In The Australian’s piece, a couple on $200,000 a year (who admit they pay only 18 per cent tax) complain that they may be forced to get a nanny if their childcare subsidy is reduced.
Now, The Australian itself has called for reductions in ‘middle-class welfare’, so either the editors have changed their mind, or they have a misguided sense of what constitutes a middle income in modern Australia.
I don’t doubt that the family featured in The Australian’s story genuinely thinks they’re more-or-less typical, but they’re wrong. We all tend to judge what’s normal, or typical, with reference to those we work and socialise with. This leads the poor to underestimate the wealth of the rich, and leads the rich to overestimate the wealth of the poor. It also means that a lot of us tend to think we’re ‘middle class’ when we’re not.
Andrew Leigh (before he was an MP) wrote a great little paper on the effect that this misperception has on our public debate, called ‘The Political Economy of Tax Reform in Australia’. In it, he argued that:
Opinion leaders [do] not properly appreciate the distribution of income in Australia. For the most part, the taxation rates applying to most politicians, journalists, business executives and think-tank staffers (and indeed, to academic economists) are not those that apply to the average voter. In all these professions, six-figure salaries are common. Yet only 4.5 per cent of Australian adults have an income that exceeds $100,000 per year, and only 1.5 per cent have an income that exceeds $150,000 per year.
(The paper is from 2006, so the figures are a little out of date, but the principle hasn’t changed).
Leigh also, correctly, notes that “reporting of ‘average’ income in Australia focuses on a measure of earnings which is not that of the typical voter”. Journalists often use average weekly ordinary time earnings for full-time adults (AWOTE) as a measure of a typical income. This is misleading for several reasons.