Why is Australia so expensive?

[RUNVS]

I came across this article

Australia: The costs are spiralling
http://www.smh.com.au/business/australia-the-costs-are-spiralling-20130422-2ian3.html

In the past 11 years Australia has become one of the most expensive places to live, costlier than New York, London, Frankfurt and Singapore on everything from five-star hotels, car rentals, public transport, a pint of beer, cigarettes, jeans and an iPhone.

The survey, compiled by Deutsche Bank on prices and price indices on a range of products collected largely from the internet, concludes the US is the cheapest developed country in the world and Australia and Japan two of the more expensive.

According to the survey, Sydney remains the most expensive place for a weekend away, almost double the cost of a weekend holiday in New York. To put it into perspective, New Zealand weekend getaways are 25 per cent cheaper than in New York.

Singapore-based Deutsche Bank global strategist Sanjeev Sanyal said the survey is a survey of prices and deliberately does not try to explain the data. It is more a case that the price comparisons speak for themselves and in Australia's case it is massively more expensive on most goods and services. Like all surveys that compare prices, there will be some distortions but even if these are stripped out, a basic trend has been captured that is disturbing in a global context.
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Australia is part of a global community operating in a competitive world. When prices are relatively higher than the rest of the world it raises questions about how we can compete and how do we become less expensive?

High wages, high input costs including energy and rental costs, the inflation bogey and the tyranny of distance all contribute to the country's lacklustre productivity and falling competitiveness. But it has reached a point where something has to give.

The strong Australian dollar, as many countries actively try to reduce their exchange rates, is crippling manufacturing,
retail, tourism and agricultural exports.

While this is a problem, the country doesn't do itself any favours when surveys such as this show that a five-star hotel room in Sydney is more than double the cost of a comparable room in New York, London, Moscow and Paris.
And for all the moaning about the strong currency hurting exports, on the flip side it should be helping keep a lid on inflation and reduce the price of imports. Not so when it comes to products such as cars and cigarettes. For instance, the price of a new Volkswagen Golf 2.0 TDI (or equivalent) with no extras is 44 per cent higher in Melbourne relative to New York's $US26,044 price tag and 51 per cent higher in Sydney. In Rio de Janeiro the car is 6 per cent cheaper and in Singapore the same car costs a whopping $US110,381.

The list of high prices goes on. The survey estimates that an iPhone costs $US819.33 in Australia, compared with $US649 in the US, $US802 in Britain and $US699 in Canada.

It shows that Australians also pay relatively more for their Big Macs, beer and cigarettes. A Big Mac is 12 per cent more expensive relative to the US, making it one of the most expensive burgers in the world. In Greece, Egypt and China Big Macs are half the price and in India they are less than a third.

Comparing the prices of a 25 pack of Marlboro cigarettes, Australia is the most expensive, with a price tag of $US17.22, compared with $US2.29 a pack in India, $US2.84 in China, $US3.51 in South Africa, $US1.10 in the Philippines and $US1.39 in Jakarta. In Australia's defence, most of the price difference can be attributed to taxes.
Another product that captures high taxes is beer. Again, Australia ranks as one of the highest priced countries when it comes to beer, with an average pint costing $US8.20, compared with $US2.03 in Brazil, $US4.55 in Britain and $6 in the US.

Petrol is also relatively expensive in Australia, with a litre 71 per cent more expensive in Australia than in the US and 41 per cent more expensive than in China.

Whatever the reason for the higher cost of living, it raises questions about Australia and the cost of doing business.
Office space rentals in central business districts estimate that gross rent in Melbourne is 32 per cent higher than in New York in 2013, and more expensive than Berlin, Auckland, Shanghai and Toronto.

It is a big issue that state and federal governments and companies need to work out before Australia falls too far down the ranks of competitiveness.

It will make the consumer price index figures that are released on Wednesday all the more pertinent, particularly as the Reserve Bank waits to decide on what to do about interest rates next month.
The last set came in at lower than expectations but showed power and water were up by more than 14 per cent, while housing costs, health and education also rose.

http://www.smh.com.au/business/australia-the-costs-are-spiralling-20130422-2ian3.html

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Now I know that our high minimum wage has something to do with some of these costs (such as the big mac) but what about everything else. Why is Australia one of the most expensive places to live in the world in terms of products, housing and utilities?

