THE AGE of 1 February 2025 carried an article by Millie Muroi suggesting “The CPI isn’t an accurate measure of our cost of living”.
The claim is quite true.
Whereas a rental equivalent for housing and the cost of building new homes is included in the CPI, an allowance for the escalation of residential land prices is not. Table 61 to the National Accounts shows that Australia’s residential land values increased from $410.5 billion to $7711.6 billion between 1989 and 2024, an extraordinary average increase of 11.0% pa.
Therefore, as ‘real’ wages are determined by dividing nominal wages by a cost-of-living index, an allowance for land prices is essential if the index is to be anything like realistic.
So, who is served by denying the true rate of inflation?
It looks suspiciously like Australia’s politicians, banking and the real estate industry are on a mission to keep the measure of inflation lower than it really is.
We ignore to our peril the case for an all-in land tax to keep a lid on Australia’s escalating land prices, as proposed by the Henry Tax Review.