The perception that middle-class Australians are “doing it tough” is one of the constants of Australian politics. As treasurer in 2007, Peter Costello responded to this claim with the observation:

“People always have worries. But if you are worrying about getting a job, your worry should be a lot less today than 10 years ago. If you are worried about interest rates they are a lot lower than they were 10 years ago. If you are worried about incomes, they are higher than they were 10 years ago.”

Four years later, announcing another round of good economic news, then-treasurer Wayne Swan felt the need for the concession “we know we have many households still doing it tough”.

This statement, taken literally, is quite true. More than 2 million people, including most people in unemployed households and a large proportion of the indigenous population, live below the poverty line, currently estimated at about $28,000 a year for a couple with no children. But it is safe to say that neither Costello nor Swan was primarily addressing this group. Rather they are addressing those, like the audience of Alan Jones’ radio program (dominated by self-funded retirees for whom the poverty rate is effectively zero), who see themselves as living on “Struggle Street” despite living standards that would have been regarded as luxurious a generation ago.

There is little in the economic data for the population as a whole to support the perception that Australians are doing it tough. Average weekly earnings have risen nearly 25% since Costello made his statement, handily outpacing inflation. While the top 1% have done better than anyone else, as elsewhere, household incomes have risen across the board.

Why, then, do people see themselves, or the community as a whole, as “doing it tough”?

One explanation that is often mentioned is that of mortgage stress. The sharp increase in house prices that took place in the early 2000s meant that new home buyers have taken on levels of debt that are historically unprecedented even relative to incomes. Moreover, with low inflation and correspondingly lower growth in nominal incomes, the long-established pattern in which the ratio of mortgage repayments (fixed in nominal terms) to income fell rapidly after a few years, has ceased to apply. A mortgage that is hard to repay when it is first taken out remains hard to repay for years afterwards, and it could become impossible to meet if one earner becomes unemployed or withdraws from the workforce to bring up children.

“Far from reflecting a struggle to put a roof over our heads, the debt boom of the 1990s and early 2000s was associated with a massive upgrade in the consumption of housing services.”

There was undoubtedly an increase in mortgage stress in the early years of this century, when the ratio of repayments on new loans to household disposable incomes rose above 30%. But even in the mid-2000s, the majority of middle-income households did not have outstanding mortgages and most of those who did owed less than $200,000. Since then, the ratio of repayments to income has fallen and is now at much the same level as in the mid-1980s.

The ratio of household debt to income has also fallen, though not quite so fast. The rapid increase in the debt ratio from 1990, when it was below 50% for the average household, to the mid-2000s, when it was nearly 150%, certainly caused plenty of alarm, even though it was more than matched by the growing value of equity in housing. But the debt ratio peaked in 2006. Households, which had negative levels of net saving at the height of the housing boom, are now saving around 10% of their income, which implies that debt levels may fall. The much-maligned increase in public debt has in fact been part of a rebalancing that is making Australia’s debt levels, as a whole, more sustainable.

Far from reflecting a struggle to put a roof over our heads, the debt boom of the 1990s and early 2000s was associated with a massive upgrade in the consumption of housing services. The floor area of the average new house rose greatly (an increase of around 40% just between 1984-85 and 2002-03), and the cost and quality of standard fittings increased as well. For example, granite benchtops, an example of luxurious excess as recently as the 1990s, became, and remain, commonplace.

Another possible explanation of the “doing it tough” perception arises from inconsistent responses to price variation. Despite sustained low inflation and falling interest rates, many Australians perceive themselves as facing “cost of living” pressures. Over the past decade some highly salient prices such as the retail price of electricity have risen sharply, but consumption continued to grow until recently, driven largely by the increased use of air-conditioning.  By contrast the cost of telecommunications services has fallen, but households have responded to lower prices and the availability of new products by increasing their total expenditure. It is easy enough, though misleading, to see this as a story of ever-increasing bills for everything.

Despite all of these partial explanations, it is hard to escape the conclusion that the “doing it tough” perception is nothing more than a manifestation of some of our less appealing human propensities: envy and chronic dissatisfaction. This can be seen all the way up the income scale, to the point of British bankers who complain that they can’t live on a million pounds (roughly $2 million) a year.

News media have an obvious commercial interest in telling stories that make their audiences feel victimised, and politicians have made the judgement that telling voters the truth is too costly. At current rates of growth, incomes will double by 2050, but we will doubtless still be living on Struggle Street.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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