Australia's middle class is feeling the squeeze

In the US, the middle class is not taking part in the country's economic revival, and a similar phenomenon is occurring in Australia. Can the trend be reversed?

While Australia steers the G20 into a growth target agenda, there is a much bigger problem: middle-class families are not participating in better economic times.

This was underlined in this week’s graph from the New York Times, which shows that the historic link between American GDP and middle-class incomes has been broken.

Graph for Australia's middle class is feeling the squeeze

Middle America is not participating in the American revival that is sending the Wall Street sharemarket to record levels. 

Recent Australian figures indicate that for a long time, we bucked American trends. However, more recently the Australian middle class has been experiencing a similar squeeze to its American counterparts.

And it’s not hard to see why. Governments reckon the struggling middle class is too well off and love to hit them with tax blows. Politicians equate the middle class with the public servants and the rich, but they do not understand what is happening in the real world.

In the latest Australian profit season, company after company reported sluggish revenue. People were not increasing their purchasing because their incomes were under pressure. Yet profits rose because of cost-cutting. Mostly, those cost cuts involved labour shedding created by better technology and computer systems.

Public servant salaries are rising but that is not happening in vast areas of the private sector, where most of the middle class works. Governments are being forced to cut expenditures, so public servants will soon join their private counterparts.

The new technologies can create great wealth to top executives and those who are essential to the new processes. But if your job is in transactions, which is where most of the white collar middle class is employed, then your employment is in jeopardy. Your pay does not rise.

If you are in blue-collar work, are highly unionised and not flexible enough, then companies simply close down. The unions were not the only reasons why car manufacturing closed, but they played a big role.

The Americans have not found a way to reverse this trend. The Europeans have tried to stop it but they have created labour inflexibility, which has seen unemployment skyrocket.

There is no doubt that the middle class in the US are deleveraging in response, which is why US consumers are not leading the American economy forward as they have in the past.

Strangely, Australia's Coalition government is one of the few in the world with unique policies to combat this trend by making large organisations sign fair deals with smaller ones. It’s those smaller organisations where labour is employed.

The Coalition also promised that it would stop the taxation department from ignoring the clear rules on independent contracting. But the Taxation Commissioner refuses to obey the law in independent contracting and Cabinet is too weak to force him, and the big lobbying groups have stalled fair contracts.

After a ‘do nothing’ year on these fronts, perhaps the Coalition will honour its promises in the next 12 months, but I doubt it. And there is no certainty the Coalition’s unique plan will work because no major developed country has tried it. But at least it is an honest an attempt to solve a major world problem.

I believe that unless America finds a way to tackle this problem, then a president will be elected in 2016 or much more likely in 2020 with a mandate to undertake a massive attack on Wall Street. That will not solve the problem, but people will not listen because anger will be too high. 

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