Cost-of-Living Adjustment (COLA) in Australia 2025: What You Need to Know

As Australians grapple with persistent inflation, mortgage pressures, and higher grocery bills, the term ‘cost-of-living adjustment’ (COLA) is cropping up in more pay packets and government announcements than ever before. But what exactly is COLA, how does it work in Australia, and what should you expect in 2025?

What Is a Cost-of-Living Adjustment (COLA)?

COLA refers to the routine increase in wages, pensions, or government payments to help offset the impact of inflation on purchasing power. In practice, it’s a mechanism that ensures your income keeps pace with rising costs for essentials like housing, food, and utilities. COLA is most commonly applied to:

• Social security and welfare payments (e.g., Age Pension, JobSeeker)

• Some public sector wages (via enterprise agreements or awards)

• Private sector employment contracts (less common, but growing in 2025)

COLA calculations typically use the Consumer Price Index (CPI) or other inflation measures published by the Australian Bureau of Statistics (ABS).

COLA in 2025: Policy Updates and Key Changes

The Australian government and major employers are under pressure to ensure COLA mechanisms remain fair and responsive as inflation remains sticky in early 2025. Here are the most significant updates:

• Social Security COLA: In March 2025, Age Pension, Disability Support Pension, and JobSeeker payments were increased by 2.8%, reflecting the December 2024 to March 2025 CPI change. This means a single Age Pensioner now receives $1,116.30 per fortnight (up from $1,085.40).

• Wage COLA in Enterprise Agreements: A record number of enterprise agreements now include automatic COLA clauses, with some public and private sector workers seeing wage increases of 3–4% in the 2025 bargaining rounds—closely tied to CPI rather than fixed nominal rises.

• State-Based Adjustments: Victoria and Queensland have both indexed their minimum wage increases to the CPI for 2025, with the Fair Work Commission following suit at the federal level, awarding a 3.5% minimum wage hike from July 1, 2025.

These adjustments are designed to help households cope with ongoing price pressures, especially as the Reserve Bank of Australia forecasts inflation to remain above its 2–3% target until late 2025.

How COLA Impacts Your Budget and Financial Planning

Understanding COLA is crucial for financial planning—especially if you rely on fixed income streams or government support. Here’s how COLA might affect you this year:

• Retirees: Pension increases help offset higher energy, rent, and healthcare costs, though the lag between CPI jumps and payment increases can create short-term cash flow challenges.

• Employees: If your workplace has a COLA clause, expect your pay to rise in line with inflation. If not, you may need to negotiate a raise or consider switching employers, as wage growth is outpacing pre-pandemic levels in 2025.

• Renters and Homeowners: While COLA helps with income, it may not fully keep pace with surging rents or mortgage repayments. This makes tracking your household budget and seeking out energy or rent rebates more important than ever.

For example, the 2025 Social Security COLA means a couple on the Age Pension will receive an extra $80 per month. However, if their rent increases by $120 per month, they’ll still face a real reduction in disposable income.

Maximising the Benefits of COLA: Practical Steps

While COLA is designed to protect your purchasing power, it’s only part of the financial puzzle. Here are some practical strategies to make the most of COLA in 2025:

• Review your employment contract—and push for a COLA clause if you don’t have one.

• Monitor government announcements about indexed payments and rebates, as eligibility criteria and amounts can change each March and September.

• Regularly update your household budget to reflect higher income and expenses, so you can spot gaps early.

• Consider salary sacrificing or super contributions with any extra income from COLA, to boost long-term savings while you’re protected from bracket creep.

Staying proactive is key—waiting for annual COLA bumps may not be enough to keep pace with Australia’s shifting economic landscape.