Mid­dle Aus­tralia un­der pres­sure

Flat wages growth and tax rises are squeez­ing bud­gets

The Australian - - COMMENTARY -

Aus­tralia’s mid­dle-in­come earn­ers — iden­ti­fied by Sir Robert Men­zies 75 years ago as the “back­bone of the coun­try”, nei­ther rich and pow­er­ful nor among those pro­tected by unions (or, these days, by Aus­tralia’s vast wel­fare net­work) — have good rea­son to feel for­got­ten. Par­lia­men­tary Bud­get Of­fice re­search shows tax­pay­ers in the mid­dle-in­come range, with av­er­age earn­ings of $46,000, will bear the brunt of re­turn­ing the bud­get to sur­plus via bracket creep and the 0.5 per cent rise in the Medi­care levy from 2019.

De­spite slow wage growth, the PBO ex­pects 1.8 mil­lion tax­pay­ers will move into higher tax brack­ets dur­ing the next four years, as Adam Creighton wrote yes­ter­day. About 900,000 peo­ple will move up into the 37 per cent bracket, which ap­plies from $87,000.

Mid­dle-in­come earn­ers also are feel­ing the ef­fects of low wage growth. In the five years since the min­ing boom peaked, wage growth has av­er­aged 2.3 per cent, com­pared with 3.6 per cent in the pre­vi­ous five years. The growth that has oc­curred has been mainly in high and low-paid jobs, re­flect­ing strong de­mand for work­ers in well-paid busi­ness ser­vices roles and low-paid house­hold ser­vices.

While many pri­vate sec­tor work­ers strug­gle, Aus­tralian Bureau of Statis­tics data shows taxes are help­ing union­dom­i­nated state La­bor gov­ern­ments look after their own. Public sec­tor wages rose by 25 per cent more than pri­vate sec­tor wages in the year to June (2.4 per cent com­pared with 1.8 per cent). Fam­i­lies fac­ing soar­ing power bills and debt will have lit­tle scope for boost­ing re­tail sales or sav­ings. Bill Shorten is right when he says mil­lions of Aus­tralians feel they are stuck on a fi­nan­cial tread­mill. His high tax and spend­ing poli­cies would make their prob­lems worse.

If the Turnbull gov­ern­ment is brave enough to prune spend­ing, how­ever, it could re­con­nect with its base with lower, flat­ter per­sonal taxes. The work­place re­la­tions sys­tem must be freed up to en­cour­age re­ward for ef­fort, more en­ter­prise bar­gain­ing and pro­duc­tiv­ity gains. Fur­ther com­pany tax cuts are needed to boost growth and in­vest­ment, and fund pay rises.

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