There is a lot of squeamishness in Australian over what it means to be rich, with politicians and those in the media unwilling to label even the very highest earners as wealthy. Such an attitude has engendered policy which favours high income earners, even as the gap between the rich and poor continues to grow.
Among the fights in parliament this week has been over the “budget repair levy” of 2% for income over $180,000 which was introduced in the 2014-15 budget. The levy was temporary (unlike other measures in that budget which affected low pay workers) and is due to end on 30 June this year.
It was introduced by Joe Hockey, who was treasurer at the time, to ensure that “higher income earners ... help repair the budget”. The budget deficit then was $39.6bn or 2.4% of GDP, and is estimated by the end of this financial year to be $36.5bn or 2.1% of GDP.
So while the repair to the budget deficit (whether or not you believe it needs to be repaired) has hardly been finished, the repair levy will come to end unless the government extends it in the May budget.
On Monday, Jim Chalmers, the shadow minister for finance, asked the prime minister whether the government would be scrapping the levy. The way both the question and the answer were framed says a bit about how disingenuous is the discussion of wealth in this country.
Rather than refer to the $180,000 threshold, Chalmers pitched the issue as one where taking away the 2% levy would deliver a tax cut of “$16,000 a year for millionaires”. And Turnbull replied by suggesting that people on $180,000 are not rich and he referred to an interview Bill Shorten gave last year to 3AW’s Neil Mitchell to support his point.
In the interview, Mitchell repeatedly tried to get Shorten to defined what he meant by rich, asking him “Is $180,000 a year rich?” To which Shorten replied, “No it’s not.”
Well I’m sorry, but it is.
As I have noted in the past, figuring out the median income for households and for individuals is a complex process, but using the latest figures of the Australian Bureau of Statistics survey of Household Income and Wealth allows us to gauge what the median income was for someone in 2013-14. And given since then inflation and wage growth has been low so there will have been little change.
In 2013-14, the median equivalised annual income for a single person was $43,836. The figure is after tax, meaning the person would have needed to earn around $53,800.
For a family with two adults and two kids, the median household income was $92,056. The reason it is higher because when you try to measure median household incomes you have to take into account the number of people who are expected to live in that household.
Assuming a 70/30 split of that couple earning $92,056 after tax, their combined gross income would need to be around $115,900.
So where would $180,000 put you? For a single person it would see you as one of the richest households in the country – given the average income for the richest 20% of single households is just $105,924:
And even better, if we split the size of households by lots of 10, we can see that even if you are a household of two adults and two children and your after-tax income is $180,000, that puts you up in the top 10% of all households:
But we can get a more precise measure of how many people earn over $180,000 from the ATO annual taxation statistics.
In 2013-14 only 424,692 out of the 12.9 million people who filed a tax return earned more than $180,000. But it is worth noting that 48,425 of those people were able to reduce their taxable income to below $180,000 – meaning only 2.9% would have been eligible for the budget repair levy.
And if 2.9% of the population doesn’t make you rich, then words no longer have any meaning.
The debate comes at a time when unions and employer groups are beginning their annual submissions to the Fair Work Commission over the minimum wage.
The ACTU is arguing for a $45 a week increase – to take the minimum wage for a full-time worker from the current amount of $672.70 to $717.70 – or in annual terms from $34,980 to $37,320.
A 6.7% increase would seem excessive given the current average wage rise is just 1.9%, but the minimum wage over the course of the past 30 years has fallen behind median and average wages.
In 1991, the minimum wage was equivalent to 65% of the median full-time wage, now it is worth around 53%. Similarly in 1991 the minimum wage was worth 59% of the average full-time wage, and now is worth around 42%:
To give it some context, a minimum wage of $717.70 a week would still be just 45% of the current average weekly full-time total earnings of $1,592.
Australia has generally had a higher level of minimum wage relative to other nations in the OECD, but our level has dropped in the past few years:
What has risen over the past 20 years however is the incidence of low-paid workers – those who earn less than two-thirds of median full-time earnings:
And what is clear is that we can class those who are on minimum wage as low paid. In 2013-14, 80% of those who paid tax, earned more than the minimum wage:
Our economic debate would be much better if we were honest about who is rich and who is poor, and not pretend we’re all in the middle somewhere.
