What counts as rich now?
Bill Shorten’s Marie Antoinette moment came a few minutes into an interview on Melbourne radio on April 21 last year, in an exchange with host Neil Mitchell, who was trying to pin the opposition leader to a number at which Australians ceased to be middle class and could fairly be called “rich”.
Shorten was ducking and weaving. First he said he could not put a “set number on it”.
When Mitchell kept pushing, Shorten offered: “… if you’re in the top 1 per cent of income earners in this country, you probably don’t need a tax concession to take you from your fifth million dollar to your sixth million dollar”.
Still, Mitchell pressed. “Is $180,000 a year rich?”
Shorten’s answer was 45 words long, but the news was all in the first three: “No, it’s not…”
The commentariat fell upon him like a tonne of bricks. How could the leader of the Labor Party, the party of the workers, fail to acknowledge that someone on $180,000 was rich? Someone earning that much, the critics said, was clearly rich. And statistically, they were absolutely right. Only about 3 per cent of the population earns that.
But Shorten wasn’t out of touch with that economic reality any more than any of the many other politicians – Paul Keating, Tony Abbott and Malcolm Turnbull among them – who have fallen into the same trap. In fact, he was trying to observe a rule of modern politics: never tell voters they’ve got it good. Speak not to their economic reality but to their economic illusions.
The $180,000 figure was not chosen at random. It is the income level at which the top marginal tax rate of 45 per cent cuts in. It also is the tax bracket on which the Abbott government slapped an extra 2 per cent “temporary budget repair levy” in 2014. That levy is due to expire on June 30 this year, unless the government decides to extend it.
In question time on Monday this week, Labor’s finance spokesman, Jim Chalmers, asked Turnbull if the levy would be extended, given the budget is not repaired. He avoided mentioning the $180,000 figure, though, instead referring to a “tax cut of more than $16,000 for millionaires”.
Turnbull flicked the question to Treasurer Scott Morrison, who gleefully reminded the house of the 3AW interview – and of Shorten’s error in getting towards defining “rich”.
The fact is, most Australians don’t think $180,000 is a lot of money. Heck, they don’t think $1 million is a lot. And the people who have that kind of dough are the least likely to believe it.
According to research conducted last year by MLC, nearly 60 per cent of us think a million dollars in assets doesn’t make you rich in Australia any more.
What’s more, about half of all those surveyed reckoned that in order to live comfortably, a household needed an annual income of more than $150,000.
More remarkable still, the more people had, the more they wanted. As the MLC report said: “Thirty-three per cent of people earning $40-$69,000 per year aspire to greater wealth [and] 45 per cent of people earning $70-$99,000, 55 per cent earning $100-$149,000, and 71 per cent of people earning $150,000 admit to wanting more.”
Such findings raise a couple of obvious questions: How much do you need to be rich in today’s Australia, and why are wealthier people apparently less content with their lot than poorer ones?
There is a great deal of data available on income and wealth. And statistically speaking, the threshold for “rich” is much lower than you might think. It’s certainly way below what those MLC survey respondents thought necessary for a comfortable life.
“To get into the top 10 per cent of income earners you need $94,000,” says Roger Wilkins, professor of economics at Melbourne University and deputy director of research for the Household, Income and Labour Dynamics in Australia (HILDA) survey, citing the most recent figures, from 2013-14.
“Most people wouldn’t think that a very high income. They’d think you were doing okay, but probably not that you’re in the top 10 per cent,” he says.
In reality, such an income is only about $10,000 above the average for a full-time worker. But averages are deceptive. For one thing, only about half of the adult population is in full-time work. The rest are retired or part-time or unemployed. For another, the average is inflated by those at the very top of the income scale.
“To be in the top 1 per cent you needed an income of $237,000, and to be among the really high income earners, the top 0.1 per cent, you needed an income of $609,000 or more,” Wilkins says.
The same goes for wealth. If you look at the average household wealth in Australia – the value of all assets, including property and superannuation, minus debts – it is getting close to the million-dollar mark. It was just over $800,000 in 2013-14 – and that has likely grown substantially over recent years as house prices have gone up. But that average hides huge variation.
“To be in the top 1 per cent, on the most recent numbers, you needed $8.5 million in net household wealth,” says Wilkins. “To be in the top 10 per cent you needed $1.8 million. The median household had $408,000 and the bottom 10th had $10,800 – essentially nothing.”
