The fact that the cost of living is skyrocketing is well documented, I’m not going to labour that point here.

And some of the causes are also well documented… for example the MASSIVE expansion in the money supply is a driver of inflation, as is the reduction in productivity caused by all the Covid over-reaction, and yes to a smaller degree the Ukraine war and other things play into it as well.

But there is ONE area I don’t see being discussed enough… and it’s both part of the CAUSE, and potentially a LARGE part of the solution, to the current cost of living crisis…

I’m talking about the difference between what an employee costs their employer, vs the purchasing power the employee is able to spend.

“Wait” you may be asking… “There’s a difference between what I cost my employer, and what I can spend in turn?”

Oh yes.

Let’s start with a video I did years ago all about the ‘Forbidden History of Terrible Taxes’, where I discuss the ‘cost of government’ and show that as much as HALF of a wage is lost to taxes and other ‘costs of government’.

A lot has changed since then… none of it for the better! And the central point still very much stands… the most expensive thing you pay for is your government, and it’s costing you more than you think!

In that video I focus mostly on how much of your purchasing power is lost from your salary, but I touch on one point that I now want to highlight, because it is a DRIVING FORCE behind the cost of living crisis:

Your employer has to pay you FAR MORE than you receive in purchasing power, and they have to set their prices accordingly!

If you get paid $80k, but only have $50k in purchasing power (after income tax, GST on purchases that you make, etc) AND your employer has to pay an additional $20k in superannuation (which doesn’t help you with your cost of living right now) payroll tax, workcover charges, and the list goes on…

You COST your employer $100k, but you only get $50 in purchasing power.

Why is that a primary driver of the cost of living crisis?

Because companies have to set their prices according to what things COST THEM, and not according to how much purchasing power you are left with.

So the prices are set based on the employer recovering $100k for each employee when in reality the purchasing power of those same employees is only $50k. Hey presto suddenly that employee is wondering why they can’t afford basic items when they’re working full time with a good job!

But then it gets even worse. Companies then have to also recover the costs of all the unproductive regulation, ‘compliance’, HR law, and a myriad of other costs that don’t help their customers.

In a nutshell, businesses spend a fortune keeping the government happy and all of the cost of that is paid by the customers, even though none of it is done to keep the customers happy.

So now not only are things priced based on costs that are far higher than just your purchasing power, but those costs are being incurred to keep someone else happy even though you have to pay for it…

Getting the picture yet?

Inflation is one thing, it drives up prices but should also drive up wages with it, so whilst it’s terrible for those with savings, and for those with variable interest loans, it’s not necessarily the end of the world for someone working and paying bills (although it can be… there’s a lot of variables)

The gap between what you cost your employer, and the purchasing power you are left with, PLUS the unproductive costs to business are a key cause of the cost of living crisis, quite apart from inflation.

Here’s an incomplete list of all the things that contribute to that gap in pay vs purchasing power, and to the burden of unproductive work:

• Income Tax (reduces the $$$ in the pocket of consumers)
• GST (reduces the purchasing power of consumers)
• Payroll tax (increases costs of production)
• Compliance with Government (increases costs in the Australian economy to the tune of $100,000,000,000 in unproductive work every year according to Deloitte)
• HR Law (reduces flexibility and both increases cost of employing people AND reduces earning potential by reducing options in both directions)
• ‘Safetyism’ (over the top OHS, Work Cover Insurance costs, etc)
• Superannuation (can’t be used to help cover cost of living, but has to be recouped by employers)
• Occupational Licensing
• Permits and Red Tape barriers to innovation and progress
• Government Regulation causing the cost of energy to skyrocket

What else should be on that list? What have I missed?

The simple fact is that the ‘cost of living crisis’ is entirely self-inflicted, but that’s actually a good thing because it means we can fix it.

Cutting taxes would help of course, but also have the effect of pushing us deeper into debt and deficit, leading to more borrowing, making the money printing and inflation problem worse…

So the answer then is to DRASTICALLY cut all the OTHER causes of this gap between what you cost your employer vs what purchasing power you are left with.

This means cutting:

• Red Tape
• Occupational Licensing
• HR Laws restricting the flexibility of working arrangements
• Stopping any increases to mandatory Superannuation contributions
• MASSIVE reduction in compliance costs
• Reversal of all policies which have increased the cost of energy

Some of those things will be unpopular. Who am I kidding, ALL of these things will be unpopular!

The safety nannies of society will react badly to cuts to Red Tape, the entrenched players in any industry will object to reducing the occupational licensing that protects them, making HR laws more flexible will be treated by the unions as if you’re lining them up on the wall and shooting them, and of course reducing government compliance will be presented by vested interests as if you’re just abandoning consumer protection and creating a new ‘wild west’… and do I need to describe the tears and wailing that would accompany any meaningful return of sanity to the energy production regulations? Eliminating the RET and all subsidies, removing barriers to new coal, gas, and nuclear production… the heads exploding would be detectable by seismologists in Iceland.

To do what needs to be done will require political courage, which is why, sadly, I don’t expect it to happen anytime soon.

But we need to know that it CAN happen, and if it did then things would get dramatically better. There IS an answer, one that would not only help with the cost of living crisis here in Australia but would also reduce our costs of production on the global stage, helping us to compete and perhaps even causing a return of some of the industries we’ve lost.

Sadly the soaring cost of living is going to make many Australians very susceptible to the false promises of the socialists and ‘The Government will look after you’ type lies they tell. We need to get out in front of the argument and start making the case for free markets, less government intervention, and the removal of unproductive burdens on our producers, BEFORE the public make up their mind that they want to fall into the same socialist trap that we’ve seen so many times around the world.

There IS an answer, and the answer is to set people free.

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