The biggest lie of all. One of the biggest lies sold to us by the Government which allows banks to control us, is excluding the price of existing houses and interest on mortgages from the inflation figure.
The population is made up of around 33% renters, 35% mortgage holders and 30% outright owners. While rent is included in the inflation figure, interest costs aren’t.
The reason for this is simple, if interest rates were included every time the RBA increased interest rates inflation would increase. This is exactly what happens but the government doesn’t want to tell you that.
They don’t want to tell you that because they want to pass on the cost of their reckless spending to hardworking Australians without them knowing it.
Quite frankly it’s time interest rate decisions were taken from the RBA and given to the government of the day so they are held responsible for high inflation caused by high immigration and reckless spending.
Committee on 9/09/2024
Item Economics References Committee – 09/09/2024 – Australian Bureau of Statistics production of inflation rate statistics
Senator RENNICK: My question is around the way you value the cost of housing, and accommodation in general, through the CPI index. Just to confirm, do you exclude the cost of land from the CPI, as well as existing dwellings?
Mr Goldsworthy : Yes, that’s right.
Senator RENNICK: What about interest expense?
Mr Goldsworthy : That’s not in the CPI, but it is in the selected living cost indices.
Senator RENNICK: It’s not included in the last inflation figure, is it?
Mr Goldsworthy : No. That’s right.
Senator RENNICK: Most people buy existing dwellings on existing land, so I guess my point is that it’s skewed. I think you’re underestimating the cost of inflation, aren’t you, by excluding the cost of existing dwellings and land?
Mr Goldsworthy : No. As my colleague tried to explain—and this is quite complicated—the sale and purchase of an existing dwelling is within the household sector, so we don’t capture those transactions, just like we wouldn’t capture, presumably, the sale of a second-hand motor vehicle between two individuals.
Senator RENNICK: You could say that about food or anything—that it’s within a certain sector.
Mr Goldsworthy : No. We’re purchasing food from a business, so it’s outside the household sector. What we capture in the CPI for housing is the cost of building new construction—the cost of the materials and the cost of labour in constructing the new dwelling.
Senator RENNICK: There are two issues there. First of all, new houses are generally built on the edge of a city, so they’re going to be the cheapest and furthest away from the CBD, or whatever. So you’re skewing towards lower-cost houses, for a start. Secondly, it’s a big assumption to make, just because you’re buying and selling. It’s an intergenerational issue as well. You’re not capturing the intergenerational issue by excluding the cost of existing housing, land and interest rates.
Mr Goldsworthy : It would be cheaper in the outer suburbs because of the lower cost of land, and we exclude land from the CPI, so that doesn’t matter.
Senator RENNICK: It does matter, because 85 to 90 per cent of the housing stock is existing housing. So to exclude 80 to 90 per cent—whatever it is—of your existing housing stock seems disingenuous to me.
Mr Goldsworthy : Again, I think we need to come back and remind ourselves what the CPI is trying to do. One indicator cannot serve all purposes. The CPI is very much a macroeconomic measure of inflation to inform government, the RBA and economists.
Senator RENNICK: Exactly. Rather than just have rents and new housing, you should also include the cost of land, existing buildings and interest rates, because 33 per cent of people don’t rent. They actually have mortgages.
Mr Goldsworthy : The cost of land isn’t included, because it’s an asset. It’s quite different in nature to—
Senator RENNICK: But it’s a foregone consumption so there’s an opportunity cost there. I know what your argument is. I’ve heard the ABS say before that it’s an asset. The point is that that asset is something that you’re sleeping in. If I don’t buy a million-dollar house, I can buy a million-dollar business or spend that million dollars somewhere else. There’s an opportunity cost there because you’re forgoing consumption somewhere else in order to have a roof over your head. Do you accept that?
Mr Goldsworthy : I fully appreciate that when someone goes to buy a house they need to purchase the land to go with the house. I fully accept that.
Senator RENNICK: And it’s a form of consumption because you’re not using that to produce anything. You’re consuming the fact that you need a place to rest.
Mr Goldsworthy : The dwelling component is consumed over time. The land component is an asset that isn’t consumed. It doesn’t depreciate in value like other consumer durables, so it’s quite different in nature.
Senator RENNICK: That’s right. The point is, though, that you’ve still got to pay interest and everything on that land now. So for the 33 per cent of people who have a mortgage, if that land increases then the interest increases. You’re not counting land, but you’re also not counting interest. Yes, you’re capturing rents—tick; that’s fair enough—but you’re not capturing the interest side of it, which is another 30 to 33 per cent of the housing market.
Mr Goldsworthy : We don’t capture it in the CPI but we produce other indexes. Like I said, one index can’t serve all purposes. We produce selected living cost indices, and they do include mortgage interest costs.
Senator RENNICK: I think we’ll agree to disagree on that. I think you’re underestimating the cost of housing, but that’s okay.
My other issue is that, in terms of your weighting, you have housing at 22.9 per cent. You’ve actually decreased it, ironically enough, to 21.74 per cent in 2024 from 2019. But furnishings, household equipment and services are 8.43 per cent of your CPI basket, which is about 37 per cent of housing. How is it that your furnishing and household equipment is 37 per cent of the principal cost of a house? If I buy a house for $1 million, my furnishings aren’t going to cost $370,000. Even if you assume that your furnishings depreciate at twice the rate of your length of time in the house, I’m still not spending 180 grand. I bought a million-dollar house. I might spend 50 grand, tops, on furniture. Don’t you think that the weighting of furniture and household equipment relative to the price of the house is disproportionate and too high?
