Abbott risks losing the middle class to Palmer

Tony Abbott’s plan to extend fair contracts provisions to SMEs is exactly what Australia’s struggling middle class needs, but is it enough to beat the increasing popularity of Clive Palmer?

Clive Palmer is one of the first politicians in Australia and indeed the world to wake up to the fact that the middle class is bleeding -- and bleeding badly. There is enormous support out there for anyone who stands up for the middle class and knows how to promote the cause.

And so Palmer’s budget amendments are mainly aimed at the middle class. He recognises that the carbon tax never made sense but he negotiates to ensure the carbon savings are passed on. Palmer’s emissions trading scheme plan, pricing carbon at nil until the world embraces carbon pricing, is in line with middle-class values. And Palmer’s use of television to market his policies is brilliant (Clive Palmer proves he's no fool, June 2).

Tony Abbott is very vulnerable to a pro-middle-class Palmer because in the election campaign Abbott did not warn the middle class that we had a crisis, so when he decided to hit middle Australia he enraged them. And Abbott appears to have no sense of vision about a future Australia -- something the middle class desperately seeks.

Middle-class suffering and the increase of people on top and low incomes is a global phenomenon. No matter where you look -- Australia, the US or Europe -- the people in the middle class are running scared of becoming low income earners, and they are seeking politicians who recognise what is happening.

And it’s not simply because middle-class incomes are no longer rising, or that many of their number are falling into lower income brackets. The blows to the middle class are being delivered from much wider spectrums.

Yesterday I had the privilege of joining Alan Kohler and Steve Bartholomeusz in a KGB interview with Nobel Prize-winning economist Professor Joseph Stiglitz, who is a former chief economist of the World Bank. That discussion made me realise that among most major political parties around the world, including Australia, it almost seems as if there is a conspiracy against the middle class.

I asked Professor Stiglitz what were the three actions he would take to overcome America’s growing income inequality and his answers have an incredible similarity to what the middle class in Australia is looking for.

You can see his answers for the US when we post the KGB interview but let me adapt them to the Australian situation. Paradoxically, at least in one area Australia’s Abbott government is leading the world in trying to overcome the declining middle class, which I explain in a moment. But Tony Abbott never talks about it and gets no credit.

Stiglitz’s first US remedy requires changes in education, including overcoming the situation where in the US the good, government-provided primary and secondary education is concentrated in affluent areas.

In my view the simple fact is that good teachers want to teach in a good school environment and the number of good teachers is limited partly because too many teacher training institutions do not train prospective teachers in the skills required to teach. In Canada good teachers are prepared to receive lower pay in the independent system than their state counterparts, simply to teach in a good environment.

To gain entry into a state school where good teachers congregate usually requires the middle class to buy into premium suburbs (although there are exceptions). Middle-class Australians have been swinging to independent schools but that hurts the hip pocket. I wonder if Clive Palmer will wake up to the fact that the middle-class education problem starts with teacher training.

Secondly, the middle class has been hit by the decline in manufacturing that came first from globalisation and second from automation. The middle class is now seeing service industry jobs go the same way. Stiglitz says the US government has not fostered the replacement jobs that come in education, health and research. The same applies to Australia.

Stiglitz believes that, in the US, government services are managed poorly and Wall Street is ripping the country apart with “rent-seeking” large corporations. He believes Australia is better at government management than the US but the fact is that in both countries governments have not embraced the new technologies to slash costs and improve services (How to save our sick health system without GST hikes, May 21).

The US and Australia are giving some international corporations the power to gain huge profits and pay little tax, and we are distorting community income levels by paying enormous executive salaries. Stiglitz’s solution is a different taxing regime that covers activities rather than profit. The middle class are the voters and they will vote for people who recognise and attack their problems. Big global corporations need to find a way to pay tax in the countries where they operate, or nasty and unfair solutions will be imposed on them.

Unfortunately, Stiglitz had not discovered that Australia looks set to be a world leader in helping the middle class. The Abbott government appears to be sticking to its promise to extend the fair contracts provisions of consumer legislation to contracts between smaller enterprises and big organisations, whether they be government or corporate. This will shift income from large corporations to the middle class who run small- and medium-sized business. Stiglitz in principle thought the scheme was exactly what is required.

Large corporations will oppose the measures with great vigour and the Abbott government will face hostile opposition. It will be an important test for them and they need to honour their promise and market the measures if they are to curb Clive Palmer’s drive to woo middle-class Australia.

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