Will the plight of Australian battlers get worse?

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).

Further difficulties for battlers are evident in regards to health, despite bulk-billing rates to general practitioners remaining high at 73.9 per cent in 2008-09. In July and August 2008, Primary Health Care, which owns 87 medical centres across Australia and earned a profit of $108.5 million in 2008-09, added a $30 upfront fee for non-concession holders and those over 16 in selected medical centres. The company argued that the basic Medical Benefits Schedule fee of $33.55 has not kept pace with either average weekly earnings or the cost of medical services.

And with the public cost of Medicare increasing by 9.7 per cent in the year to June 2009, Labor has proposed to cut the Medicare rebate for cataract surgery by 50 per cent from November 2009, a policy that will leave some of those with impaired vision the prospect of waiting years for surgery.

At the same time, it is the wealthy that benefit most from the Medicare safety net, which presently covers 80 per cent of costs of out-of-pocket medical bills once they exceed $555-1111 a year depending on income, as poorer people often cannot afford the high initial cost of private specialist and diagnostic services. In 2007, about 30 and 22 per cent of Medicare safety net benefits in 2007 funded obstetric and assisted reproductive services with only 8 per cent going towards general practice consultations.

To be fair to Labor, it has adopted some measures to better target welfare assistance. Labor negotiated with the Senate to increase the Medicare income threshold from $100,000 to $125,000 before a family is penalised with a higher Levy penalty for not having private insurance, while the penalty increased from 1 to 1.5 per cent for higher-income earners without private insurance.

Labor also has sought to introduce greater means-testing to save public costs and better target assistance, although the child-care rebate (increased from 30 to 50 per cent) up to a maximum $7,778 (indexed) per child per year remains non means-tested. With about 15 per cent of households earning $150,000 or more, there is now an income limit of $75,000 of combined income during the first six months after the baby is born to qualify for the baby bonus, and a $150,000 per year income limit regarding eligibility for Family Tax Benefit B.

Labor has also proposed a means test on the 30 per cent private health insurance rebate which will gradually reduce for families earning more than $150,000.

Yet, such measures will hardly prevent Australia’s battlers from facing harder times, despite most benefiting from cheaper consumer goods in recent decades, such as cars, televisions, computers, and other machinery and equipment.

One has only to note the Australian Medical Association’s call in November 2008 for the immediate injection of $3 billion to avoid the collapse of public hospitals throughout Australia with an extra 700 hospital beds needed in Victoria alone (ABC News, “Vic hospitals struggling: AMA”, November 13, 2008).

Are there signs to be optimistic for battlers based on recent trends?

Not really. The Rudd Labor Government has adopted important reform, but the demands of meeting the needs of ordinary people and business appears to be getting harder and more political. Remember Labor did not pass the recent pension increase on to sole parents and the unemployed, and upheld income tax cuts in 2009 that delivered most benefit to high-income earners. It remains to be seen what tax reform the Ken Henry review will suggest with Australian companies wanting a lower rate in order to compete.

With a projected $200 billion fall in tax collections over the next four years, it is also possible that one-off bonuses may end. Since 2001, the Howard government gave many one-off payments to pensioners, families, carers, while the Rudd Government sought to provide economic stimulus by payments of $900 or more to most taxpayers, pensioners, carers, parents, some students and some farmers.

And with the proportion of the working age population relying mostly on welfare increasing from 3 to 16 per cent since 1965 (Peter Saunders, Sydney Morning Herald, February 21, 2009), Australia’s pension age is to be increased to 67 to help pay for an ageing population, as is the case in US, Germany, Iceland, Norway, Denmark and Britain.

Rising costs for housing and food may not even be tempered by higher real wages as union power is further diminished with even the Fair Pay Commission in 2009 ruling out a small increase in minimum award wages for 1.3 million workers.

Forget the argument offered by the Institute of Public Affairs’s John Roskam who suggests that favours given by Labor to the unions runs the risk of returning Australia to the industrial relations dark ages (Australian Financial Review, September 4, 2009). Quite clearly, Australia’s labour market is far more flexible today than in 1996 when the Howard government was elected.

And workers are hardly likely to be better off without union representation, with one study noting that wages under union collective agreements increased by 4.3 per cent between June 2004 and June 2005 (compared to 3.5 per cent for non-union collective agreements and 2.5 per cent for AWAs). Why else was business so anxious for the Howard government to promote AWAs, and why else did leading building industry groups oppose the fairness test which the Coalition introduced in a bid to win back support prior to the 2007 federal election?

Time will tell if trade unions can increase their membership, although ABS data in April 2009 indicated a 3 per cent rise in membership after many years of decline. It may well be that only a major recession will lead to a major rethink of policies throughout the Western world as our time of promoting freer trade facers more obstacles as our societies struggle to compete.

To conclude, while we may disagree with what level of government intervention is needed to maximise Australia’s wealth potential, we all need to offer greater voice from different perspectives to encourage extensive debate.

After all, with Australia’s champion of rhetoric (Rudd) bagging the past 30 years of policy, yet paying one person $2 million a year to build the government’s $43 billion National Broadband Network because that is the market rate, we will need extensive debate to make sure our elites adopt polices that ensure welfare assistance and wages are fair and appropriate.