Rudd Labor lets working families suffer from soaring living costs

By Linda Waldron

On July 1 the Rudd government’s multibillion-dollar package of tax cuts and family support came into effect. Working families, however, are financially worse off than when the ALP took office in November.

The tax cuts, worth $51.54 to the average family, have been swallowed up by rises in interest rates, petrol and grocery prices over the last eight months. While households with an annual income of $87,000 have $13.11 more disposable income per week, those on the median income of $58,000 are almost $30 per week worse off. Childcare, health care and grocery costs have risen, but escalating fuel and housing costs are causing the greatest stress.

According to Commsec, the average monthly petrol expenditure for July was $227, $37 more than in April and $58 more than in October. On May 23 the NRMA predicted that petrol prices could reach $2 a litre by Christmas. A recent CSIRO report suggests that petrol could rise to $8 per litre by 2018 if current levels of demand continue. The CSIRO findings reflect a common misconception that recent price surges result from inadequate supplies.

The 400% increase in crude oil prices since 2003 (from US$25 to $140 a barrel) has nothing to do with demand exceeding supply. According to the US government Energy Information Administration, global oil output has been increasing by 2% per annum and, at 86.7 million barrels per day this year, is quite adequate to meet demand. The real reason we are paying more at the petrol pump is increased speculation in oil futures on stock exchanges. When the price of fuel rises, subsequent rises in transport costs cause across-the-board price hikes.

Housing costs have their own independent dynamic, affected by, but not directly linked to, the price of fuel. A recent report by Griffith University, for example, found that 34% of new residential building growth in 2013 will be vulnerable to soaring petrol prices due to lack of public transport.

The July 24 AMP/NATSEM Advance Australia Fair? report revealed that between 2001 and 2006 national housing costs rose by an average of 62%, but average household incomes rose by only 31%. AMP Financial Services managing director Craig Mellor said: “The impressive increases in household incomes were largely offset by increased spending on housing and increases in the cost of living — and it’s the households in middle income areas who were the least likely to enjoy these prosperous times”.

The recent surge in petrol prices, however, has stalled official interest rate rises. On July 1 the Reserve Bank decided to hold interest rates steady at 7.25%. Yet a possible fall in official rates will not necessarily translate into lower mortgage repayments. Citing the impact of the sub-prime mortgage crisis in the US, the four major banks have rejected immediately lowering Australian interest rates. Since November, official and commercial interest rates have risen by 1.15%, adding $43.75 to weekly repayments on the average home loan of $237,000.

A June Moody’s Investors Service report showed delinquency rates on mortgage interest payments nationally had reached historic highs in the first quarter of 2008. In January 2001, 62 homes of defaulting borrowers in Victoria were repossessed, but in January 2008 the figure was 243. The February figures were 95 in 2001 and 228 in 2008.

In the first quarter of this year, home loan affordability dropped by 8.7% compared to the same period last year. According to AMP/NATSEM, in the 10 years to 2005-06, the average mortgage debt for first-home buyers doubled to $213,000. Commonwealth Bank and Housing Industry Association data show that mortgage payments accounted for 32.3% of total first-home buyer income in the December quarter, up 0.4% on the September quarter.

In 2007 house prices rose by 12.3% nationally. In a May 2008 report, Shane Oliver, chief economist of AMP Capital Investors, said: “Australian housing is about 30% overvalued … [it] is among the most expensive in the world.” Yet the expected price drop over the next year will be about 5% due to acute housing shortages and the boost to national income from the resources boom.

The less affordable the housing market, the higher the demand for rental properties. The rent of a three-bedroom house has risen nationally by an average of 12.6% over the past 12 months. The Australian Property Monitors’ June quarter rental survey shows double-digit increases in most large cities. In the year to June, Perth units soared by 25% to a median $350 a week. In Sydney they jumped 11% to $400 a week. The median house rental in Sydney is currently $420 a week (up 15%), while in Perth median house rents increased 17% to $350 a week.