Mr Goldsworthy : It might be useful to go back. I might get my colleague to take you through how we calculate the weights, and then how we update them each year.
Ms Marquardt: There’s a reason that the weight for housing might have dropped. The way I like to think about it is that you’ve got a set budget. Let’s say, for argument’s sake, that the budget of a household is $100,000. What those weights show is how much is being spent of that fixed budget on each of the different things in the budget. As we were discussing before, with Senator Roberts, the weight for international travel has increased because there are more people travelling overseas than there were during COVID. Consequently, that means that some of the weights for other things have come down because it still needs to add up to 100 per cent. That’s part of the answer.
The weight of furniture versus the weight of housing—again, coming back to housing as measured in the CPI—is the price that the household sector is paying to build new houses. So it’s not every single house in the country. I think you weren’t here when we were having this discussion with Senator Roberts, but conceptually, if you sell a house to me, you make the money from the house that you’ve sold and I pay that amount, so those two things net out. They’re not included. Transfer of houses between people in the household sector is not included. It’s really just transactions between all households—the household sector—and business and government. So the weight does appear small, but that’s because it’s only counting the expenditure on new dwellings.
Senator RENNICK: Sorry to interrupt you there. I have a counterargument there: the interest you pay to a bank. I can assure you banks aren’t in the household sector; they’re in the business sector and a very profitable part of the business sector.
Ms Marquardt: Yes.
Senator RENNICK: So yet again it comes back to this point: if you want to make that argument about consumption on housing with the buying and selling of the house, that’s not the same for interest. Often the interest ends up costing more than the entire cost of the house over the lifetime.
Ms Marquardt: Yes. So, as we were just discussing, mortgage interest charges are in the living cost indexes, and they do increase.
Senator RENNICK: But not in the CPI.
Ms Marquardt: Not in the CPI.
Senator RENNICK: That’s the point. If it were in the CPI, you’d see a much higher jump in the CPI over the last four years, where the RBA has increased interest rates by four percentage points. That in itself would put a brake on the RBA, because what they’re doing is pouring fuel on the fire. This isn’t your fault, I realise. This has been a longstanding practice.
Ms Marquardt: Yes.
Senator RENNICK: But it’s kind of—
Ms Marquardt: It comes back to what Brenton said. We can’t really have one index to do all these different things, so that’s why we produce all these different indexes. We promote them all basically equally. We put out news releases about all of those things.
Senator RENNICK: I accept that, but this index should be trying to get the best weighting that you can and not just the eight per cent for household furniture and the 22 per cent for the cost of housing. With housing costs, you dropped it to 21.74, which I find a bit bizarre given that rents have gone through the roof in the last few years. I would argue the cost of housing is much more than 21 per cent for many people. For the average income earner, the cost of housing would be closer to 40 or 50 per cent.
Mr Goldsworthy : I might just make a couple of quick points. One is that we don’t make judgements on the weights. We’re guided by the data—so the Household Expenditure Survey, the national accounts and household consumption patterns in the national accounts. So these aren’t judgements. We’re just guided by the data.
The other point I’d make—and I’d refer you to an article we published in May of last year—is that we did an international comparison of CPI, and in that article we included different approaches to measuring housing. Certainly New Zealand measures it using the same approach, and a number of the other countries we refer to exclude mortgage and interest costs as well. So I just want to be clear that we’re not doing anything unusual by international standards. Indeed, it’s very consistent with international standards.
Senator RENNICK: Yes, and I’m familiar with international standards, but that doesn’t change the fact that that’s a relative thing, not an absolute. Let’s look at the substance of the issue here. Let’s say an average income is $100,000, and you pay 25 grand in tax, so you’re down to $75,000. You’ve got an average mortgage of, say, $500,000 at six per cent. That’s $30,000 out of an after-tax income of $75,000. That’s closer to 40 per cent—just the interest. If you were renting, you’d be paying 50 weeks times $600, quite likely, for an average rental. That’s, again, $30,000 out of $75,000 net after tax. You’re saying it’s just over 20 per cent. You’re assuming rent or interest to be $15,000. I’m saying it’s closer to $30,000 or $40,000 for an average income.
Mr Goldsworthy : Yes, but again these aren’t assumptions we’re making. It’s driven by the data we have—
Senator RENNICK: Well, I’m questioning the data, because I’m giving you real-life figures here as well.
Mr Goldsworthy : I understand.
Senator RENNICK: I’m probably a little bit generous on the average income being $100,000.
Ms Marquardt: But it’s all households, so it’s not just mortgage interest payers. Some households don’t have a mortgage.
Senator RENNICK: That’s right. They’re the 33 per cent that don’t. I accept that you have 33 per cent renters and about 33 per cent mortgage holders and then 33 per cent outright landholders—they’re generally people who are older anyway. But I still think you’re undercooking the weighting. Anyway, I’ll leave that as a statement. Thanks for your time.
CHAIR: Thanks, Senator Rennick. Senator Roberts.
