The cost of living

and age pensioner households

Issue 4 2016

From data available in July 2016

Page 1 / August / Cost of living age pensioner households, Issue 4

About QCOSS

The Queensland Council of Social Service (QCOSS) is the state-wide peak body representing the interests of individuals experiencing or at risk of experiencing poverty and disadvantage, and organisations working in the social and community service sector.

For more than 50 years, QCOSS has been a leading force for social change to build social and economic wellbeing for all. With members across the state, QCOSS supports a strong community service sector.

QCOSS, together with our members continues to play a crucial lobbying and advocacy role in a broad number of areas including:

  • sector capacity building and support
  • homelessness and housing issues
  • early intervention and prevention
  • cost of living pressures including low income energy concessions and improved consumer protections in the electricity, gas and water markets
  • energy efficiency support for culturally and linguistically diverse people
  • early childhood support for Aboriginal and Torres Strait Islander and culturally and linguistically diverse peoples.

QCOSS is part of the national network of Councils of Social Service lending support and gaining essential insight to national and other state issues.

QCOSS is supported by the vice-regal patronage of His Excellency the Honourable Paul de Jersey AC, Governor of Queensland.

Lend your voice and your organisation’s voice to this vision by joining QCOSS. To join visit the QCOSS website (

ISBN – 978-1-876025-90-8

© 2016 Queensland Council of Social Service Ltd. This publication is copyright. Non-profit groups have permission to reproduce part of this book as long as the original meaning is retained and proper credit is given to the Queensland Council of Social Service. All other persons and organisations wanting to reproduce material from this book should obtain permission from the publishers.

Contents

About QCOSS

Contents

Executive summary

A basic standard of living

How are our model households faring?

Change in overall budget position

Change in the cost of goods and services based on CPI

Change in expenditure for our model households

Housing costs

Automotive fuel and private motor vehicle costs

Council rates

Phone and internet

Financial and insurance costs

Health costs

Electricity costs, water and sewerage costs

Year-to-year changes in income

Age pension

Commonwealth Rent Assistance

Concessions

Recommendations

Conclusion

Figures

Figure 1: Amount above and below a basic standard of living (per week), July 2016

Figure 2: Amount above and below a basic standard of living for four model households, July2013 to July 2016.

Figure 3: Cumulative change in the cost of goods and services based on CPI, Brisbane, June 2011 to June 2016

Figure 4: Annual change in the cost of goods and services based on CPI, Brisbane, June 2015 to June 2016

Figure 5: Average weekly rent by Brisbane region for one-bedroom units over five years (June 2011 to June 2016)

Figure 6: Average weekly rent by Brisbane region for two-bedroom units over five years (June 2011 to June 2016)

Figure 7: Proportion of expenditure by expenditure category, single renter July 2016.

Figure 8: Proportion of expenditure by expenditure category, couple renter July 2016.

Figure 9: Increase in the maximum rate of Commonwealth Rent Assistance versus rents in Brisbane (using rent category of CPI), March 2008 to June 2016

Figure 10: Annual value of concessions for four example households, July 2016

Figure 11: Annual value of concessions (per person) for four example households, July 2016

Figure 12: Amount above and below a basic standard of living for four example households, with concessions and without concessions, July 2016 concession data compared with June 2016 income and expenditure data.

Executive summary

Significant increases in the cost of living over recent years have indisputably impacted many Queenslanders. Unfortunately, it is low-income households who are most affected by the rising costs of essential goods and services and who are most at risk of falling into a cycle of poverty and disadvantage as a result of cost of living pressures.

Older Australians who rely on the age pension are one low-income group who are significantly impacted by cost of living pressures. In 2013, when our first age pensioner Cost of LivingReport was released, there were 434,174 Queenslanders receiving the age pension.[i] This has now grown to 477,029 which represents an increase of 10 per cent over three years.[ii] This growth is expected to continue, with the Queensland Government estimating that the number of people aged 65-84 in Queensland will more than double from 491,000 in 2010 to 1.3 million by 2050.[iii] The cost of living pressures experienced by age pensioners in Queensland are therefore likely to affect a growing number of people and potentially place greater stress on social services in the future.

This report examines the incomes and expenses of four model age pensioner households to identify whether they can meet a basic standard of living. The report uses publicly available data to estimate the basic income and expenditure for four types of households. This is the fourth age pensioner Cost of Living Report compiled by the Queensland Council of Social Service (QCOSS) since 2013.

