Australia: Lucky Country or Expensive Country?

That depends on which way you look at it. It also depends upon who you ask. Two major economic experts of the globe released two vastly contrasting stories with almost completely opposing headlines simultaneously last week, well, within a few days of each other.

I am grateful to 2 of my readers who both contacted me separately on the same day, Barry via Facebook and the Hailey directly by email.

Deutsche Bank versus The Economist

Let’s do this in the format of a very old joke. Ready? Okay, here goes.

There’s good news and there’s bad news, do you want the good news first or the bad news? At this stage, most people seem to want the bad news first, I suspect because it’s much better to end with good news. With that in mind, we’ll start with…

The bad news

Deutsche Bank says…

AUSTRALIA has become one of the most expensive places on the planet, as the price for everything from a Big Mac to an iPhone exceeds that of most other major developed countries.

The good news

The Economist says…

THE LUCKY COUNTRY: Index shows Australians need to work least to buy A Big Mac

I’m sure it did not escape anyone’s attention that in two simple statements it appears Australia has both the most expensive Big Macs in the world, whilst at the same time Australians appear to work the fewest hours, or minutes as is the case here, to earn the money to buy a Big Mac.

Big Mac

Big Mac anybody?

So are Big Macs expensive here or not?

If Deutsche Bank and The Economist can’t agree on this, then clearly it is not a simple yes or no question. Here’s my answer though; Big Macs are hugely expensive in Australia if you’re a tourist from, say, India, but Big Macs might just appear to be the cheapest in the world if you are resident of Australia and working here in this country.

Which, as my regular readers will know, is exactly what I’ve been saying with my hard yakka theory.

You can read much more about how ridiculously expensive Australia is by visiting the Deutsche Bank article over at news.com.au. Here are a couple of quotes I would like to bring to your attention though, simply because they are so important.

First, “In the past 10 years prices have soared around 200 per cent…‘ – that’s Australian prices apparently. The second quote is “All prices in US dollars“.

One US dollar

One US dollar

You see, in the Deutsche Bank statistics they are looking at the price of everyday items in Australia, then converting those prices into US dollars, then saying they have gone up hugely in the last 10 years.

In 2001, one US dollar could buy two Aussie dollars, a few months ago (about the time they would have been collecting data for this report) one US dollar equalled exactly one Australian dollar.

I’m no mathematician, but that sounds suspiciously close to the equivalent of a 200% rise (see note below) to me.

So why does The Economist say Australia is The Lucky Country? If you read the full article over at businessinsider.com.au you will, of course, get the full explanation as well as seeing some pretty graphs and a better picture of a Big Mac than I’ve got.

They decided to put a quirky little twist on purchasing power parity (PPP) theory by calculating out how long you would have to work to buy something, rather than simply how much you would have to pay. Sounds extraordinarily similar to my hard yakka theory, except The Economist used minimum wages and I used average.

Here’s just a glimpse of some of their findings:

Minimum hourly wages

  • Australia – $16.88
  • UK – $9.83
  • United States – $7.25
  • India – $0.28

… and based on those minimum wages:

Minutes worked to buy a Big Mac

  • Australia – 18 minutes
  • UK – 23 minutes
  • United States – 35 minutes
  • India – 347 minutes

So, Australia, Lucky Country or expensive country? You decide.

My thanks to both Barry and Hailey for bringing these articles to my attention, neither were overly concerned or surprised by what they read as both were fully aware of my hard yakka theory.

I have never said Australia is a cheap country in which to live, but I’ve also never said Australia is an expensive country either. What I have said though, many times, is that statistics can be shown to prove anything.

First you need to decide what you want to prove, and then you need to find the statistics that prove it for you.

Conclusion

In my opinion, the Deutsche Bank report is at best misleading, at worst totally pointless. To give it the benefit of the doubt, it’s useful for Americans who want to decide which countries are cheapest to visit for a holiday.

The Economist’s report is far more relevant and useful to all the people who live in the many countries they have included in their results. This is also very interesting because it was only a couple years ago that The Economist came out with a report that I described as “useless”.

