The Growing Cost of Living Poorly
While the “poverty war” has raged during 2005 over the question of whether income inequality and poverty are growing in Australia, social welfare agencies such as Jesuit Social Services continue to experience growing demand for emergency relief to help people cover their bills and afford to bring Christmas cheer to their households.
Whichever way you measure it, persistent poverty is a problem in this country.
While Australians at every income level may have enjoyed some of the benefits of economic growth over the course of the past decade, some new research has shed some light on why so many families continue to grow poorer.
On the December 19, the Saint Vincent de Paul Society released a Social Policy Issues paper, Winners and Losers: The Story of Costs, which investigates why some households seem to be faring so poorly in a growing economy. The conclusion offered is that while the inflation rate has been generally low over the past decade and a half, the official measure obscures that rising costs disproportionately effect lower-income households.
The problem with the official measure of inflation, the Consumer Price Index (CPI), is that it is only a rough guide. As the Australian Bureau of Statistics (ABS) explains, the reference population for the CPI is all private households in the eight major capital cities – which represents about 64 per cent of Australian private households. That all non-metro households are excluded, in addition to the hundreds of thousands of low-income Australians residing in caravan parks, boarding houses, jails and on university campuses, has left the measure blind to how escalating costs affect poor people.
Research conducted by Jesuit Social Services in 2004, culminating in the release of a postcode-level look at social disadvantage in New South Wales and Victoria entitled Community Adversity and Resilience, discovered that the large majority of disadvantaged communities are located in rural areas and on the fringes of our major cities. For example, of the 30 most disadvantaged post codes in Victoria, 23 of them are rural and only 7 can be classified as urban. In many cases, it is the absence of appropriate and affordable services, such as health, education and childcare that compounds the disadvantage of these communities. The rationalisation of public infrastructure and gradual switch to “user pays” services has disproportionately affected these rural and urban fringe communities.
St Vincent de Paul’s research has shown that the particular goods and services upon which lower-income families rely have grown significantly more expensive than the CPI tends to imply. For example, the cost of public transport and renting privately, both of which are far more likely to be used by low-income families, have risen far higher over the past 15 years than the cost of private motoring and owning a house.
Their research indicates that the cost of living for unemployed benefit recipients who are reliant on the rental market and the public transport system have experienced cost increases in the order of 27.8 per cent greater than the underlying inflation rate. At the same time, the cost of living for aged and disability support pensioners who are reliant on the rental market and the public transport system have experienced cost increases in the order of 30 per cent greater than the underlying inflation rate.
It’s not just unemployed, aged pensioners and disabled people who are feeling the brunt of the growing cost of living. In fact, every household that spends a majority of its income on essential items like educating their children, providing healthcare, childcare and travelling on public transport is growing relatively poorer in comparison to households which can afford life’s luxuries.
At the heart of the problem, the Consumer Price Index tends to mask the price rises for services. While the cost of consumables such as household fittings, imported shoes, luxury cars and overseas travel have all come tumbling down, relative to average inflation since 1990, the cost of goods families cannot do without have soared.
A quick look at the Australian Bureau of Statistics illustrates this point. The costs of healthcare services, for example, are 222 per cent more expensive in Melbourne than they were in 1990, which is some 185 per cent above the official rate of inflation (CPI). While the costs of optical products and pharmaceuticals have fallen relative to inflation, hospital and medical services have risen some 208 per cent above the inflation rate.
Public transport, as I indicated earlier, is another service that has sky rocketed in price. While the cost of buying a family sedan has actually dropped below what it would have cost in 1990, ticket prices for public transport in Melbourne have soared about 134 per cent above the inflation rate. (ABS Cat. No. 6455) This suggests households that are more reliant on public transport for travel have experienced, and will continue to experience, far greater relative costs than households that can afford a car.
Affordable housing and childcare are also moving increasingly out of reach for ordinary Australians. A recent study by the Australian Institute for Health and Welfare, Australia’s Welfare 2005, has shown that 883,000 lower income families and singles are suffering from housing stress, spending anywhere from 30 per cent to more than 60 per cent of their weekly incomes on housing. Of the 1.7 million Australians struggling to afford to keep a roof over their heads, more than two thirds are in private rental.
As all parents know, childcare is now hugely expensive. For single parent families, who have been shown to use twice the amount of formal childcare than hours worked – due to a lack of availability of informal care – childcare costs can rival rent as the most significant element of weekly expenditure.
Since 2001, the cost of childcare has exploded. The most recent CPI figures show that over the past financial year (2004-05), the cost of childcare in Australia shot up by 12 per cent; over the previous year, the cost rose by more than 10 per cent. As a result, the increase in the cost of child care over the past two years has been about four times higher than the general inflation rate, contributing to plunging affordability rates and making working longer hours less financially attractive to households reliant on formal childcare.
To put this increase in perspective, over the same four-year period, the Child Care Benefit paid to parents has risen by only 37 cents an hour. For a government hopeful of filling present and future workforce shortages by encouraging single mothers back to work, the escalating costs of childcare could be seen to act as a permanent barrier to parents looking to move from “welfare to work”.
What the policies of tax reform, such as the Goods and Services Tax and the shift to a “user pays” system of essential services have achieved is to lower the cost of luxury items such as cars and DVD players at the expense of the cost of an education – a child’s best chance of getting a head start in life. The soaring price of tickets charged by Melbourne’s private, “public” transport operators has left many low-income Australians, particularly on the urban fringes, at risk of social exclusion and alienation. While the cost of renting a one or two-bedroom unit in or around the CBD has remained steady or fallen for Melbourne’s white-collar workers, low-income families are forced to move further and further away from services, such as good schools and hospitals, in search of cheaper rents. The soaring costs of accessing hospital and medical services, coupled with the decline in availability of bulk billing, is pushing “preventative” health care beyond the reach of many. Even the cost of buying a loaf of bread and a litre of milk has risen 90 per cent above the inflation rate.
While those on low incomes may have seen their weekly income rise by about 12 per cent in “real terms” since the mid-1990s, the concurrent rises in the cost of living for these households has contributed to their declining standard of living.
This is a fact of life for many in Australia 2005. Not only are the poor becoming poorer relative to higher-income Australians, they are also becoming poorer compared to their own standard of living. That is the reason why social welfare organisations, such as Jesuit Social Services and St Vincent de Paul, handed out so many more hampers this Christmas; that is why so many Australian children did not be wake up to presents under the tree.
We should spare a thought for those who are living poorly in our society.
Julie Edwards is the CEO of the Jesuit Social Services.
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Tags: Poverty Analysis