Middle class suffering? Get real!
There’s a noticeable change in the rhetoric from the government and its senior ministers, including the Prime Minister, when it comes to the economy. No doubt emboldened by the run of quite stunning economic and policy news over the last few months, the Government is focusing on the economy from the positive.
Strong economic growth; 21 years without recession, rising real wages, low interest rates, low inflation, rising productivity, a budget surplus – you know the list – it’s long and stunning.
One can only hope the chatter from the Government about Australians “doing it tough” is fed into the verbal shredder as this rhetoric was an own goal that appealed to people like the women on Q and A on Monday who asked the Prime Minister:
- “Why does the middle class of Australia, the back bone of the economy, always suffer under a Labor Government? Why does your Government penalise hard working middle class Australians with new carbon tax and taking away or even reducing the health care subsidies? Are big income tax increases for the middle class on the Government’s next agenda?”
The questioner added a little later:
- “We slide into the middle class band where we don’t actually get any subsidies whatsoever. So it just feels like we’re just constantly paying out and not getting any sort of gain from any sort of breaks that you’re talking about at all.”
These two short comments encapsulate a lot of the reasons why the unprecendented prosperity in Australia is not being translated into support for the Government.
The comment relating to the “middle class always suffer[ing] under a Labor Government” is clearly either a biased perception or a misunderstanding rather than a reality. It also smacks a little of the downward envy that occasionally influences those doing well enough not to qualify for government benefits.
Let’s start looking at this issue of the standing of the middle class under Labor Government’s with a focus on jobs. In 4 and a half years, including through the GFC, the current Labor Government has seen 835,000 new jobs created. Under the previous Labor Government over 13 years, 2.044 million jobs were created. Not a bad start for the middle class.
Now turn to the money in people’s pockets. Since the end of 2007 when the Labor Government came to power, average earnings have risen by 20.0% while the consumer price index has risen by just 12.1%. This strong rate of real wages growth is a windfall for the middle class whose purchasing power has been boosted by around 1.75% per year, every year, for the whole term of this Government’s term.
Mortgage interest rates are undoubtedly a critical factor in middle class financial well-being. When the Howard Coalition government lost the 2007 election, the standard variable mortgage interest rate was 8.55%. After the cut in official interest rates in June, that interest rate has dropped to 6.80%. The cost of servicing an average mortgage of $300,000 is $4,000 a year less now than it was under the Coalition. A kinder person might be inclined to say “thanks Labor!”
In terms of the question from the woman on Q and A, “are big tax increases for the middle class on the Government’s next agenda”, she might be surprised to learn that the total tax take in 2010-11 under the Gillard Government was 20.1% of GDP. This is 3.3% of GDP less than the average tax to GDP ratio under the Howard Government.
So how much is 3.3% of GDP?
In 2010-11 terms, it is around $46 billion per annum. The amount of tax collected in 2010-11 was around $4,750 a year less per household than the average of the Howard Government. Pretty compelling stuff for the middle class.
When it comes to income tax, the woman should be aware that during the first 3 years of the Labor government, there were substantial income tax cuts delivered.
Let’s take someone earning $150,000 a year. This may be the upper bound of middle class, but woman appears to be from a household where the income is above this. In 2010-11 compared with 2007-08, the income tax paid is $3,650 a year lower for each and every year. These are income tax cuts delivered by the Labor Government that are still place.
The run of hard facts would suggest that the Q and A woman is either ignorant, biased or has some other financial issue not related to recent government policy that she is blaming the government for. I don’t know. That said, the facts suggest her plight would be significantly worse were it not for the policies of the current government.