Think the measurement of inflation's a bit off? You're probably right

By MILLIE MUROI, Economics Writer

If you’ve ever looked at the latest inflation figures and thought to yourself it doesn’t really reflect the ballooning or shrinking prices you’ve been paying, you’re probably right.

Like most measures of our economy’s health, the consumer price index (CPI) – our main inflation gauge – is only a rough estimate of what’s happening to prices. It tracks changes in the costs of a vast range of things but also skips over some key items we spend on.

This week, we learned prices at the end of last year were climbing at the slowest annual rate since March 2021 at 2.4 per cent (a much more reassuring figure than the 7.8 per cent we were seeing two years ago). But if you feel like the prices you’re paying are moving to a different tune, they probably are.

The index, measured by the Australian Bureau of Statistics, basically tracks the change in the price of a typical “basket” of goods and services that we, as households, consume. Think: a big shopping trolley that carries a lot more than what you’d find in a supermarket. Sure, it includes eggs and fruit, but it also includes things like school fees, specialist visits and subscriptions to your favourite streaming platform.

Of course, you probably don’t spend on the exact same things, or buy the exact same amount, as people on the other side of the country – or even your neighbours – which is why the inflation measure isn’t a perfect fit for specific households.

The CPI is based on the average spending habits of everyone (well, at least those living in the capital cities). Then, based on this data, the bureau gives different “weightings” – a measure of an item’s relative importance in the total basket – to different items and categories. Things we spend a lot of our money on – like housing costs and food – get a bigger weighting in the index, meaning any changes in prices in those categories will shift the dial more when it comes to the final inflation figure.

Since the things we tend to spend on change over time, the bureau frequently updates these weightings.

The first ever “basket” in 1948, for example, put the proportion of our spending on food and non-alcoholic beverages at nearly one third, with dairy products alone taking up nearly a quarter of our food budget. Women’s clothing, meanwhile, accounted for about 10 per cent of our total spending. Combined with spending on men’s attire at nearly 5 per cent, our total spending on clothing back then took a bigger bite out of our budget than the 12 per cent we used to spend on housing!

Today, food and non-alcoholic drinks account for 17 per cent of the typical household’s spending, and both dairy products and women’s clothing just 1 per cent each – the latter being largely thanks to the rise of mass-produced and cheap imported garments. It’s perhaps little surprise that the biggest share of our spending is now on housing at more than 20 per cent, while transport, including our spending on cars, burns about 11 per cent (transport spending was measured through fares – such as the price of train tickets – which took up about 6 per cent of the typical household budget in 1948 before cars became widespread).

So, how does the bureau know what we’re spending on?

One way is through the household expenditure survey, which is conducted roughly every five years and gives the bureau an indication of how much we’re spending on different goods and services. It’s the reason why, for many years, the CPI weightings – only changed about every five years. Now, as collecting information has become easier and more digital, the weightings are updated every year and rely on various sources including retail trade and transaction data.

The bureau gets its pricing data by monitoring the prices of thousands of products. It looks for this information through everything from websites, to supermarket and department store data, as well as pricing data it receives from government authorities, energy providers and real estate agents.

Combining the pricing and weighting data gives us the consumer price index which is released in its complete form every three months. Since September 2022, the bureau has also published a monthly CPI reading, although the goods and services measured each month tend to alternate, giving us an incomplete picture of what’s going on.

As we’ve talked about, the CPI isn’t an accurate measure of our cost of living, although we all assume it is.

A better measure is the bureau’s “selected living-cost indexes” which break down changes in the cost of living for different types of households. Working households, for example, saw their annual living costs rise by 4.7 per cent last September quarter, while self-funded retirees only experienced a 2.8 per cent increase.

That’s mostly because different household types tend to splash cash on different things. Self-funded retirees and age pensioners might, for instance, spend slightly more on health, meaning any price changes there may bump their cost of living more than it would for working households.

But by far the biggest reason for the difference between working households and older cohorts is that working households are more likely to have a mortgage they are paying off. This means changes in interest rates – which are included in the selected living cost indexes but not the CPI – have a bigger impact on their overall cost of living.

