Posted on by Colin Twiggs

Australia: Highest cost of living

Purchasing power parities (PPPs), exchange rates, and relative prices, by country, 2011

At 1.61, Australia has higher relative prices than Norway, Denmark, Sweden and Japan (listed in descending order). 61% higher than the US and 48% higher than the UK.

Index

Source: BLS

8 Replies to “Australia: Highest cost of living”

  2. “PPPs are an effective tool for international comparisons of output levels, but they should be used and interpreted with caution, as the accuracy of PPPs may be limited by several factors; for example, goods and services included in the calculation of PPPs may not be representative of the entire economy or comparable across countries.”

    “The resulting values indicate the domestic price, expressed in U.S. dollars, of a basket of goods that would cost exactly one dollar in the United States.”

    I wonder what’s in that basket? Probably the same as what the ABS uses which includes the cost of housing. And that alone must account for a large part of the difference between us and the the average of other countries.

    1. ” that alone must account for a large part of the difference between us and the the average of other countries”

      Not when you compare to the UK

  3. Interesting chart. Do the PPP’s include or exclude Goods and Sevices Taxes or equivalent. Would make a big difference in how interpreted.

    1. I couldn’t find anything to confirm this but I would expect that GST was included as part of the cost of goods. That would make our comparison with the UK, where the standard rate of VAT is 20%, even worse.

      1. I suspect the comparison rates do include GSTor VAT. Which would make our comparison worse not only with the UK, but with many other countries on the list. The rates vary a lot and many countries have reduced rates for Food, Pharmaceuticals and other items to further confuse the issue, the UK has nil rate on Foodstuffs as we do, while Denmark and Sweden both have VAT at 25%, but Sweden has a reduced rate for foodstuffs (12%) and Denmark has no reduced rates. It may also be that the USA does not include Sales tax in their comparison as it is added on to the bill and not included and there are also State and City taxes. These factors may reduce the value of the table in country to county comparisons, however I believe that Australia would still come out very high in cost of living comparisons.
        This perhaps helps to explain why so many parts of our economy (manufacturing, retail etc.) are in trouble and suggests a major shake up of the non-mining section of the economy. I read recently (2012) a rather speculative essay which looked at the issues concerning international competition for retailers following the surge in internet purchasing. Retailers compained that costs in Australia were very much higher than in most other countries eg wages and interestingly commercial rents. The author speculated that over a period of time both wages and commercial rates would be forced to reduce in order that Australia would be able to compete on a global market. The knock on effects of this would be considerable, including a potential reduction in commercial land prices and perhaps even non commercial land prices. I know a particular interest of yours is the potential for taxes to be levied on land, which I also believe should be in consideration, I wonder if you would have any comments.

      2. Wages and rents will fall over time in response to increased international competition, but this would most likely be achieved by a falling dollar as imports rise and exports fall.

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