Chapter 5Committee view and recommendations
5.1Australia is not alone in experiencing a cost of living crisis. Governments around the world introduced fiscal stimulus packages to support their economies during the downturns experienced from lockdowns, border closures and the slowing of international trade and goods exchange.
5.2As noted in the Second Interim Report, Australia performed better than most during the pandemic thanks to the economic and health response programs introduced by the former Government, including Job Keeper and the expanded Job Seeker programs.
5.3However, like other post-pandemic economies, Australia has experienced a spike in inflation. At first, international factors were a key contributor to inflation, but by 2024, domestic factors are the primary contributors to high inflation and poor economic growth, including housing, energy and food and grocery costs.
5.4In mid–2022, although Australia's inflation rate had risen sharply, it was below that of most comparable countries, such as the United States and United Kingdom. Currently, Australia's core inflation rate is higher than that of almost every developed nation, and the International Monetary Fund is also forecasting Australia to have the highest inflation rate over 2025 of any advanced economy, other than that of the Slovak Republic.
5.5The Reserve Bank of Australia has increased interest rates to bring down inflation. While a necessary measure, interest rates should be kept at a higher level only as long as necessary to limit unnecessary stress on the most vulnerable Australians.
5.6As real disposable incomes have gone backwards, many Australians are not just feeling poorer—in fact, they are poorer.
5.7Australians are in a per capita recession, yet, at a time when the Reserve Bank has increased the cash rate, the Labor Government and many state and territory governments have continued to spend unnecessarily. In doing so, they have made the cost of living crisis go on for longer than it needs to.
5.8To put this another way, it is households and small businesses who are experiencing a recession, while the Labor Government's unnecessary and undisciplined spending continues and perpetuates the cost of living crisis.
5.9A return to economic equilibrium requires prudent economic management. It requires sensible spending decisions. It requires a Government with steady hands and an understanding of the importance of balancing short-term political imperatives with sound economic principles.
5.10Unfortunately, the current Government has not demonstrated that it is capable of making sensible economic decisions, nor of managing the economy.
5.11As discussed in Chapter 2, the Labor Government's continued expansionary fiscal policy is making the cost of living crisis last longer. The Government lacks the economic leadership and will to take tough decisions that will deliver lower inflation and cost of living for Australians.
5.12The committee recommends the Australian Government convene National Cabinet to address excessive public expenditure by all levels of government that is keeping inflation higher for longer.
5.13The Labor Government has also enacted substantial industrial relations changes that are confusing and damaging for small businesses, increasing their costs of operating.
5.14Evidence provided to the committee suggests the changes are leading to small businesses deciding to reduce staff hours or not hire new staff, directly impacting how much money ordinary Australians are able to earn at a time when they need every dollar they can make.
5.15The changes also add further complexity to an already complex system, which will force business owners to spend more time working their way through red tape rather than working in their business, innovating, and growing it. The opportunity cost of this loss in growth and productivity should not be forgotten.
5.16As the committee heard from expert economists, one way to reduce inflation is for governments to enable higher productivity, since it is higher productivity that allows firms to boost profits and pay higher wages without having to raise prices. The Australian Government is responsible for stewardship of the economy, including measures to improve productivity.
5.17Australia's productivity growth has not just slowed, the nation's actual level of productivity has been going backwards over the last two and a half years while industrial relations reforms and increased red tape have pushed the economy in the opposite direction to the one in which it should be moving.
5.18Increased government spending can impact productivity over time, because it can crowd out productivity-enhancing capital investment, resulting in a weaker private sector. Increased regulation can also lead to reduced productivity because of the time and resources that businesses need to spend on understanding and adhering to regulation. It is clear that Labor Government policies and reforms are leading to reduced, rather than improved, productivity.
5.19The Productivity Commission pointed to the impact of industrial relations policy on productivity in its Advancing Prosperity report in March 2023. The committee calls on the Labor Government to provide an overview of its actions taken to date in response to this review.
5.20As stated in the Second Interim Report, the committee also calls on the Labor Government to repeal industrial relations reforms that have sent productivity backwards at a time when the economy desperately needs increased productivity to counteract rising inflationary pressures.
5.21The committee recommends the Australian Government convene National Cabinet to develop productivity-enhancing reforms for the economy, including establishing a national deregulation agenda.
5.22The committee made multiple recommendations in the Second Interim Report to the Australian Government to improve productivity and curb inflation. The Labor Government has not yet responded to these recommendations, nor given any indication that it has taken them seriously.