It’s also one of the biggest shortcomings of the CPI. In the early 1990s, the Reserve Bank started using interest rates to target inflation: a practice that’s now become very familiar to us all. But later that decade, the bank asked the bureau to remove interest rates from the consumer price index. Why? Because the bank didn’t want the instrument it was using to control the rise in prices — interest rates — to be included among the price rises being measured. Your instrument should be separate from your target.

Instead, since 1998, the CPI has measured housing prices through changes in components such as rents, the cost of building new homes, and the cost of maintenance and repairs. But that means for the roughly one third of Australian households with a mortgage, the CPI is not a very good measure of the price pressures they are facing.

While the CPI is a rough estimate of the cost of living pressures we’re facing, if you feel like the pinch you’re feeling is harder or softer than the latest figures suggest, you’re probably right.

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Why we'd be mugs to focus on the cost of living at the election

It’s a good thing I’m not a pessimist because I have forebodings about this year’s federal election. I fear we’ll waste it on expressing our dissatisfaction and resentment rather than carefully choosing the major party likely to do the least-worst job of fixing our many problems.

Rather than doing some hard thinking, we’ll just release some negative emotion. We’ll kick against the pricks – in both senses of the word.

We face a choice between a weak leader in Anthony Albanese (someone who knows what needs to be done, but lacks the courage to do much of it) and Peter Dutton (someone who doesn’t care what needs to be done, but thinks he can use division to snaffle the top job).

By far the most important problem we face – the one that does most to threaten our future – is climate change. We’re reminded frequently of that truth – the terrible Los Angeles fires; last year being the world’s hottest on record – but the problem’s been with us for so long and is so hard to fix that we’re always tempted to put it aside while we focus on some lesser but newer irritant.

Such as? The cost of living. All the polling shows it’s the biggest thing on voters’ minds, with climate change – and our children’s future – running well behind.

Trouble is, kicking Albanese for being the man in charge during this worldwide development may give us some momentary satisfaction, but it will do nothing to ease the pain. Is Dutton proposing some measure that would provide immediate relief? Nope.

Why not? Because no such measure exists. There are flashy things you could do – another big tax cut, for instance – but they’d soon backfire, prompting the Reserve Bank to delay its plans to cut interest rates, or even push them a bit higher.

We risk acting like an upset kid, kicking out to show our frustration without thinking about whether that will help or hinder their cause.

Rather than finding someone to kick, voters need to understand what caused consumer prices to surge, and what “the authorities” – in this case, Reserve Bank governor Michele Bullock and the board, not Albanese – are doing to stop prices rising so rapidly.

The surge was caused by temporary global effects of the pandemic – which have since largely gone away – plus what proved to be the authorities’ excessive response to the pandemic, which is taking longer to fix.

It’s primarily the Reserve Bank that’s fixing the cost of living, and doing it the only way it knows: using higher mortgage interest rates to squeeze inflation out of the system. But doesn’t that hurt people with mortgages? You bet it does.

What many voters don’t seem to realise is that, by now, the pain they’re continuing to feel is coming not from the disease but the cure. Not from further big price rises but from their much higher mortgage payments.

So it’s the unelected central bank that will decide when the present cost-of-living pain is eased by lowering interest rates, not Albanese or Dutton. A protest vote on the cost of living will achieve little. Of course, if you think it would put the frighteners on governor Bullock, go right ahead. She doesn’t look easily frightened to me.

But there’s another point that voters should get. When people complain about the cost of living, they’re focusing on rising prices (including the price of a home loan). What matters, however, is not just what’s happening to the prices they pay, but what’s happening to the wages they use to do the paying.

When wages are rising as fast as prices – or usually, a little faster – most people have little trouble coping with the cost of living. But until last year, wages rose for several years at rates well below the rise in prices. Get it? What’s really causing people to feel cost-of-living pain is not so much continuing big price rises or even high mortgage payments, but several years of weak wage growth.

Why does this different way of joining the dots matter? Because, when it comes to wages, there is a big difference between Albanese and Dutton.

Since returning to government in 2022, Labor has consistently urged the Fair Work Commission to grant generous annual increases in the minimum award pay rates applying to the bottom fifth of wage earners.

