Treasurer Jim Chalmers said his first budget was one of "hard decisions for hard times".
But like Chalmers, Australians — especially those on lower incomes — are having to make their own hard budget decisions. The cost of bills are up, groceries are up, fuel is up, housing costs and instability are up, and something has to give.
The Australian economy is already in the midst of challenging financial times — spurred by the war in Ukraine, rising interest rates, skyrocketing inflation and natural disasters — and it's only going to get worse.
It's a balancing act. Offer more much-needed cost of living relief in the form of payments and risk making inflation even worse and pushing the Reserve Bank into even more interest rate rises than are likely already on the way.
Meet Miriam. She's the "typical Aussie", according to last year's census: aged 38, female. Let's say she has two kids, a husband, a rental property in a Sydney suburb, a part-time job and a growing stack of bills.
The average full-time wage in New South Wales for men is $1,885 a week before tax and for women it's $1,651. Because Miriam is part-time at the moment, let's assume the couple's gross weekly income is around $2,700 — or about $2,150 after tax. She has her own balancing act.
For Miriam, and millions like her, the juggle is real.
It's no surprise then that one of the budget's central points was a five-point plan for cost of living relief, including cheaper childcare, expanded parental leave, more affordable housing, cheaper medicine, and an already received 5.2 per cent wage increase for the lowest paid workers (which is still less than the current inflation rate).
The problem? Not one of those measures will mean more cash in the wallets of cash-strapped families right now, with most measures starting to trickle through mid next year — and for Miriam, the crunch time is already here.
The budget juggle
It's no secret that things are getting more expensive. Inflation is already at 7.3 per cent — the highest level in more than 30 years — and budget papers forecast it will peak at 7.75 per cent in December.
To make matters worse, the biggest price rises have been largely concentrated in non-discretionary items. This means food, petrol, housing, medication — basically the needs, not wants.
The price of these things has risen at an annual pace of 8.4 per cent in the September quarter, compared to 5.5 per cent for the fun stuff.
When Miriam goes to the supermarket, it's becoming harder to afford fresh fruit and vegetables for her growing children. Meat has already become an occasional luxury.
She's not the only one feeling the pinch. Recent flooding across the east coast has wiped out some of Australia's most productive agricultural land, with Chalmers predicting the crisis could drive the cost of fruit and vegetables up for the next six months.
Then comes the shock in the mail. Her bills are going up and, according to the budget, it's probably not going to get better any time soon.
The budget predicts electricity prices will increase, on average, 20 per cent by Christmas and a further 30 per cent in the next financial year. Combined, that would mean a total increase of 56 per cent in under two years.
To put that in context, the average quarterly power bill in New South Wales is about $419. A 56 per cent increase would mean a quarterly hit of $650. Put another way, that's around $53 a week just to keep the lights on.
Gas prices are also forecast to increase 44 per cent in the next 18 months. Taking the NSW average of $186, that likely means an increase to $268 a quarter for Miriam.
This global spike in energy costs can largely be traced back to Vladimir Putin's war in Ukraine and the subsequent ban on Russian exports. Which is bad news for Australians, because it means the sudden increase in cost is mostly out of the government's control.
The budget included some measures aimed at bringing bills down, like $65.7 million extra for the Australian Competition and Consumer Commission to regulate the gas industry. Chalmers has also said the government is considering broader regulatory interventions.
But the reality is, it'll take some time for any measures to translate into relief for families
There was no mention of direct support packages, like the United Kingdom's 400 pound ($678) credit for every household to help with their October energy bills.
"The problem with direct handouts is it would feed straight into inflation," Prime Minister Anthony Albanese said this week. "That's the problem here. So, what we had to do was target investment into ways that didn't add to inflation."
So, back to Miriam.
The family is trying to cut back on transport costs, but there's only so much you can do when you need a car for work. The average weekly cost for transport for a family like Miriam's with two cars in Sydney has hit $486 a week, according to the Australian Automobile Association.
And there's little they can do about their biggest weekly expense.
With inflation comes higher interest rates, which means bigger mortgage repayments. Miriam rents, but her landlord is keen to pass along some of the cost. With vacancy rates at a record low, she knows she has no choice but to cop the rent increase.