A Senate report into housing affordability, released in June, suggests that the $7000 grant for first-home buyers, introduced by the Howard Coalition government, has helped drive up house prices and disadvantage renters. Yet the Rudd Labor government currently has no plans to abolish the grant. Instead, it has announced the National Rental Affordability Scheme. This provides tax incentives to developers to underwrite rental yield, encouraging them to provide discounted rental housing.

State Labor governments are trying to redress the shortfall in housing supply by releasing public land for private development. The Melbourne 2030 audit expert group, however, condemned the recent release of Victorian land for development. It found the main impact of the release was windfall profits for developers and no concurrent drop in median house prices.

In response to escalating fuel prices, PM Kevin Rudd proposed the National FuelWatch Scheme, which requires petrol stations to nominate petrol prices 24 hours in advance. Even members of his cabinet, however, have suggested that the most likely outcome of the scheme is a rise in petrol prices.

In May Rudd denounced the Coalition’s proposal to cut fuel excise by 5c per litre, saying that a 15c per litre movement in petrol prices negates any excise cut. However, on July 16 the government announced that it would lower the fuel excise to offset any rise in petrol prices caused by its proposed carbon emissions trading scheme. The excise will be reviewed after three years, meaning Australian drivers will not face higher petrol costs driven by the scheme until 2013. The fuel excise is public funds, so taxpayers will ultimately pay for any cuts in excise, with no guarantees of reduced petrol prices.

In May Rudd defended his government’s less than overwhelming response to escalating living costs by claiming, “We have done as much as we physically can to provide additional help to the family budget”. While his plaintive defence attracted widespread ridicule, Rudd’s admission contains a kernel of truth. There is little that a capitalist government can or will do to redress the rising cost of living for working families. Reforms will be introduced only if they assist the profitability of business and investment and the long-term viability of capitalism.

By contrast, revolutionary socialist governments, such as those in Cuba and Venezuela, can and do introduce reforms to improve the livelihoods and aspirations of low-income earners, precisely because these government are not beholden to capitalist corporations, but are based on the mobilisation and organisation of working people.

Venezuela is the world’s fifth-largest oil producer. Between 1921 and early 2003, foreign oil companies, primarily US-based, and their Venezuelan capitalist cronies creamed off huge profits from the export of oil, even after the oil industry was nationalised in 1974. Meanwhile, 80% of the population faced extreme poverty in the rural villages and urban shantytowns.

It was not until early 2003, when President Hugo Chavez’s pro-socialist government took over control of PDVSA, the state oil company, that oil export revenues began to be used to benefit the poor. Mission Villanueva, for example, is the Chavez government’s housing scheme, established to provide quality affordable housing for low-income families. In 2004 the government dedicated US$500 million to redressing the shortfall of 1.8 million houses. Last year 90,000 homes were completed, with a further 156,000 under construction. More than 30,000 housing loans with subsidised rates were delivered to low-income households. In May, the housing ministry announced the construction of 50,000 new houses and 5000 new apartments.

The Chavez government also uses Venezuela’s oil revenues to assist other Third World nations. It has recently negotiated generous new financial terms for the sale of Venezuelan oil to Caribbean nations. “This could compensate for this horrible curve in the petroleum markets”, Chavez said on July 15. At the June 30-July 1 summit of the Common Market of South America (Mercosur), Chavez proposed a “petro-food” strategy, stating: “As long as the price [of oil] is above 100 dollars, we propose setting up a fund. For each barrel of oil that Venezuela exports, we propose donating US$1 to a fund. That is $920 million a year.”

Like Venezuela, Australia is a resource-rich country. But unlike the revolutionary socialist government in Venezuela, Australia’s pro-capitalist federal and state Labor governments implement policies to ensure continued enrichment of the super-rich families that own the productive wealth created by the sweat and toil of working people. Meanwhile, working families struggle to pay for inflated living costs.