To me this is a issue that no government over the past 20 years has put in enough time to solve and if the trends continue everything is only going to get more expensive.

 

[Todman]

We make it expensive to discourage illegal immigration

 

[Admiral Byng]

Cost of housing is a big factor. For such a large country geographically we are concentrated into a few relatively isolated cities. There has been a deliberate shift away from letting the urban sprawl expand unchecked, which is good in some ways, but there has not been any serious consideration of alternatives, it's just a case of stopping sprawl and squeezing more and more people into the existing cities - which of course drives up prices because demand keeps growing regardless of restrictions on supply.

It's a bit of a chicken and egg situation with regards wages. People need high wages to cover the high cost of housing.

 

[RUNVS]

Look at this

http://www.news.com.au/realestate/b...prices-to-double/story-fndban6l-1226626822141

How on earth is anyone supposed to even have a roof over their heads if this happens? To me this should be one of the biggest issues in the next election but it will not even be mentioned.

 

[raskolnikov]

Look at this

http://www.news.com.au/realestate/b...prices-to-double/story-fndban6l-1226626822141

How on earth is anyone supposed to even have a roof over their heads if this happens? To me this should be one of the biggest issues in the next election but it will not even be mentioned.

So glad I have a house that I now own outright. Don't know how some people survive.

 

[Rob]

Look at this

http://www.news.com.au/realestate/b...prices-to-double/story-fndban6l-1226626822141

How on earth is anyone supposed to even have a roof over their heads if this happens? To me this should be one of the biggest issues in the next election but it will not even be mentioned.

Because the reason property prices go up is because people are prepared to pay that much. Doubling in 10 years is what, 8% per annum? That's not exactly astronomical. And i Doubt that sort of growth applies at the lower end.

BTW who dafuq is paying $1100 a week for a house in Menora? Nice suburb, but jeez.....

 

[RUNVS]

Because the reason property prices go up is because people are prepared to pay that much. Doubling in 10 years is what, 8% per annum? That's not exactly astronomical. And i Doubt that sort of growth applies at the lower end.

BTW who dafuq is paying $1100 a week for a house in Menora? Nice suburb, but jeez.....

8% is way over what pay increases most people get a year.

 

[Rob]

8% is way over what pay increases most people get a year.

Your earn no income outside salary? You don't anticipate getting access to a large amount of funds from superannuation when you retire? If not, don't fret. Because millions of Australians do. Where do you think the money comes from to pay these absurd prices for houses?

We're not talking across the board increases either. You'll find property on the outskirts of the city remains close to as affordable as property on the outskirts of the city was 30 years ago. It's just that the outskirts of the city is a fair bit further out than it was back then.

 

[pazza]

I wonder it's because of great economic management and the strength of the Australian $?

 

[skipper kelly]

It's a strange world we live in when the majority work most of their lives just to own a house or even worse to pay off another persons investment. Housing as in investment just doesn't seem right.

 

[burto]

Look at this

http://www.news.com.au/realestate/b...prices-to-double/story-fndban6l-1226626822141

How on earth is anyone supposed to even have a roof over their heads if this happens? To me this should be one of the biggest issues in the next election but it will not even be mentioned.

Wouldn't put too much faith in that article, it's a rubbish study.

Given that interest rates are at near record lows and prices already such that the average mortgagee is stretched to their limit, it is not physically possible for prices to rise that high, unless rates drop to zero or we see more Chinese investors buy all our houses. Looks like Kusher has just extrapolated recent trends for the next 10 years - sounds like he's done it on the back of an envelope without sense checking it.

 

[Lunchlady Doris]

Surely the insane system of a cash first homeowners grant, which just adds 7-14-21k to house prices didn't help.

Same thing with childcare payments - subsidise by 50%, prices go up approx 50%

 

[Todman]

Given that interest rates are at near record lows and prices already such that the average mortgagee is stretched to their limit, it is not physically possible for prices to rise that high, unless rates drop to zero or we see more Chinese investors buy all our houses.

