I have an interest in the plight of ordinary working people, as do many Australians despite different views about what should be the appropriate level of government intervention.
While Western governments rightfully have sought to uphold the ideals of freer trade to a greater extent in recent decades, it would be intellectually dishonest to believe that all is well. Even if Australia escapes a major recession in coming years, rising interest rates alone may have dire consequences for many battlers.
Concern here goes further than the Australians that rely on welfare with the Australian Bureau of Statstics indicating that 23.2 per cent of households were reliant on government pensions and allowances in 2007-08 (26.1 per cent in 2005-06 and 28.5 per cent in 1994-95).
Concern here includes average and lower-paid working families, with the ABS noting that there were 1,774,000 Australian households with dependent children (average 1.4 to 2.2 children) in 2007-08 with a mean weekly disposable household income of about $770-870 (about $40,000-45,000 per year).
So how are battlers faring today, despite Australia being among the top six OECD nations in terms of economic growth since 1983 and one of just five OECD nations measured which did not experience greater income inequality since the mid-1980s?
Not that well. Take housing, the most expensive cost of life. In terms of rent, Victorians alone have experienced an annual increase of about 6 per cent over the past nine years, well above the Consumer Price Index (CPI) increase.
In terms of buying a house, a choice still taken up by about 70 per cent of families, the Senate Select Committee on Housing Affordability in Australia (June 16, 2008) noted that “the average house price in the capital cities is now equivalent to over seven years of average earnings; up from three in the 1950s to the early 1980s”.
Even allowing for an increase in the average floor area of new residential dwellings from 162.1m2 to 212.1m2 in the 21 years to June 2007, the average first home loan - in 2005-06 dollars - increased from $96,100 to $215,100 between 1991 and 2008.
Should the economy recover, higher interest rates will adversely affect some (perhaps many). This will include the 137,000 first-home buyers who took up the government’s boost to the first-home owner’s grant for existing homes of $14,000 and for newly constructed homes, $21,000 (Matthew Franklin, The Australian, September 11, 2009). If the average mortgage interest rate rises from 5 to 7 per cent, annual interest repayments alone will increase from $12,500 to $17,500 for a $250,000 loan. For the many Australian households with dependent children and a mean weekly disposable income of less than $900, a $100 rise a week may have serious consequences.
With Australia’s tax system long favouring property investors, even Labor First Home Buyers Savings Scheme gives higher income earners an advantage: many poorer families will struggle to make the $5,000 of contributions necessary each year to receive the maximum $850 rebate. Higher income earners are also far more likely to provide additional contributions that can reduce taxes paid on the savings scheme to just 15 per cent until the account reaches a maximum $75,000.
And battling families are further burdened by food prices rising by 19.7 per cent in the five years prior to 2008 compared to 14.8 per cent for the total CPI: fruit rose 27.8 per cent, dairy 23.6 per cent, meat and seafood 13.7 per cent, and bread and cereals 17.5 per cent. In the 12 months prior to the March 2009 quarter, food prices rose 6 per cent.
Unfortunately, the Reserve Bank of Australia noted that food prices were likely to rise further because of greater demand from developing economies and the trend towards biofuel production which doubled in global terms between 2000 and 2007 (Asa Wahlquist, The Australian, February 28, 2008).