This will have helped higher-paid workers negotiate bigger rises – as would Labor’s various changes to industrial relations law. Indeed, this is why wages last year returned to growing a fraction faster than prices.

These efforts to increase wage rates are in marked distinction to the actions of the former Coalition government. So kicking Albanese for presiding over a cost-of-living crisis risks returning to power the party of lower wages.

But here’s the trick: it also risks us taking a backward step on climate change. The party that isn’t trying hard enough could be replaced by a Coalition that wants to stop trying for another decade, while it thinks about switching from renewables to nuclear energy.

From the perspective of our children and grandchildren, the best election outcome would be a minority government dependent on the support of the pollies who do get the urgency of climate action: the Greens and teal independents.

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Should we really go forth and multiply?

By MILLIE MUROI, Economics Writer

For most of human history, it’s been a miracle for us to survive long enough, or reproduce vigorously enough to rapidly grow in numbers. But as we’ve gotten better at dodging tigers, killing germs and containing pandemics, we’ve also become increasingly intrigued and hungry to know how many of us there are, how many of us there will be and how it will affect our lives.

Just before Christmas, the federal Centre for Population released its annual population statement, saying the number of people living in Australia reached about 27 million last March – and is expected to reach just over 31 million within the next 10 years.

How did it calculate this? The centre uses data from the Australian Bureau of Statistics as a starting point to determine things such as current population level. It then makes assumptions, analyses data and models the effect of long-term trends on population growth.

Of course, looking into the crystal ball, even when it’s bolstered by lots of data and analysis, is never perfect. But the centre’s work feeds into government policies and debate because population changes can have a huge impact on the direction of our economy and our day-to-day lives.

Population growth is a combination of what we call the “natural” increase – think babies born in Australia minus the number of people who die here over the same period – and net overseas migration: people coming into the country minus all those who decide to move overseas.

To keep our population at the same level “naturally”, we need an average of 2.1 births for every woman. This is called the “replacement rate”: the rate of childbirth needed to make sure there’s someone to replace both parents when mortality catches up to them.

Of course, making 10 per cent of a child is not really viable and would require a great deal of scientific development, focus and time to piece together. But we need a birth rate of more than two children for every woman on average as a buffer because some of us inevitably – and rather annoyingly for those hoping for population growth – bite the dust early.

In 2023, fertility in our country slipped to a record low of 1.5 babies for every woman, or about 291,000 births, compared to 1.6 babies per woman the year before. Like many of our advanced economy siblings, Australia’s fertility rate has been sliding since the early 1960s.

There are both long and shorter-term factors which can dump cold water onto baby fever.

A household might, for example, put off having children when experiencing more financial pain – as we’ve seen during the recent high-inflation period. After all, having a child is one of the most expensive decisions, costing hundreds of thousands of dollars until adulthood.

Kids will always be a dear investment (in multiple senses of the word), but factors tied to the cost of living can reverse as circumstances improve, allowing people to catch up on their ambitions to have kids.

Longer-term factors, however, such as changing cultural norms and better access to employment and education opportunities, can have a more lasting effect on the number of kids we want. Generally, the better educated are less likely to have as many children because they start their families later. Taking various factors into account, the centre expects the fertility rate to settle at about 1.6 births per woman by 2032.

That doesn’t mean Australia’s population will shrink. Why? Partly because we have “population momentum”: a large enough share of women at – or approaching – reproductive age that the potential for growth isn’t falling off a cliff anytime soon.

We have also pursued a long-standing policy of encouraging net overseas migration, which has added to our population and tended to keep it young. Not many grandmas and grandpas decide to uproot their life to move overseas, and governments target younger migrants.

Under its current mortality and migration assumptions, the centre reckons Australia’s fertility rate needs to be only about 1.2 children per woman to keep the population from sliding backwards.

Although fewer people are dying now than when COVID was spreading widely, the number of deaths in 2023-24 was still 13 per cent higher than before the pandemic. Given the ongoing dent in our population from the pandemic, and our low fertility rate, the level of net overseas migration we need (if we want to keep the population growing) is a bit higher compared to pre-pandemic.

