Middle Australia under pressure
Flat wages growth and tax rises are squeezing budgets
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.