Wayne Swan’s budget tightening measures have launched a fierce debate on what constitutes “middle class welfare”. And what income and wealth levels define the middle class.
The Gillard government has imposed a wealth “litmus test” that defines households earning over $150,000 a year as being wealthy and not eligible for a number of government handouts.
The opposition says the government move amounts to class warfare, yet according to the Household, Income and Labor Dynamics in Australia (HILDA) survey, only 13.5% of Australian households earn more than $150,000.
The 13.5% of households making $150,000 or more are wealthy in anyone’s language aren’t they?
These are the highest income earners but it is not the same as wealth. When we talk about wealth we are talking about all the things that people have and own. The two are not perfectly correlated.
People, when they’re young, might be on a good salary and their partner might be on a good salary, but they might not own anything yet because they have a big mortgage whereas when you’re older and you retire you might own a whole heap of stuff and be very wealthy, big house close to the inner city, big superannuation package but you’ve just stopped earning anything.
The relationship between the two is imperfect at a point in time. These are the income rich people, the $150,000 per annum people and I have no difficulty in supporting the argument that these are high earners and they are very well off at a point in time. These are the income rich rather than the so-called wealthy, but of course if they keep earning year after year they will become wealthy.
I would say if you’re getting $150,000, you’re doing OK. But of course people who are earning $150,000, the more money you’re earning, the more expensive property you buy, the more expensive house you buy, the more likely it is that you’ll send your kids to private school. So they spend all their money and then they feel under pressure. But that was choices.
If you’re only getting $50,000, you’re not going to be sending your kids to private school; you’re not going to be buying a big large property. They are going to be under just as much stress or more, because for those people, if they lose their job, things are catastrophic. It is not like they can pull their kids out of private school.
More money gives you more choices. But if you choose to place yourself under more income stress, that was your choice, but obviously if you choose in a not excessive property in inner Sydney or Melbourne, that gives you all sorts of advantages. You don’t have to be worried about public transport as much, you’ve got access to all sorts of places.
If you’re living on the outskirts, there are some downsides, public transport isn’t as good, you face a long commute. But these are all choices we make. The more money you have, the more and better choices you have open to you.
Has the economic boom lifted all boats on the rising economic tide? Have we all got wealthier or has the income and wealth been unevenly distributed?
The HILDA survey shows very clearly that there is lots of flux. There are people going up but there are also people going down. This happens all the time. To say that any situation lifts all boats is not true. But it is true that booms tend to be better for more people than the opposite, recessions.
It is also true I think in the last ten years that income inequality might have increased because the people at the top got bit further ahead than the people at the bottom. The real problem is for those people who don’t get jobs.
If you stay on income support or perhaps you go in and out but for the most part you haven’t got stable employment, then you’re not getting ahead. The good thing about booms is that people do get jobs and that lifts people from the bottom up onto good career trajectories.
It is the long term unemployed, the long term income support people, the best for them is that Newstart and the disability support pension are going to go up at the rate of inflation. Earners are going to do better than that.
Women will be more affected by some of the “middle class welfare” cuts and labour market statistics show that unemployment is rising for women. Is this a “Blokes Boom”?
It could be. A mining boom tends to be a blokey boom and mining itself is very male dominated. The downstream industries will be a little less male-dominated but relative to others they will still be pretty male dominated as well. The closer you are to mining the more male it is.
Of course mining itself doesn’t employ many people in the greater scheme of things, it is all the downstream effects. In terms of the $150,000 people, it is completely different story. The story there is that if you create disincentives to participate they will fall on the second income earner in the household and today that still tends to be women.
That has slightly changed, there are more households where the woman is the prime earner but they are still very much in the minority. As a consequence you start, if the bloke is earning $130,000 or $140,000 and you’re a part-time school teacher or nursing aide and you earn another $20,000, it puts you over the $150,000 mark, and it is important to remember it was what is taxable that counts, but let’s say it goes over $150,000 taxable, you start to say “Well, I’m really working for not much or nothing, why do I bother?”
That’s the disincentive effect. If they leave this level at $150,000 instead of indexing, and I’ve heard no mention that they will index it, over time, more and more households start to go above that $150,000 figure. The 13.5 per cent figure is from 2009 so it may have gone up to 15 per cent.
Give it a few more years and there’ll be more households as earnings growth and wage inflation pushes our incomes up. But our costs are going up at the same time and the government leaves this threshold at $150,000. That’s what governments do all the time, it’s a great trick by governments which is to keep thresholds at the same level for many years and let bracket creep raise revenues.
Where does Australia sit internationally in terms of “middle class welfare”?
I don’t have at ready access international comparative data – other studies like us exist elsewhere in the world – but in terms of middle class welfare I believe it is fairly well-established that Australia in the amount of welfare and income support it provides to families, people with children, that’s where we’re generous relative to other countries.
“Families” translates into what people think of as middle class, the stereotypical people with the couple of kids, or at least one kid.