Overall, the centre thinks population growth in Australia will continue, driven by migration and rising life expectancy, plus a higher fertility rate than many other advanced economies. But the centre also notes net overseas migration peaked in 2022-23, and that it will probably continue to fall before stabilising over the next few years.

Declining fertility globally is the reason the United Nations gave last year for its forecast of the world’s population peaking at 10.3 billion people in 2084. That is, of course, assuming we don’t encounter aliens keen to settle here in the next few decades.

Population growth isn’t necessarily all a good thing. More people often means worse pressures on the environment as we build more things (and therefore clear more land), release more emissions and suck up more natural resources.

It can also intensify the fight over scarce resources – which we have seen perhaps most acutely in our housing debate. When we allow strong demand from population growth, but fail to plan for increased supply (of, for example, houses) we tend to ignite price pressures and face shortages in things we want and need.

But there’s also no doubt that we’re in for a rough ride if we want to curb population growth. Within the next 40 years, for example, nearly one-quarter of the population is expected to be aged 65 and over. Ushering in more working-age people to look after an ageing population isn’t the only solution, but the pressure’s on for policymakers and innovators to find other ways to look after them in time.

Australians benefit in many ways from population growth. Migrants tend to help us become more productive by sharing their knowledge and skills, more people usually means faster economic growth and innovation, and catering to higher demand can help us achieve more cost-efficiencies by producing things at a bigger scale.

There’s no easy answer on the right level of population growth, but having an idea of the direction and an understanding of what we can expect is a good starting point.

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How two economists got themselves more say in government policy

By MILLIE MUROI, economics writer

For all the havoc it has wreaked, some good things were born from the pandemic: widespread hybrid working for one. Another was the emergence of e61: a novel name – not for a virus or robot – but for a factory for economic findings.

“What’s new about that?” you might ask. Well, it’s breaking a decades (perhaps centuries) old habit of people sticking to their lanes. Despite the important work done by academics and policymakers, the two rarely join forces.

Part of that is because some of our best academic talent gets sucked overseas to places like the US or UK. It’s also because academics and policymakers don’t tend to go out of their way to engage with one another, and because rigorous research skills and policymaking passion and practice don’t often manifest in a single person.

There are politicians such as federal Labor MP Dr Andrew Charlton with a doctorate in economics from Oxford University, who have put themselves through the wringer of high-level research – but few who are tuned into both the cutting edge of research and the front line of policymaking.

Charlton, who stepped down as director of the non-partisan, not-for-profit think tank when he was preselected to run as a Labor candidate in 2022, teamed up with University of Chicago economics professor Greg Kaplan when the two found themselves back in Australia during the pandemic.

Together, they founded the e61 Institute to attract and develop Australian economists, including those who have lived overseas, and pair academic rigour with a policy focus right here in Australia (hence the “61″ in its name: the number you dial from abroad when calling Australia).

Its economists have released a raft of work in the past three years which has fed into policy decisions and debate. Their approach includes using microdata (anonymised but detailed information about people, households, and businesses from surveys, censuses and administrative systems), to offer insight – not just to policymakers, but to the broader public.

From the way non-compete clauses are slowing down wage growth, to putting a number on the costs of caregiving, and identifying consumer inertia as a barrier to stronger supermarket competition, e61 has shed light on many of the issues facing the country.

Their work has fed into top decision-making processes, appearing in House of Representatives economics committee inquiries, meetings and submissions.

But funded by the Susan McKinnon Foundation, the Macquarie Business School and the Becker Friedman Institute, e61’s work is also freely available to the public. And the things you can learn from them are fascinating – providing insight into how economics applies in the real world – beyond the abstract, and beyond the bookish or theoretical.

Matthew Elias, for example, looked at the role we – as consumers – play in the highly concentrated supermarket sector.

As you know, Coles and Woolworths control about 67 per cent of supermarket retail sales nationally, and they’ve been under the scrutiny of the competition watchdog which is due to release its final supermarket inquiry report this year. While the supermarkets have copped some heat from frustrated consumers convinced that the lack of competition in the sector has led to excessive price growth, Elias found part of the problem was that customers don’t tend to shop around.

