Is the public sector driving up the cost of living?

By Leith van Onselen

The Australian’s David Uren has penned a spurious piece today arguing that the public sector is responsible for the rise in the cost-of-living since the Global Financial Crisis:

Inflation in the cost of public-sector services is rising at more than five times the pace of the private sector, and is equivalent to a tax of more than $800 a year on the average household…

Over the past five years, private-sector goods and services have risen in price by just 5 per cent, while prices set or influenced by the public sector have soared by 27 per cent.

The spiralling cost of essential services including childcare, utilities, health and education is cutting­ living standards at a time of record low wages growth.

Deutsche Group chief econo­mist Adam Boyton said the rise in government-influenced prices was equivalent to a tax.

“Unlike other types of inflation that are the result of a strong economy, this is a form of inflation that entrenches the weakness in household disposable income,” Mr Boyton said.

“If the government wants to ease cost-of-living pressures on households, these numbers would suggest it should look at the impact of government decis­ions on the whole range of prices that consumers pay”…

The last time that private-sector and public-sector prices were rising at the same pace was in 2007-08, before the global financial crisis.

Since then, private-sector prices have risen by just 10 per cent against a 60 per cent increase for prices driven by government.

Let’s be abundantly clear: it is not public service provision that has pushed up costs, but poor public policy by governments. This is an important distinction.

In the energy space, privatisation and the decision to allow unfettered exports of gas to Asia (without domestic reservation) is what has driven Australia’s energy costs to world-beating heights (explained here).

In the education space, it was deregulation and the uncapping of places that has seen university fees blow-out, as well as the cost escalation experienced across the private vocational education and training sector. Private school fees have also escalated.

In the childcare sector, where the overwhelming majority of providers are private, it is public policy that has driven the escalation of fees.

Whereas the escalation of health costs has been caused, to a large extent, by soaring private health insurance premiums, which are again heavily affected by public policy decisions.

My concern when reading articles like this is that it gives the impression that the public provision of services is necessarily inefficient whereas the private sector is efficient, thus necessitating further privatisations. The truth is that it is daft public policy in a range of areas that has caused the cost escalation, often among private providers.

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