Saving the middle class

Another interesting series in the Sunday Star Times, this time on the plight of the middle class and the demise of the single income family. The stalking horse is a Waihi family, which is barely getting by despite a salary of $55,000 a year.

Rather than focus on the specifics here, I'll take the case as symptomatic of a wider problem. An increasing number of "middle class" families are having trouble getting by. Why is a traditional middle class lifestyle increasingly unattainable?

The obvious proximate cause is student loans. This is exactly what critics of the student loan scheme have been warning about all along - professional graduates unable to afford children or houses because they're still paying for their parent's tax-breaks. Without that debt-burden, the McLachlans would be substantially better off each week, both financially and psychologically.

I say "proximate cause" because this problem has been brewing for a long time. Part of it goes back to double vs single income families. Once upon a time we had a social contract in this country - employers would pay workers to support a family as well as themselves. Now we don't. The social contract went into slow decline in the early 70's, a decline dramatically hastened by the "reforms" of the 80's and 90's. A conscious goal of Douglas and Richardson was to create an "internationally competitive" - meaning "low-wage" - economy, and in this respect they succeeded. New Zealander's incomes dropped in real terms. The expansion of the labour force and the resultant downward pressure on wages created a feedback cycle, driving the process even faster as people were forced into part- or full-time work to make ends meet. The result has been a real impoverishment and drop in living standards of New Zealanders - not necessarily financially (household income has now recovered in real terms), but in terms of time. We now work twice as hard to earn what we used to get.

But the change from a single- to a double-income economy isn't the whole story. The real culprit here is the dramatic redistribution of wealth during the "reform" period. Rogernomics and Ruthanasia shifted wealth up the pyramid, from the poor and middle classes to the rich. Tax changes and service cuts fell disproportionately on the middle class, while the fruits of growth went to the rich (and only the rich). The net result? The top decile's share of earned income increased by about 5% over the reform period; their share of wealth by even more. These increases were at the direct expense of everybody else.

Should we do something about this? Yes. The New Zealand "dream" has been of a middle-class country, a "property-owning democracy", where people own their own houses, enjoy substantial equality, and can afford to have kids. While there's been a great broadening of social attitudes on the latter front, I think the rest of this dream still holds. Having a broad middle class is fundamentally what this society is all about. The government should therefore be trying to promote it, or at least make it accessible.

How can we do that? The most obvious immediate solution is restoring a decent universal family benefit for parents. This assists families while maximising choice. Rather than the government telling mothers to work or not to work, it is up to the individuals concerned whether to spend the money on subsidising childcare or on supporting a non-working parent.

Longer term, we can reduce the debt-burden on future earners by restoring a universal student allowance. The Greens and Progressive Coalition have long been in favour of this; United-Future came on board last week, and NZFirst today. The government has hinted that there will be something along these lines in the upcoming budget, but I suspect they're simply going to widen eligibility rather than universalise, and that simply isn't good enough. Quite apart from the long-term effects of debt, no-one in this country should have to borrow to eat.

(Of course, this does nothing to help ease the problems of student loans now. In order to do that, we need to look seriously at altering the repayment structure, and ultimately at debt forgiveness. The problem here is that there is no way to do the latter without creating serious inequities between those who have their debts forgiven and those who paid themselves. OTOH, not doing it results in a crippled middle class...)

But ultimately, we can only rebuild the middle class by reversing that 80's and 90's shift of wealth up the pyramid. And the only way to do that is by government redistribution - higher taxes on the rich, funding increased benefits and services to everyone else. Those balking at this measure should ask themselves what sort of society they want. Do they want a broad society where most people are in the middle - or a narrow one of rich and poor?