Australians' cost of living is "skyrocketing" is shown to be completely untrue by a new analysis that reveals the average household is actually $5,302 a year better off in real terms than it was in 2008.

Liberal federal director Brian Loughnane recently wrote to everyone on the party's mailing list, asking: "Have you noticed how prices have skyrocketed in the last six years? Thanks to Kevin Rudd and Labor everything from electricity, gas, education and medical services has gone up significantly. And Labor and the Greens made things far worse when they introduced their carbon tax."

He announced that the Liberals had created a Facebook app called the "cost of Labor calculator", so readers could "plug in your expenses and see just how much extra this Labor government has cost you".

Labor has also accepted as fact the widespread perception that the cost of living is rising. Announcing increased childcare funding on the first day of the campaign earlier this month, Kevin Rudd said that "wherever I go across Australia, what I hear is cost of living pressures and the pressures on family life in general."

But, according to analysis by the National Centre for Social and Economic Modelling, wage increases are easily outstripping cost of living increases across the country, with West Australian families $9,776 a year better off in real terms than they were in 2008, New South Wales and Victorian families $4,225 ahead, Queensland households in front by $4,230, South Australians by $4,171 and Tasmanians by $874.

The Natsem modelling found the cost of living had actually risen by just 1.7% in the year to June, well below the long-term annual average of 2.9%, and that household incomes had risen on average by 2.8% over the same timeframe, leaving households, on average, better off.

This Natsem chart shows household gains in financial standard of living after living costs, $s per year

While gas and electricity, which featured in the "cost of Labor calculator", rose by 13.9% (in part due to the carbon tax), health costs rose by 6% and education by 5.5%, mortgage interest payments, which were not included in the calculator, fell by 14.7%, and prices for personal care goods, transport and clothes also went down.

Lower income families, households relying on government benefits and sole parents tended to have higher cost of living increases because they benefit less from lower interest rates, but everyone was better off to some extent.

The analysis notes that the real increase in the standard of living in Australia since the GFC stands in stark contrast to most other developed countries where both nominal and real incomes have declined.

And it shows that under the three most recent prime ministers – John Howard, Kevin Rudd and Julia Gillard – Australians have enjoyed almost exactly the same annual average increase in their standard of living, about 2.6%. In the Hawke/Keating years the increase was lower, although the study only begins its measurement in 1988, as Australia headed into recession, and leaves out the earlier and more prosperous Hawke government years.

The study also shows that up until 2008 higher income families enjoyed the biggest increases in their standard of living – with income of the top 20% of households growing by 70% between 1988 and 2008 and the income of the lowest 20% of households growing by 42% – with "sharp increases" for the highest income households between 2004 and 2007.

But since the GFC the real gains in standard of living have gone to lower income groups.

The study also shows that Sydney is the most expensive capital city, with the typical basket of goods costing $72,914 a year, and Adelaide the cheapest, with the same basket costing $4,823 a year less. Darwin and Canberra are up there with Sydney, while the cost of the basket of goods in Melbourne is about $2,721 less.

Australians' belief that their costs are increasing, when in fact their real living standards are improving, is not a new phenomenon.

In 2007, when Australian households were also ahead in real terms, Labor ran an advertisement with a woman citing then-prime minister John Howard's statement that "working families have never had it so good" and responding: "Really Mr Howard, how can you say that when my childcare and grocery prices are higher than ever?"