The data on the range of income and wealth within Australian society is startling. The top 20 per cent of the population earns an average of about
12 times as much as the bottom 20, and has 71 times the household wealth.
Things are not as dire as they may seem on those numbers, however. A young single person earning $40,000 may feel less income stress than a two-income household with a couple of kids, earning three times as much. And that young person will in all likelihood earn more as he or she gets older.
Likewise, as Wilkins says: “People in their 30s may have high-income jobs, but have not yet saved much, particularly if they’re paying school fees, paying off student debts, mortgages and so on.”
So, even on the objective data, it’s a complicated business defining who is rich. Is a single twentysomething who earns $110,000 rich? In relative terms, yes. But a thirtysomething, two-income family earning the same amount is pretty much on the median for people in their cohort. What if that twentysomething had assets of $1 million? Rich. But a retired couple with $1 million? Probably not.
Whichever way you slice it, though, there can be no denying the gap between the haves and the have-nots is widening. In the past 20 years, notes social researcher Mark McCrindle, average household incomes have gone up 60 per cent, while the incomes of the top 20 per cent have increased 74 per cent.
“The general trend, which has been evident for quite a while, is the hollowing out of the middle class,” he says.
And there is strong evidence to show Australia’s rising inequality of both incomes and wealth has a big generational component. Younger workers are disproportionately affected by the casualisation and increasing insecurity of work, their advancement is slowed by older workers lingering in the workforce, and they face increased difficulty in entering the superheated property market.
McCrindle stresses the point.
“By generation, the high-water mark of wealth is among the 55- to 64-year-olds. The generation above have less; the generation below have less. Their cohort is 12 per cent of the population, and they own 30 per cent of private wealth – an average $1.2 million. So their economic footprint is close to three times their demographic footprint. Bear in mind most of them are still working, still accumulating.
“Meanwhile, gen-Xers, 35-44, in their peak earning years, have less than half the wealth – $573,000. Those aged 25-34 have only $268,000.”
That stands to reason, really. Wealth builds up more slowly over a lifetime than income, and tends to peak later. Or at least it used to.
“Income,” says McCrindle, “is the real story.”
He points to data from the past four years. “The 25-34 group have seen their gross household incomes increase by $5356. You’d expect an increase towards their peak earning years,” he says. “But, amazingly, retirees have seen their annual household incomes increase $7700 over the same period. Retirees not only have greater wealth, but have been increasing their incomes by a greater amount than working-age generations. That tells us something about where income is coming from, and it’s not wages.”
The conclusion is grim: “Whether the younger generation of today will ever end up with the wealth of the previous generations is unknown, but it’s clearly doubtful.”
Now let’s go to the other question. Why do people who are objectively quite well off not feel they are? One way to answer that is with monkeys.
Back in July 2003 a fascinating article ran in Nature magazine, reporting the findings of a couple of American researchers in the field of primate behaviour. The headline was “Monkeys reject unequal pay”.
The scientists, Sarah Brosnan and Frans de Waal, got pairs of capuchin monkeys and placed them in adjoining cages so they could see one another. Then they trained them to perform a simple task – passing stones to the researchers – and rewarded them with food.
At first they rewarded both monkeys equally, with little pieces of cucumber, and the monkeys were all very happy to “work” for that. Then they began rewarding one monkey in each pair with cucumber and one with grapes, a food the capuchins much prefer. The monkeys that got the cucumber quickly became non-compliant. Indeed, some angrily threw the cucumber back at the researchers. (Note: If you want to see it for yourself, there is a YouTube clip. Search “monkey cucumber grape”. It’s very entertaining.)
Of course, human psychology is far more subtle than monkey psychology and our rewards system far more complex. For most of human history, people were persuaded to live on metaphorical cucumbers in this life, on the promise of grapes in the next life.
But, says Wilkins: “I think we’re deluding ourselves if we think we’re any different from the monkeys at a base level.”
Fortunately for the good order of society, he says, people tend to compare themselves with others close to them.
“We tend to mix in circles of people with similar incomes. But even then, we don’t really know what our friends’ incomes are most of the time.”
That’s an odd thing when you think about it. We discuss all sorts of intimate details with our friends and colleagues – sexual orientation, health status, emotional states – but open discussion of income is for the most part taboo.
