Alboflation and the cost of living crisis


Below is a panel discussion featuring me, Warren Hogan (chief economic advisor to Judo Bank), and Sky News host Sharri Markson discussing Australia’s cost of living crisis and whether relief will be provided by the Albanese government.

I also explain some of the reasons why Australia’s inflation has been higher than elsewhere.

Below are the highlights of my discussion, broken down by theme.

Cost of living relief:


“The government’s got to be really careful that it doesn’t stoke inflation”.

For example, if it simply hands Australians money like the federal government did over the pandemic, then that’ll obviously juice demand and it could stoke inflation”.

“However, if it restricts its cost-of-living relief to rebates and subsidies on things like energy, rents, child care, etc, it could actually help to lower inflation”.

Electricity CPI

“And in fact, the most recent monthly inflation data actually showed that the rebates on energy and rents and those sorts of things actually help to lower inflation”.

Rent CPI

“So, it all depends on how the package is structured”.

Tax cuts:

“The data shows that Australians are paying a record a share of their income on income taxes”.

Household tax paid on income

“Australia’s tax system is ridiculously reliant on taxes on productive effort, particularly personal income taxes. And it really needs to be shifted, broadened to other areas that are more efficient, and also to take the strain off productive effort”.

Why Australia’s inflation is higher than elsewhere:


“One of the reasons is that we’re running an absolutely extreme immigration policy that’s pumping demand”.

“We’ve seen that most notably with housing inflation. So, for example, our rents are soaring. And rents comprise about 6% of the CPI basket”.

“It’s also filtering on to other areas. It’s pushing up demand for new homes, helping to push up new home costs”.

New Dwelling purchase costs

“Housing alone in total takes up about quarter of the CPI basket”.

CPI weights

“So, one of the reasons why Australia’s got higher inflation is that we’re running a very high population growth policy and basically, the demand side of the economy through population growth is growing faster than the supply side”.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.