Shopping around, and the threat of customers leaving, is an important way to put pressure on businesses to deliver the best prices and quality they can. But looking at consumer shopping data, Elias found even in areas with several providers, shoppers tended to exhibit inertia: that is, they don’t tend to change their shopping habits over time, instead returning to certain supermarket brands – especially Coles and Woolworths.

Why? The answer is unclear, but some possibilities include costs including time spent learning the layout of a different store, the effort needed to compare the costs of various items, proximity to certain stores and brand loyalty promoted by schemes like Flybuys or Everyday Rewards.

Jack Buckley, Ewan Rankin and Dan Andrews meanwhile looked at non-compete clauses: where an employee agrees not to compete with their employer by, for instance, working in a similar industry, for some time even after their job ends.

About one in five of us are tied up in a non-compete clause, and it’s coming at a cost – not just to our economy (people switching to better-suited jobs can help improve innovation and lift productivity), but also to our pay.

The researchers found evidence that the fall in job mobility (people moving between jobs) was linked to lower wage growth for workers with non-compete clauses. On average, they found, people with non-compete clauses earn 4 per cent less than similar workers with just a non-disclosure agreement (aimed just at preventing employees from sharing trade secrets).

Then there’s research by Rachel Lee, Dan Andrews and Jack Buckley which sounded a warning for policymakers looking to tweak their payroll tax settings. When South Australia bumped up the payroll tax-free threshold (which also sharply increased the marginal tax rate for firms over that limits), it led to a phenomenon called “bunching.”

Basically, e61’s analysis of business income tax data found lots of new businesses in South Australia were ending up just below the new payroll tax threshold. Since firms with an annual wage bill of less than $1.5 million could be exempt from payroll tax, there was a jump in the number of firms just under that size – despite a lot of those businesses being productive and growing firms which you’d expect to continue growing.

The conclusion? That little tweak in the payroll tax settings may have stunted the growth of many businesses, which cut back on their workers in an effort to slash their payroll tax. Sure, it benefited some smaller firms which were able to grow within that threshold, but the costs of businesses shrinking their payrolls was bigger.

Kaplan says he wants to see e61 be at the forefront of major policy movements over the next debate: both avoiding bad policy mistakes and guiding good policy. It might take a while for the new kid on the economics block to become a hard-hitter, but linking some of the brightest academic economists with crucial policy problems is helping to inject rigour into our understanding of economics – and that of our policymakers.

e61 supported the reporter’s travel from Canberra to Sydney.

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The many different effects of the fall in our dollar

By MILLIE MUROI, Economics Writer

The Aussie dollar seems to have been slammed by a truck over the past few weeks, but it’s not all bad news. Plenty of people – not just overseas friends paying us a visit or buying our stuff – will be lapping up the benefits.

As we rang in the new year, we rang in two since the Australian dollar could buy more than US70¢. Now, it’s scratching about at US62¢. You’d have to trek back to the early 2010s to find a time when one Aussie dollar was worth more than an American dollar (mostly thanks to higher commodity prices at the time).

So, what’s left the Australian dollar wallowing in foreign exchange market mud? And who are the people likely to be rolling in it?

Let’s start with how we put a price on the dollar. Like most things, there’s a market for Aussie dollars where people buy and sell. You’ve probably participated in this market whenever you go overseas and need foreign currency.

Aussie dollars are bought and sold for other currencies (there’s no point buying our own currency using … our own currency). That’s why the value of the Australian dollar – the exchange rate – is always expressed in terms of some other country’s currency, often the US dollar, because it’s the most widely used in international transactions.

A better measure of the value of our currency, though, is the trade-weighted index, which is the price of the Australian dollar in terms of a basket of foreign currencies based on their share of trade with Australia. The more we trade with a country, the heavier the weighting of their currency in this basket. Changes in the Chinese yuan are the most influential when measuring the Australian dollar’s value in this way – although it’s not often the one you hear quoted in the media.

Our exchange rates are almost always changing – at least on weekdays, when the foreign exchange market is open 24 hours a day. As with most other things we buy and sell, the price we pay depends on how much demand and supply there is for our currency and everyone else’s.

