Good times for ‘working families’

During the week, the relentlessly on-message Kevin Rudd repeated his lines about ‘working families’:

The other big challenge is offering help to working families under financial pressure. Mr Howard just said he understood that, well that’s the same Mr Howard who said that working families had never been better off.

And the ACNielsen poll at the end of the week suggests that the public believes him, with 59% agreeing with the proposition that ‘John Howard has lost touch with working families’.

It’s not often that I agree with Clive Hamilton, or he with John Howard, but the Australia Institute has published some interesting ABS and HILDA-based research on just how well ‘working families’ are doing (as usual with Hamilton’s work, it gets a good report in Fairfax papers).

On average, the real disposable income of couples with kids went up 40% in real terms between 1994-95 and 2005-06, considerably more than the 28% increase recorded across the whole population. There were above-average increases across all the income quintiles for couples with kids, with the lowest gain of 35% in the second-highest quintile. General prosperity and very generous family benefits from the ‘out of touch’ Howard mean that, financially at least, families never have had it so good.

The working families doing-it-tough message is, I think, the key mistake of the Labor campaign. Not that it will harm the ALP’s immediate electoral prospects – to the contrary, it will probably add seats to their likely victory – but it is creating expectations that cannot be met, not even with the me-too tax cuts. Though ‘working families’ will almost certainly on average be even more affluent in three years than they are now, Rudd is fanning such an inflated sense of entitlement that ‘working families’ will be disappointed with their gains.

9 thoughts on “Good times for ‘working families’

  1. Very interesting. I wonder if any of the following factors could be at work:
    1) Even if only 20% of “prime age” middle-class families have mortgage debt over $100K, they are likely to be concentrated in the early 30s age group and are relatively likely to be swinging voters – hence the political pandering.
    2) The study ignores personal debt (eg credit cards), which we know has ballooned.
    3) Hamilton blames “the gap between perception and reality” on the rhetoric of struggle and inflated expectations. I wonder if the “sense of deprivation” he writes of may be due to the fact that puchasing a house has become very difficult for first home-buyers. The data show that 60-odd percent of prime middle-income families have no mortgage debt. This may be due to their having paid it off or it may be due to the fact that they’re renting. Anyone who lives in a mainland capital city at the moment and does not own their home feels at least a bit poor and vulnerable. The ratio of house prices to incomes is at record highs. And because rental yields are at record lows, a family can rent in inner city Melbourne for 40% of the cost of buying – thereby foregoing “mortgage stress” but nonetheless feeling deprived because renting is a far from a perfect substitute for owning in Australia.


  2. Andrew how can you assume that average middle income families are doing better off than thought based on the findings of the study?

    The study only looks at one end of the financial calculation being the income level only.
    The term middle class is also very broad covering all incomes between the 30th and 80th percentile and covers a large age group. The study does not seem to go into further detail in breaking down these figures to different age groups within the middle class.

    The main concern I have with your analysis that things are going well is once again this only looks at income. It does not mention the expense side of things both in monetary and social terms. Yeah incomes seem higher but so are expenses (petrol and interest rates to name just two).

    For the study to be really able to accurately assess if people are better off should both sides of the equation be looked at as well. Also does not factor in the social consequences such as not being able to spend as much time with family and Australia having one of the longest working hours in the world.


  3. jadamo76, the figures that Andrew cites are measures of real disposable income, not nominal disposable income. The expense side of things is taken into account.



  4. I think Rudd couldn’t care less about any long-run political problems his bribes create, any more than Howard does. Their first and last priority at the moment is getting elected.

    I wish some previous opposition leaders had been as focused.


  5. Jadamo – It’s true that though as BBB says these numbers have been adjusted for inflation, the CPI does not include interest payments. On the other hand, as the Hamilton study points out most families do not have large mortgages.

    Average working hours are not especially long, and lower than in 1996 – and in any case most people are satisfied with work-life balance. This is another greatly exaggerated issue in my view.


  6. I thought the same as Jadamo – income may have increased, but if more parents feel they need to send their kids to private schools, as they apparently do, then they probably aren’t feeling any better off.
    Kids are a lot more expensive than they used to be – their hobbies, their horrendous telecommunications bills, their school inter-state excursions, school balls, teeth straightening, their anti-depressants ……


  7. Russell – Well the purpose of more income is to finance more consumption, and perhaps as Rajat suggested initially the increases in credit card debt suggest that consumption is increasing even more quickly than income. But this is not (or rather should not be) a *political* problem. The state should do nothing to help people who can live comfortably but go into debt to live even more luxurious lifestyles.


  8. I basically agree with Rajat’s comment (3). If you take a section of society with an income far higher than the average, it isn’t exactly surprising they are not doing too poorly — what did they expect (think, families with sixteen year old children that bought their homes two decades ago, for example). Many of this sample would have bought their houses before the recent inflation. Thus it comes as no surprise that the average mortgage is not huge (people also pay them back, after all). What would have been far more meaningful would have been to look at the increase over time, and see how big the average mortgage (especially first mortgage) is for recent borrowers, as it gives some sort of an indication as to what it takes to join this group (excluding inheritance).


  9. If people send their kids to private schools, that’s their choice. To suggest they are ‘worse off’ because they have made such a choice is bizarre – clearly they believe the private school fees are a better option than additional personal consumption. The same for people with big mortgages.

    People can afford to send their kids to private schools and buy big houses because they ARE so well off. You can’t turn around and say ‘my kid’s getting a better education, I’m living in a bigger house’ but because I’m not spending all my additional income on personal consumption I’m no better off. Ludicrous proposition.


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