You can read about that in my post Australian Cities: Most Expensive in the World? You can also marvel at how similar it was to last weeks Deutsche Bank article I’ve talked about here.

So it’s not actually who you ask that matters, as I suggested earlier, although statistics certainly can be made to prove anything. But if you take anything away from this article at all, I would want it to be that next time you read a headline saying something like “Australia is the most expensive country in the world”, do not take it at face value.

PS. Deutsche Bank said “the price for everything from a Big Mac to an iPhone exceeds …” etc. We’ve sorted out the Big Mac here, but for those of you who did not click on my hard yakka theory link above, maybe you should, because that also sorts out the truth about the cost of not quite the iPhone, but the iPad in Australia.

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{ 21 comments… add one }
  • Valter Russo May 2, 2014, 6:01 am | Link

    Hi Bob,
    by your expirence, and since we are comparing the cost of living, do you think this is an acurate/reliable site?
    http://www.numbeo.com/common/
    as far as i can tell, Lisbon prices are actually really acurate, but this is a ”wikipedia style” site, anyone can edit.

    best regards
    Valter Russo

    • BobinOz May 2, 2014, 8:56 pm | Link

      Well, I have had a look at that a couple of times, I don’t think it’s particularly trustworthy, I wouldn’t base life changing decisions on it, that’s for sure.

  • John February 9, 2014, 4:43 am | Link

    All Australia needs is a rise in interest rates for the s*** to hit the fan.
    The greed of the older generations is beyond belief .
    Who is going to fund the old age pensioners who all think they can sell there properties for mega bucks to the poor younger generations.
    True Australians are an endangered species and if you do not take care with immergration you will end up with the night mare Europe now finds it has with many (not all ) unsuitable migrants trying to convert there new countries into the 3 rd world backward crap holes they came from.( culture not colour is the issue)
    China now has many cities it has built with no inhabitants how long before the commodities boom ends remember Australia makes sod all and its along way for tourists to come.

  • jim February 6, 2014, 7:23 pm | Link

    Bob,

    Glad your reference to Ryan put things in perspective!

    A question, I’m moving from the UK (small city earning £31k all in) to Far West Sydney ($80k+super). I was wondering if these figures were broadly comparable, and affordable for a family of 3 without expensive tastes! I can’t figure out which is more relevant, the median salary or the mean! I know what they mean but can’t see anyone recommending sydney on the median $55k per year!

    • BobinOz February 7, 2014, 5:44 pm | Link

      Thanks Jim.

      As a rough guestimate, I’m pretty sure you will be okay. I usually recommend that people aim to earn twice as much in dollars as they did in GBP, but sometimes this isn’t a straightforward equation.

      Your case is a good example, you’re coming from a small city and moving into one of Australia’s most expensive cities. So you probably need a bit more than twice your income in dollars, but then you have got that.

      As long as your rent/mortgage outgoings are not vastly different, you should be good.

      Hope it all works out well for you, cheers, Bob

  • John January 24, 2014, 9:04 am | Link

    Australia has totally rip off house prices.
    I would be scared to invest in property in Aus in case the long overdue correction hits.

  • Pete January 12, 2014, 3:48 pm | Link

    Travelled around the world in 2011. The only place more expensive than Australia was Norway. That includes the rest of Scandinavia, Switzerland, western europe and UAE.
    Certainly the lowest value for money too.

  • Anne October 31, 2013, 6:54 pm | Link

    I agree with you Bob. When we first arrived and were livng on our hard earned UK savings everything seemed soooo expensive. We converted everything into £ and were startled at the cost of clothes, food and takeaway coffee (oh ok, and pizza). Friends and family came to visit and were quietly shocked at how expensive everything was. Then we got jobs. And there was a seismic shift in our view of the cost of living….we stopped converting the cost of every purchase into £. Expenses became a percentage of our income, exactly as it was in the UK. After 3 years I would say that we are slightly better off financially than we were in the UK but much better off in our standard of living. And a million times better off re the weather.

