As the cost of living crisis becomes ever more acute, many people are forced into terrible choices. A visit to the doctor is out of reach as bulk billing practices disappear. Prescriptions go unfilled. Ballooning energy bills have turned something as simple as keeping warm into a luxury. While Australia may not be officially in a recession yet, life is tough for people living on benefits, retirees and students. It is also a struggle for those with a job, whose pay will no longer stretch to cover the basics.
Demand is spiking for help from food banks. According to the largest in the country, Foodbank Australia, more than a million people each month seek their help — many of them workers. The organisation says, “A job isn’t a shield against the cost of living crisis.” A staggering 54% of food insecure households have someone in paid work!
The general cost of living catastrophe is coupled with a housing crisis. For those with a mortgage, the Reserve Bank has jacked up interest rates twelve times in the last 14 months. Rates were first increased in May 2022, meaning that households with the average $600,000 mortgage have had to find an extra $17,000 a year in repayments. As a result, 27.8% of households with a mortgage are now suffering “mortgage stress,” and all but the wealthiest mortgagees are feeling the pinch.
Rents have skyrocketed, so for renters, the situation is even worse: couch surfing, camping out or living in a car are the bleak options for those who can’t compete. In Melbourne they have jumped 20% in a year! People are struggling — almost half of renters report feeling increased pressure from the rising cost of living and a whopping 40% believe they will have difficulty paying their rent in the next three months. Vacancy rates have plummeted to levels not seen before and there are huge waiting lists for public housing.
The price of everything is going up. In the last year, dairy foods have shot up 14.9% and bread and cereals by 11.8%. The cost of energy is hitting many households. In the March quarter, electricity increased by 15.5% and natural gas by a punishing 26.2%. The average cost of running a car went up by $28.31 a week in the same period. In July, the Consumer Action Law Centre found that Victorians seeking help to pay for electricity have seen their average energy bill debts blow out to almost $2,500 — an increase of nearly $750 since 2021.
Demand is soaring at food banks as prices rise. The cost of dairy products has shot up by 14.9% in the last year!
Inflation and what’s driving it. Inflation began rising across the world when the economy opened up after pandemic lock downs. It hit 40-year highs in both the United Kingdom and the United States. In Europe it reached 10.6%. The average among all the wealthiest capitalist economies is 10.7%. At the time of writing, rates are trending down, but the damage has already been done.
In Australia, the annual “headline” inflation rate was 5.6% at the end of June. This is itself an average of the increases in all commodities and services and is hardly cause to celebrate. The slowing inflation rate does not mean that prices are coming down. It just means they are not going up quite so fast!
In May 2022, Australian voters turfed out the conservative government of Scott Morrison, electing a Labor government led by Anthony Albanese in its place. In response to a decade of stagnating wages, Labor’s pledge during the election campaign to get wages moving resonated with beleaguered workers. Still, according to research from the Australia Institute, workers are experiencing the biggest fall in real wages on record!
According to the Australian Bureau of Statistics, wages increased by just 3.6% in the last year, an actual cut in real wages. In the public sector, wage growth is now running at a miserable annual rate of 2.5%
Economist Jim Stanford from the Centre for Future Work shows that profits, not wages, are fuelling inflation. His thorough research demonstrates that corporate profits are behind approximately 70% of inflationary rises. This research has been confirmed by the OECD, which also found that corporate profits contributed far more to Australia’s rise in inflation through the past year than wages and other costs.
In Australia there is no doubt that profits are surging. In February, the Commonwealth Bank — enjoying the bonanza from increased interest rates — announced a six-month profit of $5.15 billion!
Big supermarket chains Coles and Woolworths are also generating huge profits. Coles announced an 11.4% jump — $616 million — for the six months to last December. Woolworths topped that with a handy $907 million, up 14% on the last financial year. Meanwhile prices at both grocery giants are going through the roof — up 7.7% on average.
Price gouging is also rife in the airline industry. International airfares are up by 50% since before the pandemic and domestic fares increased by 10%. This is despite declining costs for jet fuel. With costs falling while fares jump, airlines are posting increased profits. Qantas took $1.4 billion in profit, after illegally sacking thousands of staff and pocketing around $755 in government subsidies during the height of the pandemic.