5.23In the meantime, Australians are struggling to meet basic costs for food, shelter and heating/cooling, and small businesses are struggling to stay alive. As the committee learned, the cost of living crisis is disproportionately impacting the most vulnerable, including children and young people, people with disability and their families.
5.24The longer the Labor Government refuses to take heed of sensible advice, from the overwhelming majority of independent economists and from the Reserve Bank of Australia, to curb government spending and to reduce government regulation, the longer the cost of living crisis will persist.
5.25The committee calls on the Labor Government to accept all of the committee's recommendations in full.
5.26The committee recommends that the Australian Government note the findings of the First Interim Report and accept in full all of the committee's recommendations made in the Second Interim Report.
5.27The committee has developed further recommendations intended to address increased costs for groceries, housing, insurance and small businesses, as well as to incentivise more charitable donations, based on the evidence received since the Second Interim Report. These are outlined below.
Food, groceries and the supermarket sector
5.28The committee notes that the Labor Government has announced it will make the Food and Grocery Code of Conduct mandatory, and that supermarkets will be subject to multi-million dollar penalties if they engage in serious breaches of the Code. The Australian Competition and Consumer Commission also recently announced that it had commenced proceedings in the Federal Court against Woolworths Group Limited and Coles Supermarkets Australia 'for allegedly breaching the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products'.
5.29While the committee acknowledges the benefits of making the Food and Grocery Code of Conduct mandatory, and of introducing multi-million dollar penalties for illegal conduct, the Labor Government's implementation of these measures has been slow, and these approaches in themselves overlook the key reason for why there are issues in Australia's supermarket sector. Officials from Treasury confirmed that these changes will not be implemented until April 2025, leaving Australians to do their Christmas shopping without any benefit associated with the policy. Officials also confirmed consultation on the Unit Pricing Code reforms announced by the Prime Minister on 2 October 2024 would not begin until the first quarter of next year, with the reforms themselves not expected until later in 2025.
5.30These reforms indicate the Labor Government's approach relies too heavily on regulators to enforce good behaviour or punish poor conduct. If supermarkets are engaging in anti-competitive practices and are unfairly passing costs onto suppliers, it is because there is a lack of competition. Consumers and suppliers suffer the most when supermarkets are able to dictate prices without a competitive market to dissuade supermarkets from engaging in such conduct in the first place.
5.31A more competitive supermarket sector would help to reduce prices for consumers during the cost of living crisis. It would help to ensure that suppliers, particularly those with little bargaining power, have more choice, leading to positive flow-on effects to small and medium sized businesses. It would support the domestic manufacturing industry by providing it with greater market power, leading to greater employment for Australians. It would also improve productivity and innovation, a key concern for this committee given, as noted above, improved productivity can curb inflation.
5.32Families and consumers should have access to affordable fresh food. Further, farmers and suppliers should be paid fair prices. Government penalties and regulation should be a last resort, not the first measure implemented to address issues arising as a result of an uncompetitive market. As such, the committee recommends that the Labor Government introduce sector-specific divestiture powers to manage supermarket behaviour and to address abuse of excessive market power by supermarkets. This would improve market competitiveness and productivity and provide a mechanism to address anti-competitive behaviour in the market.
5.33The committee recommends that the Australian Government introduce carefully designed divestiture powers as a last resort to manage poor supermarket behaviour and address supermarket price-gouging.
Housing
5.34Housing affordability and availability continues to be the main source of financial stress for Australian households, whether they are renting, buying or paying off a mortgage. The Labor Government has not yet responded to the committee's recommendations for the Australian Government to:
work with the states and territories, and local governments to remove planning and zoning barriers to delivering greater housing supply;
work with state and territory governments to reduce or remove housing taxes such as land taxes, windfall gains taxes, and other developer charges; and
support and legislate the Coalition's First Home Super Buyer scheme.
5.35Since the tabling of the Second Interim Report, the committee has heard that the cost of construction is not just an issue for the housing sector, with businesses also likely to benefit from an examination of building and construction issues as a whole. Evidence to this committee underlined the impact of escalating housing costs on the economy and inflation. It is well established that the construction industry has been unable to meet demand and experienced high levels of insolvencies, with construction business failure then impacting small business suppliers.
5.36Government construction projects are pulling skilled labour from work on residential construction and causing delays. There is high competition for skilled labourers who may prefer terms and conditions found at unionised Enterprise Bargaining Agreement sites, rather than in the detached home building sector which typically consists of work performed by independent contractors.
