Cost of living report – issue 1 2011

  • A supermarket trolley is pushed down an aisle
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While the rising cost of living will impact many households, those on low incomes will feel the most pressure. Lower income households typically spend a higher proportion of income on the essentials – rent, food, electricity, public transport and insurance. Households with low incomes also tend to have slower income growth.

The purpose of this report is not to seek to prove that costs have gone up or to provide details of cost increases, but to illustrate what these increases mean in the lives of low income households. To this end we have developed a method to measure the cost impacts of ‘a basic standard of living’ on a week to week basis. We can then repeat this exercise over time and measure whether things are getting better or worse for these households.

In constructing the costs of a basic standard of living, we have made very conservative assumptions about how our example households live. For example, Trevor (our unemployed person) is already going without insurance of any kind or a car. The allowances we have made for food and recreation expenses are modest, and all three of our households are renting very low cost  accommodation options. We have chosen to use below average electricity consumption, even though we know that energy costs can often be higher as a result of poor quality rental housing.

Despite this, for two of our three example households there is a weekly shortfall. For Trevor the shortfall was $25 a week, with food and rent requiring approximately 66% of his total income each
week. For Maria and family the deficit was $28 a week, despite having a significantly higher income to start with. This reflects the high costs of raising children. Lee, Heather and family fare slightly better with a very small weekly surplus of $3 – yet it is nonetheless a precarious existence. With annual household income of just over $60,000 (and we estimate 30-35% of household earn this or lessxvi) it would take very little for this household to fall into debt should they encounter an unexpected event or injury.

If the household faced more ‘average’ living costs (higher rent, more food and daily travel, higher school fees, and more expenditure on providing the best opportunity for the children), they would face a shortfall. When low income households don’t have the means to meet the costs of a basic standard of living, there can be far reaching impacts. How well people cope varies depending on factors such as their non-material resources (including education and  support from friends or family), as well as mental and physical health.

The impacts may include: having to choose between essential items (have enough food or pay the electricity bill) being unable to connect with people and being left out of social activity being excluded from access to community resources going into debt to meet the costs of living, increasing the potential for an unsustainable debt spiral being at risk of electricity disconnection or eviction and homelessness, and experiencing family conflict, stress and potential breakdown. These household impacts then  flow into the wider community through an increased demand on government support services and budgets, and more reliance on already stretched community support agencies.

Read the full report here.