If you are stretched to the limit on low interest rates any movement will hurt

i.e. a move from 5% to 5.5% is the same as 10% to 11% twenty years ago.

 

[skipper kelly]

Surely the insane system of a cash first homeowners grant, which just adds 7-14-21k to house prices didn't help.

Same thing with childcare payments - subsidise by 50%, prices go up approx 50%

The first homeowners grant doesn't help house prices but it does help people get into the market, especially for those who were/are paying just as much money rent as they would pay for a mortgage.

 

[pjcrows]

Cos of carbon tax.

 

[Cap]

We are expensive country because we have expensive standards which cost money to uphold.

 

[King Elvis]

Surely the insane system of a cash first homeowners grant, which just adds 7-14-21k to house prices didn't help.

Same thing with childcare payments - subsidise by 50%, prices go up approx 50%

Was going to say the same thing - Govt (Liberal & Labor) meddling in markets distorts them and drives prices up.

Additional Govt fees/levies don't help.

 

[Power Raid]

It's a strange world we live in when the majority work most of their lives just to own a house or even worse to pay off another persons investment. Housing as in investment just doesn't seem right.

yep!

We only pay any meaningful tax on property when we buy and sell meaning it is a better asset for investment than for personal use.

If its for personal use, we are likely to buy and sell 3 or 4 times in our lives. If it is an investment, the rule is buy and buy and never ever sell.

This means there is structural problem in the taxation system which favours the investor.

We should have a annual tax which effectively turns land ownership into a lease. A little like Londons CBD long term leasing arrangements with the crown.

 

[Relativity]

Australia is so expensive to live in because our interest rates are comparatively high compared to the rest of the Western world.
We are also a very population centralised nation, with vast distances between those centralised populations, making the transport of comodities to consumers very expensive.
We also have a two speed economy dominated by a "fly in fly out" mining industry driving up housing prices in the "fly out" regions.
We also have a Government that has deliberately inflated electricity prices.
We also have Governments on 3 levels running up debts that require higher taxation rates.

 

[Power Raid]

Australia is so expensive to live in because our interest rates are comparatively high compared to the rest of the Western world.
We are also a very population centralised nation, with vast distances between those centralised populations, making the transport of comodities to consumers very expensive.
We also have a two speed economy dominated by a "fly in fly out" mining industry driving up housing prices in the "fly out" regions.
We also have a Government that has deliberately inflated electricity prices.
We also have Governments on 3 levels running up debts that require higher taxation rates.

We also have relatively higher wages, which is good but it does mean we all pay for it whenever we buy something.

Our government focus on employment numbers and not efficiency. There is unlimited work and limited workers. We should be focused on reducing inefficiencies.

 

[Relativity]

We also have relatively higher wages, which is good but it does mean we all pay for it whenever we buy something.

Our government focus on employment numbers and not efficiency. There is unlimited work and limited workers. We should be focused on reducing inefficiencies.

Hopefully September will see the reduction of our largest inefficiency.

 

[Mighty Eagles]

The cost of living should be an agenda setter for elections to come, it'll take awhile to fix this issue.

For me, I think if we can decrease the cost of living, that'll put less pressure on increasing wages, which are high globally, and does play a large role in companies staying in business.

 

[Power Raid]

The cost of living should be an agenda setter for elections to come, it'll take awhile to fix this issue.

For me, I think if we can decrease the cost of living, that'll put less pressure on increasing wages, which are high globally, and does play a large role in companies staying in business.

Which inefficiencies would you target?

I am not sure if the government will tackle -
The wharves after the Patrick's debacle
The construction industry as the cfmeu are too entrenched
GST as it is too early to change
Property tax and building approvals (domain of state governments)
CGT for foreign residents as they want to attract foreign investment
Interest rates as this is a simple function of our fx risk related to being thinly traded, our own net savings and inflation.


I would love to see a bold government but feel this is not likely given the candidates

 

[Pessimistic]

Thats because the current mob was half bold and will be punished

Watch governments become timid and sneaky

 

[Power Raid]

The new and old Julia are both liars and clever Howard was pretty tricky!

I think we have seen a lot of sneaky crap and my font is about as bold as it gets.