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As the public purse thins, the rich feel the pinch

Date

Soaring living costs and a rising reliance on private services are a double blow.

Australians are irate about all the demands on good incomes.

Australians are irate about all the demands on good incomes. Photo: Louise Kennerley

''You need to earn $150,000 just to live in Sydney,'' read the online comment on the recent article, ''High earners don't realise own wealth'' - one of many that unwittingly confirmed the point.

Labor MP Joel Fitzgibbon added his $250,000-worth. Families on that income in Sydney's west were ''still struggling'', he said.

''Coal miners in my electorate earning 100, 120, 130, 140,000 a year are not wealthy.''

Get real, Joel: such earnings are way above average.

Half of all employees earn less than $50,000 a year, the Australian Bureau of Statistics reports. Only one in 10 full-time workers gets more than $123,000.

As for households, half get by on less than $70,000.

Yes, living in Sydney is expensive. But the cut-off mark for Australia's top 5 per cent of earners, 530,000 of them, is just above $130,000. Almost all Sydney's 4.6 million residents live on much less.

So why don't the wealthy feel well off? They can't blame tax. Australia ranks 30th of 34 Organisation for Economic Co-operation and Development nations, with taxation as a share of the economy about 8 percentage points below average.

Taxation by all governments has fallen from a high of 30.4 per cent of GDP in 2000 and 29.7 per cent as recently as 2007 to about 26 per cent. Personal taxes are down from 12.6 per cent in 1999-00 to 9.5 per cent of GDP, although the GST offset much of that shift.

The reason wealthy households ''struggle'' is two-fold: higher living costs and consumption - think big houses and purchases, plus GST - and cost shifting from government.

The biggest household costs are housing, groceries and transport. Where were the big increases between the past two ABS Household Expenditure Surveys? In six years, the costs of food and drink, miscellaneous goods and services (driven by a doubling of school fees) and housing costs rose two to three times as fast as the consumer price index.

Wealthy households also have much of their money tied up in superannuation and homes. Many years paying much higher interest rates than most of the world hasn't helped, especially as Australian houses are the biggest and least affordable relative to income.

Non-housing living costs are high, too. The Economist Intelligence Unit's global living cost rankings put Sydney at three, Melbourne at four, Perth at 11, Brisbane at 13 and Adelaide at 14.

We pay more for everything from groceries, restaurants and parking to cinema tickets, IT products and electronic goods.

Just as the big four banks have exploited domestic dominance to grow into some of the world's biggest, so have our big two retailers. Woolworths and Wesfarmers have tied up almost 70 per cent of supermarket spending, 60 per cent of the liquor market and 50 per cent of fuel sales. Australia had the fastest-rising food and grocery prices of any developed nation in the past decade.

Retailers in general charged what a captive market would bear until online competition arrived.

Higher-income groups face extra costs, though, because they also tend to use private service providers instead of public services. This is related to the fact that governments get roughly $60 billion less revenue this year than if the tax-to-GDP ratio were the same as in 2000.

Spending on transport and infrastructure, health and education must suffer, leaving the private sector to fill the gap. Poor public transport leads many of us to bear the considerable costs of a car. And governments have not just run down public education and health but promoted the private alternatives.

Over five years to 2010-11, the ABS reports, household education spending, including university fees, grew 40 per cent faster than government spending.

Total private spending on education is nearly two-thirds of government spending.

The Independent Schools Council of Australia calculates more than half the sector's funding comes from private sources, mostly parents, ''saving'' government nearly $4 billion a year.

Families of the 37 per cent of students in Catholic and independent schools (up from 22 per cent in 1980) spend three to eight times as much on schooling as those using government schools.

They face an average extra cost per child of between $140,000 and $435,000, the Australian Scholarships Group estimates.

Half the population also has private health cover, up from 30 per cent 17 years ago, and their premiums total $17 billion a year - equal to a third of the federal Department of Health and Ageing budget. Premiums have risen three times as fast as the CPI for a decade, with no relief in sight.

Private patients spend several times as much on their health as public patients, and ''gap'' charges just add to the pain.

Prime Minister Julia Gillard recently hinted at why millions are burdened by the soaring costs of private services: ''In Australia, revenue to government for every unit of GDP has been at its lowest since the recession of the early 1990s. In other words, for a given amount of economic income generated, less money is finishing in the public purse, to be used for the Australian people.''

That is a deliberate policy choice of recent decades, as Australians repeatedly voted for big tax cuts. It seems they do not feel better off as a result, especially those most reliant on private services.

Australians are irate about all the demands on good incomes. Should they feel dudded by two decades of government tax and spending policy? That is a debate for this year's election. Let's see whether politicians venture there, let alone do anything about it.

John Watson is a senior writer at The Age.

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270 comments

  • Australian houses may be some of the most expensive, but they are far from being the biggest. One of the biggest housing cost problems is the atrocious quality of house construction here - if Australian houses were built with a lot more quality then they wouldn't need to be demolished and rebuilt every 30 to 50 years.

    Commenter
    ABC
    Date and time
    April 26, 2013, 7:12AM
    • Exactly. Housing construction durability is quite lacking. The level of waste it produces is phenomenal. Yet, there is never a mention of this very obvious problem. Not even by the Greens, not sure why is that so.

      Commenter
      naysayer
      Location
      Melbourne
      Date and time
      April 26, 2013, 9:44AM
    • Wrong.