When the amount of Aussie dollars that people want to buy at a particular time exceeds the amount of Aussie dollars that other people want to sell at that time, our exchange rate – the price of the Australian dollar – steps up, which is called an “appreciation”. When supply of Aussie dollars exceeds demand, we see the exchange rate fall: a “depreciation.”

What might push up demand for our currency? Tourists coming to visit us may buy our currency so they can pay for a swish Airbnb in Sydney or coffee in Melbourne. Foreigners might also want to buy other assets priced in Australian dollars such as a business, company shares or Australian government bonds. And Aussie exporters, if they’ve been paid in foreign currency for their goods and services, may want to cash in for currency they can use at home.

By the same token, some of our Aussie business owners might want to import goods and services, or inputs such as equipment, which are priced in, say, US dollars. Aussies may also want to invest in overseas companies or buy US government bonds. Or we may just need overseas currency to take with us when we jump on a plane to our next exotic destination.

Because our exports are so dependent on the mining industry, commodity prices also greatly affect our exchange rate. When the price of minerals such as iron ore heads north, so does the value of the Australian dollar because our overseas buyers need more Aussie dollars to buy it from us.

Demand for Australian dollars – and therefore the exchange rate – is also affected by things like the difference in interest rates between Australia and the rest of the world. When our interest rates are higher relative to overseas, the value of our currency increases because investors become more attracted to the idea of depositing cash here – for which they’ll need Australian dollars. Even hints at where our interest rates might sit, relative to those overseas in the future, can sway the exchange rate by shifting people’s expectations and therefore what currencies they want to hold more of.

Interest rates are still a touch higher in the US than here, but when the US Federal Reserve said last month that it expected fewer rate cuts in 2025, it signalled interest rates there might stay higher than most people had been expecting. That made the prospect of depositing cash here, in Australia, less attractive than before, and reduced demand for our currency.

At the same time, China, our biggest trade partner, is growing its economy at a crawl – especially when compared to recent decades. While we’ve relied on them purchasing vast amounts of our exports in recent years, many are expecting a continued slowdown, which means demand for the Aussie dollar is likely to stay low, reducing its value.

A sustained fall in the value of the Aussie dollar is bad news for our importers, who will have to pay more for the things they buy, as well as Australians travelling overseas. But it’s good news for our exporters, who will earn more Aussie dollars from selling Australian-made goods and services abroad, as well as Australian businesses competing with imports for customers in the domestic market (as imports become relatively more expensive, Aussie customers are more likely to opt for Australian goods and services). This all reverses when there’s a sustained rise in the value of the Australian dollar.

Basically, a fall in the Australian dollar improves the price competitiveness of our export industries, as well as those industries where Aussie businesses are competing heavily with imported substitutes. This has an expansionary effect on our economic activity as demand for our goods and services increases.

But a fall in the Aussie dollar can also be inflationary for us because it pushes up the cost of imported goods and services. We’re now having to pay more for the things we import, such as cars, electronics and many medicines. A rise in the Australian dollar can, on the other hand, dampen inflation.

While the recent fall in the value of the Australian dollar might catch the Reserve Bank’s attention, it’s not likely to affect their decisions greatly. That’s partly because it’s impossible to predict where the dollar will go next. Up and down movements are pretty common and, like most things in life, these changes have both costs and benefits.

The long-term effect of a weak dollar is also generally positive, with more jobs and spending by foreigners in our export sectors giving the economy a bit of a tailwind. Not everyone will be better off, but a weaker Aussie dollar is far from the disaster it’s often made out to be.

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The secret to better health and less obesity is a tax

By MILLIE MUROI, Economics Writer

If you’re like me, chances are that during the silly season you indulged in a bit more of the guilty pleasures than usual. I would make a bet though (and hit bingo about 90 per cent of the time) that it wasn’t tobacco that you reached for, but sugary treats – and maybe a bit of alcohol.

The rates at which we tax tobacco might have you thinking that smoking is among the biggest health risks we face. But with the daily smoking rate down to about one in 10 people, it’s things like obesity and diabetes that have grown to become our biggest health problems.

