Tackling the Cost of Living Crisis with Fiscal Discipline and Strategic Investment

Preamble

Australia faces a mounting cost of living crisis, driven by persistent inflation, stagnant wages, and an overreliance on government spending that fuels price pressures without delivering lasting relief. As of March 16, 2025, families are stretched thin, businesses struggle, and the government’s response has been inadequate—favoring short-term handouts over structural reform. This policy outlines the current issues, critiques political inaction, and proposes a disciplined approach: slashing wasteful spending to curb inflation while investing in roads, infrastructure, and industry to secure prosperity and improve Australian lifestyles.

Current Issues and Trends in the Cost of Living Crisis

The cost of living is soaring, with inflation at 2.4% in the December 2024 quarter (ABS), up from a quarterly rise of 0.2%, driven by sharp increases in alcohol and tobacco (+2.4%) and recreation and culture (+1.5%). Housing costs—rents, new home purchases, and mortgage interest (up 14.7% annually)—are crushing households, with 30% of income spent on housing now signaling “housing stress” (Mozo). Real wages have eroded, with growth at just 0.25% this financial year after inflation (Forbes), leaving workers poorer than in 2019, per OECD trends,

Trends point to worsening pressure:

• Household Spending Squeeze: Finder data shows 48% of Australians have cut living standards, with grocery spending down 6% year-on-year (Nov 2023–2024), yet essentials like food (+3.3%) and housing (+2.1%) keep rising (ABS monthly CPI, Jan 2025).
• Inflation Persistence: Treasury forecasts inflation dropping to 2.75% by late 2025 (Forbes), but the RBA’s 4.35% cash rate—unchanged since November 2023—signals caution, not relief (SBS). Without action, the wage-price spiral could reignite.
• Economic Stagnation: GDP growth was a meager 0.1% in March 2024 (AFR), with per capita GDP falling for five quarters, reflecting weak productivity and an economy reliant on mining exports, not broad-based industry.

What Australian Politicians Are Doing—or Not Doing

Politicians have leaned on bandaids, not solutions:

• Energy Bill Relief: The $300 rebate per household (KPMG Budget 2024-25) and Commonwealth Energy Bill Relief Fund cut electricity bills (-11.5% annually, ABS), but this $3 billion-plus spend masks underlying energy cost issues without fixing supply or grid reliability.
• Tax Cuts: Stage 3 tax cuts from July 2024 (Treasury) boost disposable income slightly, yet KPMG notes they’re too small to offset inflation’s bite, and PBO warns bracket creep will claw back gains by 2034-35 without reform.
• Housing Inaction: Despite $10.1 billion for existing infrastructure projects (KPMG), new housing supply lags—construction times rose from 9 to 12 months since 2019-20 (Treasury)—exacerbating rent and price hikes. Labor’s Rent Assistance increase (ABC) helps, but 3.3 million below the poverty line still despair.

What’s missing? Bold spending cuts and a focus on productivity. The Albanese government boasts a $9.3 billion surplus for 2023-24 (Treasury), but deficits loom at 1.5% of GDP by 2025-26 (PBO). This is a “thin” policy—prioritizing optics over tackling root causes like wage stagnation and housing unaffordability.

The Need to Cut Government Spending to Fight Inflation,

Excessive government spending—$62.8 billion on infrastructure over four years (Infrastructure Partnerships Australia)—is inflationary when not paired with productivity gains. Warwick McKibbin (AFR) warns fiscal splurges without output growth force higher interest rates or sustained inflation. The RBA’s tight 4.35% rate reflects this trap. Cutting wasteful expenditure can ease demand pressures, letting inflation fall to the 2–3% target without choking households further.

Policy Direction: Core Necessities and Industry Development

We propose a leaner, smarter approach—trimming fat to fund essentials that lift living standards and industry:

1. Slash Wasteful Spending:
   • End Renewable Subsidies ($29 billion since 2013): These prop up foreign firms (e.g., Goldwind, China) with minimal local benefit. Save $3–$5 billion annually.
   • Cut Corporate Handouts: Mining giants like BHP (Melbourne) get $10 billion yearly in tax breaks yet offshore jobs. Redirect this to core priorities.
   • Savings: $13–$15 billion annually, per CIS estimates escalated to 2025.
2. Invest in Roads and Infrastructure:
   • Road Upgrades: Allocate $10 billion over four years (from savings) to regional and metro roads—$6.7 billion is budgeted (WA example), but cost pressures need relief (e.g., Bunbury Outer Ring Road, $100 million overrun). Cuts congestion, boosts freight.
   • Grid Modernization: $3 billion to stabilize energy supply, lowering industrial power costs to $0.10/kWh (vs. $0.30/kWh now), per industry models.
   • Impact: Supports 100,000 jobs in construction and logistics (KPMG multiplier).
3. Boost Australian Industry and Lifestyle:
   • Manufacturing Fund: $5 billion from savings into advanced manufacturing (e.g., green steel, robotics), targeting 50,000 new jobs in five years. Builds on successes like Austal (Perth).
   • Innovation Grants: $2 billion for R&D in SMEs, lifting our 1.8% GDP spend (below OECD’s 2.7%) to drive productivity.
   • Buy Australian: Mandate 50% local content in $150 billion annual government procurement, per ABS, enhancing lifestyle via quality goods.
4. Address Cost of Living Directly:
   • Freeze Non-Essential Fees: Cap education and health insurance rises (easing per SBS trends) for two years, saving families $500 annually.
   • Housing Supply Blitz: Fast-track approvals (currently 12 months) with $1 billion incentive for states, adding 20,000 homes by 2027.

How This Fixes the Issues

• Inflation: Spending cuts reduce demand-pull pressures, aligning with RBA goals, potentially allowing rate cuts by May 2025 (SBS economist Langcake).
• Living Standards: Roads and infrastructure slash transport costs (10% of household budgets, Finder), while industry jobs lift wages above the 0.8% quarterly rut (ABS).
• Self-Reliance: Less foreign dependency (e.g., Rio Tinto’s London ties) keeps wealth here, unlike current export-heavy drift.

Conclusion

The cost of living crisis demands more than handouts—it needs fiscal restraint and strategic focus. Australian politicians have dithered, spending big without solving inflation or stagnation. By cutting waste, prioritizing roads, infrastructure, and industry, we can tame prices, create jobs, and build a lifestyle Australians deserve. This isn’t about austerity; it’s about investing smarter for a stronger, fairer future.