Oil Shock and Debt Squeeze Australian Households

Oil closed the previous week at US$106 a barrel. In September, unemployment reached 4.7 per cent, and state government debt had more than doubled since 2019. Australian households face rising fuel and food bills as the Reserve Bank of Australia considers further interest-rate increases, weighing them against the risk of damaging jobs and economic activity.

The squeeze goes well beyond petrol. Diesel has climbed to around the level it reached at the start of the Russia-Ukraine war, pushing up costs for transport, manufacturing and food production. Wheat prices are up 37 per cent this year, soybeans 24 per cent, sugar 42 per cent and cocoa beans more than doubled. Australian inflation rose 0.4 per cent in August; higher petrol prices pushed that increase up.

Household Costs and Policy Choices

The RBA’s official interest rate stands at 4.6 per cent, a 15-year high. Inflation has stayed above the bank’s 2-3 per cent target for three of the past four years. After weaker job figures, markets cut the perceived chance of a rise to 4.85 per cent at the November meeting from about one in three to about one in five.

RBA governor Michele Bullock and senior RBA researcher Anthony Brassil laid out the dilemma: “If prices are rising faster than nominal incomes, households experience a direct loss of purchasing power. At the same time, weaker activity may mean that unemployment and underemployment are already increasing.” They said monetary policy “cannot eliminate the real economic loss caused by the shock. It can only influence how that loss is distributed over time.”

Borrowers paid a record A$21 billion in home-loan interest in the three months to June. Mortgage payments made up a smaller share of household disposable income than in 2024, and most borrowers remained ahead on repayments. Low-income people without mortgages have also faced higher rents over the past three years. Bullock and Brassil said high inflation imposes “the most significant burdens on households with limited financial buffers.”

Families are changing their plans, too. An AMP survey-based report found more than half of adults under 30 had changed plans about having children because of living costs, while close to half had reconsidered having children altogether. Nearly two-thirds said they needed to own property before starting a family. AMP calculated that saving a 20 per cent deposit took most people more than a decade.

Debt, Taxes and Delayed Reform

A Grattan Institute report said state government debts had more than doubled since 2019. Interest on state debt had doubled to 0.6 per cent of annual economic output and was likely to double again; borrowing costs to fund deficits had risen roughly four-fold since immediately before COVID. The report warned: “Tomorrow’s Australians will increasingly pay the price for today’s deficits, whether through higher taxes or worse public services.”

Grattan proposed lifting the goods and services tax from 10 per cent to 15 per cent and taxing fresh food, while considering the removal of exemptions for health and education. It said the changes would raise A$76 billion annually, including A$33 billion for income-tax cuts, about A$25 billion for welfare and rent assistance and A$18 billion for states facing rising health costs. The proposal would shift tax and spending responsibilities among households and governments; its political support remains uncertain.

The report also recommended ending the 2018 GST allocation deal with Western Australia, which it said would free A$6 billion for the federal budget. Anthony Albanese had rejected calls to abandon Western Australia’s favourable distribution. Treasurer Jim Chalmers said: “Power is much more effective right now in the distorting and blocking than the building or reforming.” Former treasurer Joe Hockey said, “There’s going to have to be a crisis now,” and that people would take “the medicine when they feel really ill about it.”

Climate Transition and the Workforce

A survey of 2,048 working Australians found 97 per cent believed large companies had at least some responsibility to act on climate change. Sixty per cent favoured a gradual shift away from mining and fossil fuels, with strong support for affected workers and communities. One in 20 thought concerns about those industries were overstated.

Workers aren't convinced by corporate claims. Almost four in five thought greenwashing was at least somewhat common, and fewer than one in 10 accepted sustainability claims at face value. Eighty-five per cent said they would trust an employer’s climate claims if disclosure were required by law and misleading claims carried penalties. The report’s author, Astghik Mavisakalyan, urged businesses to involve workers in transition planning and independently verify progress. Nearly four in 10 employees said they would take a job paying A$10,000 less at a company with strong, verified climate performance.

The report called cost-of-living pressure, technological change, geopolitical tension and climate change a “polycrisis.” These pressures aren't separate: oil costs, public debt, tax proposals and workplace transition plans all feed into the same economic reckoning for Australian households and workers.