In the past 11 years Australia has become one of the most expensive places to live, costlier than New York, London, Frankfurt and Singapore on everything from five-star hotels, car rentals, public transport, a pint of beer, cigarettes, jeans and an iPhone

Australia: The costs are spiralling

April 23, 2013

In the past 11 years Australia has become one of the most expensive places to live, costlier than New York, London, Frankfurt and Singapore on everything from five-star hotels, car rentals, public transport, a pint of beer, cigarettes, jeans and an iPhone.

The survey, compiled by Deutsche Bank on prices and price indices on a range of products collected largely from the internet, concludes the US is the cheapest developed country in the world and Australia and Japan two of the more expensive.

According to the survey, Sydney remains the most expensive place for a weekend away, almost double the cost of a weekend holiday in New York. To put it into perspective, New Zealand weekend getaways are 25 per cent cheaper than in New York.Singapore-based Deutsche Bank global strategist Sanjeev Sanyal said the survey is a survey of prices and deliberately does not try to explain the data. It is more a case that the price comparisons speak for themselves and in Australia’s case it is massively more expensive on most goods and services. Like all surveys that compare prices, there will be some distortions but even if these are stripped out, a basic trend has been captured that is disturbing in a global context.

Australia is part of a global community operating in a competitive world. When prices are relatively higher than the rest of the world it raises questions about how we can compete and how do we become less expensive?

High wages, high input costs including energy and rental costs, the inflation bogey and the tyranny of distance all contribute to the country’s lacklustre productivity and falling competitiveness. But it has reached a point where something has to give.

The strong Australian dollar, as many countries actively try to reduce their exchange rates, is crippling manufacturing, retail, tourism and agricultural exports.

While this is a problem, the country doesn’t do itself any favours when surveys such as this show that a five-star hotel room in Sydney is more than double the cost of a comparable room in New York, London, Moscow and Paris.

And for all the moaning about the strong currency hurting exports, on the flip side it should be helping keep a lid on inflation and reduce the price of imports. Not so when it comes to products such as cars and cigarettes. For instance, the price of a new Volkswagen Golf 2.0 TDI (or equivalent) with no extras is 44 per cent higher in Melbourne relative to New York’s $US26,044 price tag and 51 per cent higher in Sydney. In Rio de Janeiro the car is 6 per cent cheaper and in Singapore the same car costs a whopping $US110,381.

The list of high prices goes on. The survey estimates that an iPhone costs $US819.33 in Australia, compared with $US649 in the US, $US802 in Britain and $US699 in Canada.

It shows that Australians also pay relatively more for their Big Macs, beer and cigarettes. A Big Mac is 12 per cent more expensive relative to the US, making it one of the most expensive burgers in the world. In Greece, Egypt and China Big Macs are half the price and in India they are less than a third.

Comparing the prices of a 25 pack of Marlboro cigarettes, Australia is the most expensive, with a price tag of $US17.22, compared with $US2.29 a pack in India, $US2.84 in China, $US3.51 in South Africa, $US1.10 in the Philippines and $US1.39 in Jakarta. In Australia’s defence, most of the price difference can be attributed to taxes.

Another product that captures high taxes is beer. Again, Australia ranks as one of the highest priced countries when it comes to beer, with an average pint costing $US8.20, compared with $US2.03 in Brazil, $US4.55 in Britain and $6 in the US.

Petrol is also relatively expensive in Australia, with a litre 71 per cent more expensive in Australia than in the US and 41 per cent more expensive than in China.

Whatever the reason for the higher cost of living, it raises questions about Australia and the cost of doing business.

Office space rentals in central business districts estimate that gross rent in Melbourne is 32 per cent higher than in New York in 2013, and more expensive than Berlin, Auckland, Shanghai and Toronto.

It is a big issue that state and federal governments and companies need to work out before Australia falls too far down the ranks of competitiveness.

It will make the consumer price index figures that are released on Wednesday all the more pertinent, particularly as the Reserve Bank waits to decide on what to do about interest rates next month.

The last set came in at lower than expectations but showed power and water were up by more than 14 per cent, while housing costs, health and education also rose.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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