Inflation’s impact on political stability has become increasingly evident across the globe. This year, governing parties in advanced economies uniformly experienced a decline in voter support—marking the first occurrence of this trend in over a century, as highlighted by Financial Times analyst John Burn-Murdoch. According to Burn-Murdoch, voters often fail to differentiate between domestic policy failures and global crises beyond a government’s control, such as pandemic-induced supply chain disruptions or geopolitical conflicts.
Australia is unlikely to escape this global phenomenon. Polling data suggests that the Albanese government could face a reduced majority or even a minority government in the upcoming federal election. The electorate’s discontent stems largely from two critical issues: cost of living pressures and migration challenges.
A Growing Cost of Living Crisis
Australia’s cost of living has deteriorated more than in most advanced economies over recent years. Since December 2019, consumer prices have surged by 18.1%, while wages have only grown by 14.5%. Consequently, real, inflation-adjusted hourly wages are approximately 4.5% lower than pre-pandemic levels, effectively erasing purchasing power gains made since 2011.
The Organisation for Economic Co-operation and Development (OECD) ranks Australia poorly in terms of wage growth and real disposable income. Real disposable incomes—a broader measure of living standards that accounts for taxes, inflation, and mortgage costs—have fallen 2% below pre-pandemic levels. By contrast, disposable incomes across OECD nations have risen by an average of 7.7%.
Several other nations have ousted governments that presided over far milder economic challenges. Australia faces a unique predicament where weak wage growth overshadows its relatively moderate inflation. The OECD attributes this to the dominance of collective bargaining agreements in Australia. Multi-year enterprise agreements cover over 60% of Australian workers, the highest rate among English-speaking countries. These agreements often lock in fixed pay rates for years, resulting in wage adjustments that lag behind economic cycles.
Rising interest rates have further strained household budgets. Variable interest rates tie approximately 85% of Australian mortgages, making borrowers particularly sensitive to changes in the Reserve Bank of Australia’s cash rate. Despite raising rates less aggressively than other central banks, Australian households have endured one of the steepest increases in mortgage costs.
Additionally, the phenomenon of “bracket creep,” where inflation pushes workers into higher tax brackets without corresponding increases in real income, has exacerbated financial pressures. Although recent tax cuts have offered some relief, their modest impact has done little to placate voters.
Migration and Its Discontent
Migration has emerged as another contentious issue for the government. In 2023, Australia experienced record levels of net overseas migration, admitting over 541,000 people. While this influx addressed critical skill shortages, it also sparked voter concerns about overstretched infrastructure and housing shortages.
Australia’s migration system has positioned the country as a top destination for working holidaymakers and international students. For example, nearly half of the world’s temporary workers resided in Australia in 2023, with the nation accounting for 15% of all temporary labor migrants across the OECD. Similarly, Australia ranked fourth in hosting foreign students, welcoming 11% of global education-related migrants.
Despite public discontent, efforts to reduce migration levels face significant obstacles. The Albanese government has pledged to limit net overseas migration to 260,000 annually, but analysts suggest this goal is unattainable given current trends. Recent policy changes aimed at curbing student migration have had limited impact.
The political implications
Historical evidence suggests that declining living standards often result in electoral backlash against incumbent governments. Australia’s economic and migration challenges have left voters increasingly dissatisfied. Approximately 16% of respondents in a November 2023 poll identified immigration as a key concern, a marked rise from 5% earlier that year.
The Albanese government is facing significant challenges as the federal election draws near. Despite efforts to stabilize the economy and manage migration, the electorate may prioritize immediate grievances over long-term strategies. Australia’s political leadership could soon face the same fate as others globally, underscoring the link between economic hardships and political instability.