This report demonstrates that housing and utility costs continue to have a significant impact on the capacity of age pensioners to afford a basic standard of living. In particular, the study shows:

  • Rising housing costs and the battle to meet those costs is the single biggest financial burden for pensioners, especially for those who rent in the private market.
  • Single and couple households renting privately are most likely to be in housing stress (with almost 50 per cent of their gross income being spent on housing costs).
  • Our model couple age pensioners living in Brisbane who rent in the private market are not able to meet the costs associated with a basic standard living, and our model single renter is just able to meet their basic costs with only a few dollars to spare each week.
  • Without further support, renters who rely on the age pension in Brisbane will have to make tough choices about their expenditure, compromising their quality of life.

This report calls for urgent and targeted action to address the significant costs associated housing for Queenslanders dependent on the age pension, and makes recommendations to improve the affordability of other key expenses impacting pensioner households in Queensland.

A basic standard of living

QCOSS has produced this Cost of Living Report – Special Edition: The cost of living and age pensioner households, Issue 4 to gain a better understanding of the capacity of age pensioners to meet a very basic standard of living.

As with QCOSS’ previous Cost of Living Reports, this report uses very modest estimates to determine a basic standard of living. A basic standard of living is defined as, “one that goes beyond survival (for example food, shelter and clothing) – it provides an opportunity for quality of life (incorporating health, safety, use of facilities and services, connecting with people, a holiday) and access to a modest number of things that contribute to social inclusion and wellbeing (such as recreation, entertainment and social outings).”[iv]

It is imperative to consider that the findings within this report are based on a very basic living standard, one that allows very little room for improvement or any buffer from unexpected costs. Put differently, even making do according to this standard still leaves one at constant risk of vulnerability.

In determining the income and expenditure, this report follows the methodology used in QCOSS’ previous Cost of Living Reports.[v] This is then modified to apply specifically to age pensioners through a set of assumptions relevant to each of the four model households.[vi]

To estimate expenditure, the report draws on data from the Australian Bureau of Statistics’ (ABS) Household Expenditure Survey (HES)[vii]. As the HES data is only collected every six years, this is adjusted using Consumer Price Index (CPI) data to account for changes in the cost of goods and services over time. HES data is supplemented with real data for rent, public transport, housing, and council rates and charges (including water and sewerage) as this is readily available. The data used is that available from July 2016 unless otherwise stated. To ensure the findings are consistent, data is for Brisbane only, unless otherwise stated. Income data is generated from the Centrelink Online Estimator, which provides up-to-date information on government pensions and allowances.[viii] This methodology provides a broadly realistic picture of expenditure and income, noting of course that the expenses of any individual or family will differ from the ‘model’ according to their specific experiences and circumstances.

In 2011, the Productivity Commission noted that older Australians “generally want to remain independent and in control of how and where they live”.[ix]Therefore, the four model households used in this report live independently.The households include:

  • Barbara: aged 72, rents a one-bedroom apartment and relies exclusively on public transport
  • Pat: aged 69, owns a three-bedroom house (debt-free) and owns a small car
  • Charlie and May: aged 75 and 73, rent a two-bedroom apartment and rely exclusively on public transport
  • Liz and Bryan: aged 71 and 74, own a three-bedroom house (debt-free) and own a small car.

The main differences between each of these households are the number of people in the household, the type and size of their housing, whether they own or rent their home, and the type of transport they use. This necessitates some differences in the way income and expenditure is estimated.[x] As different assumptions are used for each household, caution should be used in comparing the outcomes across all households. Rather, the situation for each individual household should be compared with figures in subsequent QCOSS Cost of Living reports.

*Please note: Updates to our approach[xi] in this issue mean that care should be taken when comparing the data for the households in this report with previous reports in this series. Where comparisons are made between this report and earlier reports from 2013, 2014 and 2015, data has been updated to enable accurate comparison over time.

How are our model households faring?

The results in Figure 1 and Table 1 below provide a clear picture of the capacity of our four model households to afford the basics in life.

Overall, it appears our homeowner households can afford a basic standard of living, assuming there are no unexpected additional expenses incurred throughout the year.

  • Our home owner couple, Liz and Bryan, earn $84 per week more than a basic standard of living, or $42 per week per person.
  • Our single home owner Pat, earns $38 per week more than a basic standard of living.

However, the situation for our households who rent in the private market is untenable.

  • Our single renter Barbara, is able to meet a basic standard of living, however with only $5 per week to spare.
  • Renters Charlie and May, cannot afford a basic standard of living because they earn $31 per week less than is required.

As demonstrated by this data it is evident that those pensioners who rent privately are at greatest risk of poverty. The data demonstrates that many households in this situation would be required to forego certain basic goods and services in order to survive, as they simply do not have enough income to meet the costs for a basic standard of living.

