High inflation has not been an issue for decades and it is important to be aware of its profound effect, both on living expenses and on personal wealth.
In order to make the maths easy, let us assume inflation rises to 10%. (This is definitely not a current prediction!!)
Your living expenses rise by 10%, and you negotiate a 10% pay increase. However, because you earn over $45,000 per annum, you must pay 34.5% of the increase in tax and Medicare.
In effect, you receive 6.55% of your 10% pay rise, plus you successfully negotiated an extra 3.45% pay increase for the Treasurer!
Investors too are affected. A 7.5% return in a 3% or 4% inflation environment is creating real wealth. In a 10% inflation environment, capital value (and ultimately spending power) is being eroded.
Our point here is that almost everyone loses in a high inflation environment. We hope the Government keeps this top of mind when crafting the 2023 Budget.