      1. Yes half households "get by on less than $70,000", but that includes pensioners, unemployed, students; and yes working in Sydney is more expensive than a retiree in Tasmania.
      2. "Can't blame tax". Wrong. The degree of inequality in tax paid in Australia goes way beyond most other countries. Someone on $60k pays $11k tax, while someone earning 4x that pays 7.5x times as much tax. Plus the so-called "wealthy" are the only ones shouldering the carbon tax, they pay the most GST, CGT, stamp duty, you name it. Plus they miss out on all the entitlements their taxes pay for: baby bonus, private health rebate, family tax benefits - it goes on and on and on.

      Commenter
      Gatsby
      Date and time
      April 26, 2013, 10:09AM
    • People knock over well built older homes because they want to live in a trendy "plastic fantastic" or so they can subdivide or build a duplex or flats. The building quality rot started with brick veneer and it's been all down hill from there.

      Commenter
      Prong
      Date and time
      April 26, 2013, 10:20AM
    • I disagree with the GST comment. The poor pay proportionally more money in GST as the rich. Most rich have business structures and are able to claim back a significant proportion of GST via their companies and/or ABN. If a poor person on $20,000 buys a $30,000 taxed item, they are paying 15% of their income as tax. On the other hand, richo on $300,000 buying the same item only pays 1% of their income as tax.

      Commenter
      Tone
      Location
      Melbourne
      Date and time
      April 26, 2013, 10:21AM
    • Gatsby,

      Those on low paid and fixed incomes depend on tax relief and welfare because the Coalition hiked up the cost of living when they imposed a broadbased 10% consumption tax on both consumer goods and services (services were never taxed before).

      The rich funded their tax cut for the top marginal tax rate by lobbying for the GST.
      Those on the low and fixed incomes missed out on tax relief in the first 3 rounds of Howard's tax cuts.

      They also lobbied to keep wages low, and receive corporate welfare by getting Newstart to supplement the meagre wages they pay because they fail to pay a living wage.

      They lobbied for Workchoices, casualisation, labour hire, 456 and 457 visas, removal of unfair dismissal protection and other policies which would cut their own costs, and increase their profits at the expense of the livelihood of those on low incomes.

      Commenter
      Tristan
      Location
      Melbourne
      Date and time
      April 26, 2013, 10:26AM
    • Tristan your facts are wrong.
      1. The GST replaced a whole host of inefficient taxes and duties. The net impact was ~3%.

      2. It's hard to give a tax cut to people who don't pay tax. Including those living on welfare. Debate pension rates, sure (Howard increased them), but don't whinge their tax wasn't reduced further from zero.

      You need to stop singing the class warfare hymn - it will get you no-where with the Australian people. Only delusional people think there are groups of us "rich people earning $150k" sitting around scheming to reduce wages for other workers.
      We're too busy working hard, creating jobs and paying all the tax to devote that much time to petty politics.

      Commenter
      Gatsby
      Date and time
      April 26, 2013, 11:00AM
    • We just need to keep jacking up taxes until we're all rich!

      Commenter
      NotFooled
      Date and time
      April 26, 2013, 11:12AM
    • @Gatsby: "Plus the so-called "wealthy" are the only ones shouldering the carbon tax, they pay the most GST, CGT, stamp duty, you name it. Plus they miss out on all the entitlements their taxes pay for: baby bonus, private health rebate, family tax benefits - it goes on and on and on."

      My heart really bleeds. My recommendations for people like that include:

      1. Get your head around the concept of progressive taxation. It's based on "ability to pay". If people on an income three times that of the average worker find their standard of living, after tax, is only twice that of the average worker, they're still well ahead and should stop complaining.

      2. Pay some attention to relevant facts:

      "Half of all employees earn less than $50,000 a year"

      Note the word "employees". So that doesn't include the unemployed and retired people.

      3. Get a grip on basic arithmetic. People on high incomes pay the most GST because they are consuming more in total - an admission that they're better off than the rest of us. Because they have a higher "propensity to save", however, a lower proportion of their income goes on GST when compared to people on lower incomes. That's why the GST is an inequitable tax.

      4. Understand the tax system. CGT is actually a tax CONCESSION, since capital gains are only taxed at half the rate charged on income earned by honest labour.

      5. Reaiise that private health insurance is a luxury that few people on moderate incomes can afford. You don't get the subsidy if you can't afford the premium.

      6. Admit the other subsidies not mentioned by Gatsby: the extraordinarily concessions for company cars, superannuation concessions for those who can afford generous contributions, etc.

      That's enough for the moment, I think.

      Commenter
      Greg Platt
      Location
      Brunswick
      Date and time
      April 26, 2013, 11:14AM
    • "The GST replaced a whole host of inefficient taxes and duties."

      Gatsby, yes and businesses and high income earners benefitted with tax cuts funded by the impostion of the GST, while being hit with a swathe of GST regulations and most businesses became a tax collector for the government.

      You are perpetuating the fallacy that the GST takes less tax than the taxes it replaced.

      Because GST is applied broadly and has few exemptions, it applied to extensively more goods than the narrow range of indirect taxes you are referring to which mainly affected businesses, not consumers.

      Many of the taxes and duties still apply, and GST is levied on top of those taxes, eg; GST on excise - petrol.

      To emphasise once again, services were never subject to tax before.

      The GST is levied on essential and basic services - commercial rents, electricity, water, gas, telephone, processed food.

      I deliberately didn't just say GST. I wanted to emphasise that it is a broadbased consumption tax on consumer goods plus services which were never subject to tax prior to Howard's "Unchain My Heart" jingle.

      The ALP's 1993 advertising campaign showing a cash register ringing every time a consumer reached into their pocket was more accurate.

      Commenter
      Tristan
      Location
      Melbourne
      Date and time
      April 26, 2013, 11:20AM

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