    • BobinOz November 1, 2013, 1:51 pm | Link

      I remember that feeling myself Anne, we also thought it was really expensive when we first got here and the pound was much stronger then as well. It must be really scary these days. But once you start earning Aussie dollars and thinking in Aussie dollars, there really is that seismic shift.

      Eventually you realise, as you have, that you are really no worse off and in many ways your standard of living is better, and the lifestyle (thanks to the weather) is infinitely better.

      Welcome to Australia 🙂

  • mitchell October 20, 2013, 7:47 pm | Link

    i kinda understand where you are coming from with the Deutsche Bank version but i think you are looking at it wrong, let me give you a example if US$1 = AU$2 at the time they started and a Video game was US$50 compared to AU$100 that would be correct and when it is US$1 = AU$1 and the price stays at US$50 compared to AU$100 then it is a 100% increase but the prices haven’t stayed the same now its like US$40 but now AU$120 which is a 200% increase. If prices haven’t increased like they have then everything he would be extremely cheap but it hasn’t that is why Australia is the 2nd most expensive country in the world only behind Japan,

    • BobinOz October 21, 2013, 12:21 am | Link

      As I think I mentioned in the article Mitchell, statistics can be made to prove anything. The statistic I like the most when trying to work out how expensive or not a country is is how long I have to work to buy something. That’s the metric I like the most.

      If I can work for an hour here in Australia and buy a pair of Levis, but I have to work for two hours in the USA to buy the same pair of Levis, in my book I would regard Australia as the cheaper country. Obviously it would have to repeat that across a whole range of goods, man cannot live on Levis alone.

      That really is how I prefer to look at it, so I don’t think I’m looking at it the wrong way at all. At the same time though, I do agree that there are other ways of looking at it and others are welcome to look at it in any other way they want. And it is definitely the case that those who say that Australia is the second most expensive country in the world behind Japan are definitely looking at it in a different way from me.

      The way I look at it, which as you know is how long we have to work to buy stuff, countries like (I’m kind of guessing here) Romania and India are probably more expensive than Australia and Japan.

      We are all entitled to our views though, and I appreciate yours Mitchell.

      Cheers, Bob

  • Patrick August 29, 2013, 7:31 pm | Link

    Hey Bob, got in Perth 7 weeks ago from Quebec, and I can say for now Australia is “expensive”. I’m looking for work and using my Canadian savings to live, it goes fast. But while looking for work and talking to people, I can say that doing the same exact job as I was doing back home would give me a 125% increase, hard yakka I can’t wait to meet…

    Cheers!

    • BobinOz August 30, 2013, 1:12 am | Link

      Ooh, yes, Australia and in particular Perth (one of our most expensive cities) will seem hugely expensive to you whilst you are eating up your Canadian savings. I hope you find work here soon, it will all be different when you do.

      Hope you get to love your new life in Perth is much as I love it over here in Brisbane.

      Cheers!

  • Rory August 29, 2013, 1:25 pm | Link

    Hey Bob..please forgive me if im wrong but shouldnt your article say 100% rise not 200% rise in the value of the aussie dollar against the US dollar?

    🙂

    • BobinOz August 30, 2013, 12:56 am | Link

      Hmm, interesting point Rory, glad you brought it up. On the face of it, I mean at its surface, it would normally be correct to assume that something that now costs one dollar which used to cost two dollars has been subject to a 100% rise.

      But in this world of statistics, where averages, medians, means and modes mince clogs with markups and margins, things really aren’t that straightforward. Simply assuming that something that has doubled in price has risen by 100% is a mistake that many novice statisticians have made in the past and will continue to make in the future.

      Notwithstanding (which is a lovely word, but I’m not sure why I put it here) the fact that an item that costs a dollar before but now costs two dollars can be described as something that now costs 200% of its original value, just goes to prove my original thesis that statistics can be used to prove anything you like, even disguising the fact that I probably have made mistake because I wrote this post very late at night and in a bit of a hurry even though I would deny (statistically) that I have indeed made any kind of error whatsoever and that it is indeed you who is looking at this mathematical conundrum with your head tilted to the left instead of to the right.