“On balance, it’s probably been conducive to stable democracy,” Wilkins says. “If you think you’re in the middle you’re less likely to revolt. If the bottom 20 or 30 per cent realised how badly they were doing, they might start rioting.”
One interesting thing, says Dr Jill Sheppard, lecturer in the School of Politics and International Relations at the Australian National University, is that people in the middle of the income range know they are in the middle, “but people at the fringes get it wrong”.
“Those who are making a lot of money – $90,000 to $150,000 – don’t realise how well off they are,” she says.
It’s easy to see why. The middle covers a relatively small range of income – from about $40,000 to $80,000. In all likelihood, if you are in that range, so are those in your social circle, give or take $20,000. But once you get above that level, it’s very different. The top 10 per cent of the income scale encompasses a much broader range of income – from $94,000 to Gina Rinehart.
So if you’re earning, say, $100,000, you are likely working and socialising with people whose income and wealth are multiples of yours. In monkey terms, you’re in the cage adjoining the grape eaters.
And that is apt to make you feel poorer than you are. As the social researcher Rebecca Huntley noted in a blog for MLC last year, the result is that 60 per cent of households with incomes of about $145,000 misidentified themselves as being middle class.
They considered a middle-class lifestyle to include annual overseas trips, private schools and expensive extracurricular activities for their children, regular dining out, new cars and the latest household technology. All the while, they complained about the cost of living.
These people are rich, but no politician dares tell them, for fear of being resented.
In 2006, Maserati sold 107 cars in Australia. Last year, the Italian brand sold 483, an almost fivefold increase. Sales of other luxury cars have also enjoyed booming sales over the past decade. Porsche sales quadrupled to 4434. Audi went from 5770 to 24,258. BMW almost doubled to more than 28,000, and Mercedes-Benz more than doubled to more than 41,000. Add in Ferrari, Lamborghini, Rolls-Royce and you get about 100,000 sales, each one involving more money than 90 per cent of Australians earn in a year.
“Demand is very, very strong, particularly for what we call heavy metal – that is, stuff over $150,000,” says David McCarthy, senior manager, product, public relations and corporate communications for Mercedes.
“The traditional buyers are established business owners, but in the past few years we’ve seen small- to medium-sized business owners buying themselves expensive cars as a reward.”
Another noticeable trend among high-income earners, Sheppard says, is that they increasingly do not fit our customary measures of “class’’.
“Traditionally we’ve equated occupation with class,” she says. “But now tradespeople have started to make good money, and that is decoupling perceptions of class from occupation.”
That has wider social and political ramifications, as was recognised more than a decade ago by the then prime minister, John Howard. He realised a growing number of workers who had traditionally been Labor voters were in many ways natural conservatives, previously bound to Labor on financial grounds. But as their incomes grew, as ever more became independent contractors in a deregulated workplace, they were ripe for the wooing.
He called them “aspirational” voters. Tony Abbott also went out of his way to attract them. Remember “Tony’s tradies”?
More recently, though, many have found a new political home: One Nation.
As David Marr notes in his recent Quarterly Essay on Pauline Hanson’s party, its voters are not like the left-behind working poor who voted for Donald Trump. He cites data from the Australian Election Study held after the most recent federal election.
Most of the people who voted for Hanson had actually done quite well for themselves. They were half as likely to have gone to university, but twice as likely to have a trade qualification.
Interestingly, the highest percentage of self-identified members of the working class were One Nation supporters, at 66 per cent, compared with 45 for Labor, 46 for the Nationals and 32 per cent for the Liberal Party.
But perhaps their most telling demographic characteristic is that they are malcontented.
In response to the survey question: “How does the financial situation of your own household compare with what it was 12 months ago?”, 68 per cent of One Nation voters responded that it was worse. That compares with 25 per cent for Nationals voters, 27 for the Greens, 29 for Liberals and 38 for Labor.
And when asked about the state of the economy generally, they were even more pessimistic. Almost three-quarters – 73 per cent – thought it worse than a year ago.
And yet, as Marr notes, the Australian Election Study showed them to be marginally more prosperous than the average Australian.
Just when you thought Australians could not get any more deluded about their relative good fortune, along comes a whole new cohort of well-to-do whingers.
Our leaders really should tell them they have not got much to complain about. Although that seems unlikely: we’re still not ready to even talk about what “rich” means.
This article was first published in the print edition of The Saturday Paper on Apr 1, 2017 as "What counts as rich now?". Subscribe here.