5.37In particular, the actions of the Construction, Forestry and Maritime Employees Union (CFMEU), which exerts considerable influence on commercial, multi-unit and government-funded construction work, have impacted competition for skilled labour and materials, at a time when there is already a crisis in skilled labour. As a result, construction times have increased, leading to further increased costs.
5.38The committee found that CFMEU Enterprise Bargaining Agreements have led to significantly higher new apartment prices than would otherwise be the case, in some instances between 10 and 33 per cent higher. Further, because of preferential treatment for the CFMEU, construction costs of major government projects in some states have been greatly elevated.
5.39The alleged illegality and corruption widely reported in July of this year represents not just a threat to law and order in Australia, but to Australians' cost of living. As the committee heard in evidence, the actions of the CFMEU impact costs across the sector, from labour to supplies, and drive up the cost of housing for apartments and detached builds. While the committee notes that the CFMEU has been put into administration, it is not clear whether this will do enough to stamp out illegality and corruption from the industry. The committee is of the view that the construction sector as a whole would benefit from deregistration of the CFMEU and support for the passage of legislation to restore a construction industry watchdog to ensure those with criminal or corrupt behaviour are permanently removed from construction sites.
5.40The committee has also formed the view that it is inappropriate that Australian Government funding is used to support elevated costs in state government projects as a result of preferential deals with the CFMEU. The Australian Government should not be supporting, whether directly or indirectly, the activities of any union that is alleged to have engaged in market-distorting conduct, nor should the Commonwealth be funding behaviour that creates undue dominance in a sector, by a particular union.
Recommendation 5
5.41The committee recommends that the Australian Government reinstate the Australian Building and Construction Commission to address lawlessness in the Construction, Forestry and Maritime Employees Union and reduce the cost of building new homes for Australians.
5.42The committee recommends that the Australian Government bring forward legislation to ensure registered organisations work for their members and not themselves, including giving Courts the power to disqualify officials of registered organisations that do not act in the interest of members, have a history of breaking the law or are otherwise not fit and proper to hold office in a registered organisation.
5.43The committee recommends that the Australian Government ensure that Commonwealth funding for state and territory infrastructure projects is not attached to projects with procurement arrangements that preference particular unions, driving up the cost of construction.
Not-for-profits
5.44The not-for-profit sector reported to the committee that it is experiencing demand even greater than previously reported for food and other donated goods, including from households where people hold multiple jobs. This suggests that there is an even greater imperative for incentives to donate to charities than there was when the Second Interim Report was tabled in May 2024.
5.45The sector is crying out for help. However, as is the case for the other recommendations from the Second Interim Report, the Labor Government still has not responded to the committee's recommendations that it consider tax incentives, deductions and other methods to encourage charitable giving of money, goods and services. Of all the committee's recommendations, these are among the most urgent, given people are foregoing food because they do not have enough money to buy groceries and eat. We live in a first-world country. No one should be going hungry because charities are unable to meet basic requests for food.
5.46Given the lack of action in this area by the Labor Government, it was timely that an Opposition senator introduced a private senator's bill in July 2024 which would see corporations eligible for a tax offset for particular expenditure that they incur when donating food to registered charities. It is imperative that charities and not-for-profits have sufficient resources to meet demand, in a way that does not contribute to inflation. Therefore, the committee recommends that the Australian Government support the passage of the bill in the Parliament.
Recommendation 8
5.47 The committee recommends that the Australian Government support the passage of the Tax Laws Amendment (Incentivising Food Donations to Charitable Organisations) Bill 2024.
Support for small business
5.48It is clear that the transition to renewables is leading to unsustainable costs for small businesses. Manufacturers expressed support for a higher asset-value threshold for the instant asset write-off to help eligible businesses with the energy transition, given the significant cost of upgrading equipment, as well as other costs involved at a time when industry is struggling, particularly small businesses in retail, hospitality and manufacturing.
5.49Under the current Government, businesses with less than $10 million aggregated turnover could claim an instant asset write-off until 30 June 2024 for items up to a threshold of $20 000. A bill is currently before the Senate to extend this measure to 30 June 2025.
5.50Given pressures on small business, the committee recommends that the Australian Government increase the threshold for small businesses with less than $10 million aggregated turnover, from $20 000 to $30 000. The committee further recommends that the instant asset threshold should be made a permanent feature of Australia's taxation system to provide certainty for small business. Small businesses are the backbone of Australia's economy, and governments should be doing everything they can to support small business innovation.
5.51The committee recommends that the Australian Government increase the instant asset write-off threshold for small businesses to $30 000 and make it a permanent feature of Australia's taxation system.
Senator the Hon Jane Hume
Chair