Despite the clear evidence that profits are fuelling inflation, the RBA continues to peddle the orthodoxy that wages are to blame for inflation. The bank embraces monetarist economic policy and sees the solution to inflation in tightening the supply of money. Increasing interest rates shift the pain of fighting inflation to the indebted working class.
Along with being able to print money, controlling interest rates are the tools that the RBA uses to influence the economy, particularly inflation and unemployment. This policy is held at arms length from politics and is supposed to be neutral. However, the RBA has never been independent of the capitalist class and is a servant of its interests.
Broadly speaking, bourgeois economists fall into two camps — monetarists and Keynesians. Both see inflation as a problem for the capitalist economy. Monetarists believe it is simply increases in the money supply that are behind inflation. Their solution is to cool the capitalist economy by taking money out of the economy, through such things as slashing wages and cutting jobs. In contrast, Keynesians emphasise putting limits on demand to subdue prices.That means slashing wages and cutting jobs! Under either approach, workers bear the burden of a failing economy.
Students in high school economics classes are taught the formulation that inflation is too much money chasing too few goods. They do not get to explore the obvious question: why are there too few goods and what to do about this?
Human needs are not factored into the capitalist economic equation. There are too few goods because the market has failed. Far from efficiently allocating resources, it has proved unable to provide the basic necessities of life. In a capitalist society, neither the supply of money nor economic output is fixed or independent. Under capitalism, both are subject to the same driving force: production for profit. In place of the capitalist chaos — where nothing is planned and market forces prevail — we need planned production based on human needs.
Concocted capital. When profit rates are low, capitalists don’t invest — they prefer to speculate. Speculation means that money is put into the economy without anything of concrete value backing it up. Speculators seek to create more money, but without actually creating any value in the form of goods and services. Marx referred to this as “fictitious capital,” because real wealth can only come from the value added to goods by workers’ labour.
Another form of fictitious capital is government spending on armaments. Armaments do not produce the means of making more capital — such as factories, machines, or infrastructure — for productive use. Nor do they produce useful consumer goods. Hardware for military purposes also becomes obsolete by design (if not used to kill and destroy), and it needs to be regularly replaced without being used.
The workers in the armaments industry have the same needs as other workers, but this has to come out of the useful, necessary productive effort of society as whole. The Australian government has budgeted to spend $368 billion on the AUKUS program. The expenditure on these nuclear submarines is a form of unproductive consumption, both inflationary and a colossal drain on the economy.
Class struggle. When it comes to inflation, it all boils down to the question of class politics — who gains at whose expense? Inflation doesn’t make society richer overall, but it does redistribute wealth from debtors to creditors and from workers to capitalists. Prices always rise faster than wages because of the profit component of prices. In a capitalist society, the share that goes to wages versus the share that goes to profits is a constant tussle. Workers fight for better wages while the the top end of town seeks to make ever greater profits.
The focus of governments and central banks is on technical monetary policies, which shift the cost of inflation onto workers and the poor. For the working class, the fight must be to resist this perpetual austerity by fighting for higher wages and increased social spending.
Australia’s regime of harsh anti-union laws must go. This will unshackle workers to fight for improved living standards. We must assert our right to strike. Workers have the ultimate power to withdraw our labour, which is the source of profit. No work means no profit!
We must demand:
— that the stage three tax cuts be scrapped. This will immediately free up $243 billion, which can be used to increase welfare payments and to boost wages for low-paid workers, such as early childhood educators and those in the care economy such as aged and disability care.
— that rent controls be imposed immediately. Housing is a right. Scrap the AUKUS submarine deal, and redirect the $368 billion into a program of constructing mass public housing.
— a living wage for all! Incomes must keep pace with the increased cost of living with wages and social security payments automatically adjusted to keep pace with inflation.
— Nationalise the energy industry and put it under workers’ control. In the meantime, increase and enforce taxes on corporations. Many of the biggest corporations pay no tax at all! Impose windfall profit taxes on industries, like oil and gas, that are price gouging and fuelling inflation. Massively increase mining royalties. Fossil fuel corporations need to pay for carbon pollution.
Inflation is a symptom of a very sick capitalist system. The only cure that does not shift the pain onto the working class majority is socialist planning, public ownership, and workers’ control.
