Here’s a stark reality: while the cost of living is climbing for everyone, some Australians are feeling the pinch far more than others. But here’s where it gets controversial—new data from the Australian Bureau of Statistics (ABS) reveals that households relying on government payments are being hit the hardest, with annual cost increases of at least 4%. Meanwhile, employee households are faring better, with the smallest increase of just 2.3%. And this is the part most people miss—the gap between these groups is widening, largely due to soaring energy costs and the end of certain subsidies. Let’s break it down.
The ABS’s latest Living Cost Indexes show that in the year to December, all households faced annual cost increases ranging from 2.3% to 4.2%. For those on government payments—including pensioners and welfare recipients—the rise was driven primarily by energy costs. In contrast, employee households benefited significantly from falling mortgage interest rates, thanks to the Reserve Bank of Australia’s (RBA) rate cuts in February, March, and August last year.
Australian National University researcher Ben Phillips notes that for wage-earning households, especially those with mortgages, the past year has been relatively mild in terms of cost-of-living increases. “Their increase in living costs hasn’t been that high,” he explains. “It’s a pretty good story for the majority of households.” However, he adds, “It’s a different picture for those on government payments, where electricity costs have risen sharply, and rebates have phased out.”
Interestingly, the quarterly rise in living costs slowed in the December quarter compared to September. According to Michelle Marquardt, head of prices statistics at the ABS, “Lower electricity and health costs offset increases in other areas during this period.” This was partly due to the Commonwealth Energy Bill Relief Fund extension payments and reductions in pharmaceutical and medical costs, which eased out-of-pocket expenses for households.
Here’s where it gets even more contentious—the federal government has announced that its electricity bill subsidy will not continue into 2026. This decision could further strain households already struggling with rising energy costs. Additionally, while health costs fell across all household types in the December quarter, this was largely due to more households reaching the Pharmaceutical Benefits Scheme (PBS) safety net threshold and the expansion of bulk billing incentives.
By 2026, Medicare cardholders who spend over $1,748.20 on PBS-listed medicines will hit the safety net, paying just $7.70 per script for the rest of the year. Pensioners and concession card holders have a lower threshold of $277.20, after which they qualify for free scripts. But here’s the catch—these measures, while helpful, may not fully offset the broader financial pressures many households face.
Looking ahead, rising interest rates could shift the landscape for employee households. The RBA’s recent 0.25 percentage point increase pushed the cash rate to 3.85%, following a 3.8% inflation rise in the 12 months to December. Dr. Phillips warns, “If inflation remains high, particularly the trimmed mean inflation, interest rates will likely continue to rise, pushing up living costs for employee households.”
Now, let’s spark some debate—Is the government doing enough to support vulnerable households, or are current measures falling short? And as interest rates climb, how will this impact the financial stability of Australian families? Share your thoughts in the comments—we’d love to hear your perspective!