      Do you have any more questions?

      Cheers, Bob

      And yes, I forgive you:-)

  • Ilias August 28, 2013, 10:46 pm | Link

    We immigrated from Germany to Australia last year and we reside in Melbourne. In our limited experience this country is more expensive, although I do not disagree that the Bic Mac or lunch may actually be cheaper. I look it this way, similar sort of job and lifestyle (no statistics or indexes involved), I could afford a mortgage, two cars, with wife at home to look after the child, at least one vacation a year. After a year in Australia and a decent job I cannot afford the above with the same sort of job, although again when I buy a Big Mac it is in all fairness cheaper than back in Germany.

    It is the cost for housing that skews everything in the wrong direction and takes everything off balance. The ratio in Germany is about 3.5 annual salaries to the average house prices, in Melbourne it is more like 7 or something like that. Other big spend items or regular costs like car insurance, health insurance, phone bills, etc. are on the average at least twice as expensive sometimes more than what we used to pay in Germany. I only wish my income was at least 3 times more as well 🙂

    The virtues of living in Australia are different, and they are different to different people. Life here is relaxed and awesome in many ways but the pressure with high costs of living is also taking some of the fun away.

    Just my two cents…

    • BobinOz August 30, 2013, 12:10 am | Link

      Hi

      Not knowing anything about the cost of living in Germany, I can neither agree or disagree with what you are saying. I know a fair bit about comparing the cost of living between Australia and the UK, and a little bit when it comes to Oz versus USA, but absolutely nothing about any country versus Germany 🙂

      I do know that the German economy is almost certainly the strongest in Europe and that wages are pretty good and house prices very realistic, so you probably are feeling the pinch here. But as you say though, the way of life here is something else, I hope it is worth the price you are paying.

      Thanks for your two cents, even though it may have felt like six cents 🙂

    • Barberode December 6, 2013, 8:20 pm | Link

      I can only confirm this findings, I have immigrated 8 years from Munich to Melbourne, Melbourne is pretty expensive city, in my point of view after 8 years, Melbourne is excellent city for a couple, where both are working, have at least 50.000AUD annual salary each, own a house without mortgage, and do not have any children and are able to do many jobs around household by themself ( you do not need any tradesmen, you cook, clean etc.) then you will have good life in Australia. Otherwise forget it, once you have a mortgage for 30 years, (the new dwellings will not even last by its quality so long) you start going out and use credit cards as the locals then you become a bank slave and you will experience more stress than in Germany. Australia’s households have one of the highest debts in the Western world. Other story is the quality of goods (house involving) what you can get here and what you must pay, comparing to Germany, where quality is mostly tip top for affordable price, this is not the case in Australia, however Australia is good experience, I think Germany offers better quality FOR AFFORDABLE PRICE! LLias you are still too short in this country, after 1 year of my arrival I was very optimistic too.

      • BobinOz December 9, 2013, 2:58 pm | Link

        A couple would need a joint income of $100,000, no mortgage and no kids in order to have a good life in Australia? Utter nonsense Barberode, as usual.

        • Barberode December 9, 2013, 9:12 pm | Link

          Yes Bob, why this is nonsense? Do not forget taxes, which are at least 25-30%, which gives you 70.000 AUD netto and if you have to pay a mortgage ( from 250.000-300.000) which might be 18.000-20.000 a year, then other fees, plus living cost, surely one salary is gone and if you have a child and your wife will stay at home without income, then it will be very tight. From my point of view as a German, Australia in this regard is not financially attractive country for us, ’cause we can have the same standard or even higher in Germany, but maybe as adventure, trying something new, new opportunity, different livestyle etc. yes it might be for some Germans very tempting, moreorless Australia is attractive country for people from poorer countries.

          • BobinOz December 10, 2013, 9:58 pm | Link

            I will let Ryan answer why it is nonsense, he lives in Perth, by all accounts more expensive the Melbourne these days. Over to Ryan.

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