Figure 1:Amount above and below a basic standard of living (per week), July 2016

Table 1:Weekly budgets for our four model households[xii] (accessible version in Appendix A)

July 2016 / Single / Couple
Renter, Barbara / Home Owner, Pat / Renters, Charlie and May / Home Owners, Liz and Bryan
Weekly expenses / Weekly expenses / Weekly expenses / Weekly expenses
Food and Drink / $78 / $78 / $155 / $155
Clothing and footwear / $11 / $11 / $23 / $23
Rent (including water) / $245 / $0 / $325 / $0
Electricity / $17 / $18 / $19 / $19
Household contents and other services / $46 / $59 / $46 / $59
Health / $28 / $28 / $55 / $55
Private motor vehicle / $0 / $76 / $0 / $76
Automotive fuel / $0 / $16 / $0 / $32
Transport / $14 / $0 / $27 / $0
Phone/Internet / $9 / $9 / $18 / $18
Recreation/Entertainment / $25 / $25 / $55 / $55
Annual Holiday and Travel / $5 / $5 / $9 / $9
Home and Contents Insurance / $9 / $14 / $9 / $14
Emergency savings / $10 / $10 / $10 / $10
Rates / $0 / $19 / $0 / $19
Water and Sewerage / $0 / $13 / $0 / $13
Household Maintenance and Repairs / $0 / $18 / $0 / $18
Total Expenditure / $497 / $399 / $751 / $575
Weekly income / Weekly income / Weekly income / Weekly income
Age Pension / $397 / $397 / $599 / $599
Pension Supplement / $33 / $33 / $49 / $49
Rent Assistance / $65 / $0 / $61 / $0
Other / $7 / $7 / $11 / $11
Tax / $0 / $0 / $0 / $0
Total Income / $502 / $437 / $720 / $659
Weekly difference / $5 / $38 / -$31 / $84

Change in overall budget position

All our model households have experienced improvements in their overall budget position compared to the first age pensioner Cost of Living Report released in August 2013. As Figure 2 below demonstrates:

  • Our couple homeowners, Liz and Bryan, experienced the largest improvement of $30 per week in their overall combined budget position between July 2013 and July 2016. Their budget position has steadily increased over time from $54 per week above a basic standard of living in 2013, to $65 above in 2014, $77 above in 2015 and $84 above in July 2016.
  • Our single homeowner, Pat, experienced the second largest improvement of $16 per week in her overall household budget position between July 2013 and July 2016. Her budget position has also steadily increased over time from $22 per week above a basic standard of living in 2013 to $28 per week above in 2014, $34 per week above in 2015 and $38 per week above in July 2016.
  • Our couple renter household, Charlie and May, have had their overall combined budget position increase by $25 per week between July 2013 and July 2016, however this is little comfort given they remain unable to afford a basic standard of living. Their overall budget position improved from $56 per week below a basic standard of living in 2013, to $43 below in 2014, $42 per week below in 2015 and $31 below in July 2016.
  • Our single renter household, Barbara, has had her overall budget position increase by just $1 per week between July 2013 and July 2016. Her overall budget position has fluctuated more than others over the past three years, decreasing from $4 per week above a basic standard of living in 2013 to $2 a week above in 2014 and then increasing to $10 per week above in 2015. However, her budget position has decreased this year, falling to just $5 above a basic standard of living in July 2016. This is in part due to variations in rental costs for one-bedroom apartments, as discussed in later sections of this report.

Figure 2:Amount above and below a basic standard of living for four model households, July2013 to July 2016.[xiii]

Change in the cost of goods and services based on CPI

Figure 3 below displays the cumulative changes in the price of selected goods and services over the past five years to June 2016. The graph demonstrates that the costs of essential goods and services have increased at a much faster rate than discretionary items.

It also demonstrates the limitations of using the overall CPI to determine how low-income households are faring and whether they are experiencing cost of living pressures. That is because low-income households typically spend a greater proportion of their income on essential items therefore they are disproportionately impacted when the cost of essentials outpaces overall CPI. It is critical then to examine the impact of changes to specific expenditure categories when analysing the impact of cost of living changes on low-income households.

Our methodology uses CPI data to estimate expenses for some categories, but uses real data for expenses such as rent, public transport, rates, electricity and water and sewerage. As such, the increases in the CPI categories do not always align with the changes in the expenditure for our model households.

Figure 3:Cumulativechange in the cost of goods and services based on CPI, Brisbane,June 2011 to June 2016

Figure 4 below shows the change in the cost of essential items versus more discretionary goods and services between June 2015 to June 2016. This can be compared against the five-year cumulative changes in Figure 3 above, to demonstrate the current and emerging drivers of cost of living pressure for our four model households.

Based on the CPI data, there have been notable increases in the cost of essentials such as Water and Sewerage (2.7 per cent) and Health (4.3 per cent), both increasing above overall CPI this year. Two of the discretionary items listed (Furniture and Furnishings, and Clothing and Footwear) have also increased faster than overall CPI during the past year. This is in contrast to the previous five years where the change in the cost of these items was lower than overall CPI.