According to budget papers, national advertised rents have risen by 10 per cent in the year to September. Across Sydney, where Miriam hypothetically lives, the median weekly rent for a house was $650 in the September quarter according to Domain's rent report — the highest ever on record.
And there was more bad news. The budget warned rental costs are expected to continue to rise "considerably" over the next two years, amid "stronger population growth and limited housing stock".
Nicola Powell, chief of research and economics at Domain, agrees that demand on the rental market is likely to get worse before it gets better — especially over December and January, the peak rental changeover period, and as international students return for the new university year.
"What we have is a rental crisis, with a landlord market across Australia, at a time when international migration hasn't really yet recovered," she said.
For Miriam, this comes together as a budget nightmare.
The childcare dilemma
Feeling the pressure, Miriam's thoughts immediately go to ways to increase the family's income. Since becoming a mother, she's moved to part-time work — taking a significant cut to her pay packet in the process. She could go back to full-time work, but with the significant cost of childcare it just doesn't add up.
Prime Minister Anthony Albanese described his government's first budget as "family-friendly" and ready to help households, like Miriam's, struggling with the cost of living.
This was reflected in one of the government's biggest spends: $4.7 billion over four years to make childcare cheaper for families earning less than $530,000 a year. Under the scheme, the Child Care Subsidy rates will increase from 85 per cent to 90 per cent for families on less than $80,000 a year, tapering down by one percentage point for every extra $5,000 a family makes.
But that measure doesn't come in until July next year — and she's unsure whether she could even secure another day or two for the kids' centre, where staff are overworked and underpaid.
The government has also pledged to gradually expand the Paid Parental Leave Scheme, increasing it to 26 weeks in 2026. While the increase may help new parents reduce the financial impact of taking time off work for their baby, it won't help Miriam.
So, right now, whether she should go back to work or stay home with the kids remains another tough decision.
What happens now?
While the government predicts inflation will reach its peak within the next quarter, that doesn't mean it'll be over next year. According to budget forecasts, higher inflation is set to continue until at least June 2024, when it is expected to still be around 3.5 per cent — before dropping to the target range of 2 to 3 per cent in the 2024-25 financial year.
And the grim reality is wages are not keeping up with inflation, which means a pay cut in real terms. According to forecasts in the budget, real wages won't start to grow again until 2024.
"Whether it's food, whether it's electricity, whether it's rent, inflation is public enemy number one," Chalmers told the National Press Club a day after handing down the budget.
"Inflation is the dragon we need to slay."
And for families like Miriam's that includes next year's stage 3 tax cuts: yes, they'll get a small tax cut but when the low and middle income tax offset is wound up at the same time, they'll likely face an effective tax hike.
Economists believe the Reserve Bank of Australia will push the cash rate higher than previously expected when it meets next week. The cash rate currently sits at 2.6 per cent, with Westpac expecting it to rise by 0.5 percentage point on Tuesday and to 3.85 per cent by March. Even the lower forecasts see the cash rate peaking at 3.1 per cent by the end of this year.
This would be a bid to curb rising prices, but it'll mean even higher interest rates and more pain for mortgage borrowers. As Treasurer Jim Chalmers put it in his budget night address: "There are hard days to come and hard decisions to accompany them."
Miriam already knows this far too well — but it's an even bleaker picture for Australians on lower incomes, single parents or those who are unemployed.
Despite persistent calls to raise the JobSeeker allowance beyond the base rate of $48 a day — or just $334 a week — for a single person without kids, there was no sign of change in the budget.
But the budget did acknowledge who will suffer the most over the coming months: "Many indebted households will be more significantly impacted by higher interest rates. Low-income households are also expected to be more heavily affected as essentials such as housing costs and energy make up a larger share of their household expenses."
And it's likely more people will soon find themselves in this group as the labour market gradually loosens.
Australia's unemployment rate currently sits at 3.5 per cent, but is expected to rise to 4.5 per cent by June next year — an increase, but still lower than pre-pandemic levels.
All of this as we gear up for the holiday season: a notoriously expensive period for most families.
Credits
Words: Maani Truu and Leigh Tonkin
Illustrations: Emma Machan
Production: Leigh Tonkin