Obesity has tripled in Australia since 1980, and so has diabetes over the past 25 years. In 2022, one in three Australian adults was obese and another one in three overweight, while about one in 20 had diabetes.

And as Grattan Institute health program director Peter Breadon and senior associate Jessica Geraghty have highlighted, one of the heftiest reasons we have such high rates of obesity and type 2 diabetes – which makes up more than 85 per cent of diabetes cases – is that we consume far too much sugar.

You might not realise it, but on average, Australians consume half a kilogram of sugar each week – much of it invisible. That lolly snake or biscuit you reach for in the afternoon might be obvious culprits, but large quantities of sugar also swim around in soft drinks and even savoury products such as pasta sauces and pre-made soups. “Popular drinks such as Solo and Coke have as much as 10 teaspoons of sugar in just one 375-millilitre can,” Breadon says.

Our high sugar consumption puts us at higher risk of diabetes: a disease that contributes to one in 10 Australian deaths, leaves thousands of us sick or with a disability, and costs billions of dollars a year to taxpayers. In 2018, obesity alone was estimated to cost nearly $12 billion in direct health and indirect community costs.

So, what can we do to curb our sweet tooth? Make it more costly. In an ideal world, we could factor in all the health risks and cut back our consumption without the need for additional incentives – or disincentives.

But sugar sneaks around under a bunch of aliases – high fructose corn syrup, glucose or molasses to name a few – making it hard to spot for those hoping to squeeze some of it out of their diet. And it’s easy for us to reach for a sugar hit, sometimes without realising it, kicking the can down the road when it comes to considering the longer-term consequences.

That’s unless we put an upfront price on the damage – a tax on sugary drinks would be a good start. Why? Because sugary drinks make up nearly one-quarter of our daily added-sugar intake – more than any other major types of food. Sugary drinks are also especially harmful because they’re often sunk quickly, cause rapid spikes in blood glucose and insulin, and don’t do much to make people feel full.

Breadon suggests a tiered tax in which drinks with the most sugar would be slugged 60¢ per litre, while low-sugar drinks would face no tax – along with one year’s notice to give manufacturers time to change their recipes.

It’s not an immediate fix for our health problems, but there are promising signs already. More than 100 countries, including Britain, France and Portugal, have sugary drink taxes in place – and they are working.

They make people less thirsty for sugary drinks and they prod manufacturers to pour less sugar into their drinks. Four years after Britain introduced a sugary drinks tax, just one in 12 products had more than eight grams of sugar in every 100 millilitres of liquid – down from one in three before the tax. There have also been studies that show sugary drinks taxes have trimmed obesity among girls, reduced dental decay and cut the number of children having teeth taken out in hospital.

Breadon and his colleagues at Grattan estimate their proposed tax for Australia would reduce the amount of sugary drinks we consume by about 275 million litres a year – enough to fill 110 Olympic swimming pools.

It would mean Australians would ingest nearly three-quarters of a kilogram less sugar each year thanks to manufacturers cutting down their sugar use and consumers opting for the cheaper option: low or no sugar drinks.

Disadvantaged Australians, who are the hardest hit by obesity, would be the biggest winners, Breadon says. And the financial drain on households and the wider industry, including sugar farmers, would be fairly small given about 85 per cent of Australia’s raw sugar is exported.

While the main goal of a sugary drinks tax would be to improve our health, it would also benefit the government’s bottom line (which has suffered in recent years as tax revenue from tobacco has plummeted). If introduced today, Grattan estimates, the sugary drinks tax would raise nearly $500 million in the first year, while also generating savings by reducing the demand for healthcare.

While the government has been helping Australians living with diabetes, including through listing new insulin injections, such as Fiasp, on the Pharmaceutical Benefits Scheme, Health Minister Mark Butler has no plans for a sugar tax.

Shadow Health Minister Anne Ruston has said the Coalition also doesn’t support a sugar tax, saying there were better ways to encourage healthy eating and preventive health, without hurting the hip pockets of families.

While there needs to be other preventive measures in place, such as stronger labelling regulations, a tax on sugary drinks is the cheapest and easiest to implement. The government’s new year resolutions should include the boldness to consider a sugar tax, rather than kicking the drink can down the road.

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