Whatever happened to the middle class?

Just over a decade ago, researchers at the University of NSW set out to find where most Australians located themselves on the nation's economic totem pole.

The results were startling.

The overwhelming majority of the survey's respondents, some 92 per cent, thought they sat in the middle 60 per cent of households ranked by income - a statistical near-impossibility, as the survey ranged across all income groups. In reality, around a third of those surveyed had misjudged how far above or below the centre they really were.

''Most Australians have a greatly distorted impression of where their incomes place them relative to others,'' the survey team reported, with some surprise.

In 2006 and 2010, the team at UNSW repeated its soundings. How much better informed had Australians become about their circumstances relative to those of everybody else? The answer, it seems, was barely at all.

''The vast majority of people still think they lie in the middle of the income distribution,'' says the university's Professor Peter Saunders, who is about to publish the team's follow-up findings.

''Almost no one thinks they are in the bottom , and even fewer think they are in the the top 20 per cent.

''When you start talking about the middle, or inequality or distribution, these are relative concepts and most people have no idea … I have asked my colleagues, where do they sit, where does a university professor sit, and they too have no idea.''

This ignorance presents a clear conundrum for governments, particularly if, like Julia Gillard and Wayne Swan, you're seen as planning an assault on so-called ''middle-class welfare'' in the lead-up to an embattled budget. Because if everybody thinks they are in the middle, everyone gets nervous.

Economist and executive director of the Australia Institute, Richard Denniss, believes modern politicians have created a rod for their own backs, with a strategy that says ''no matter who you are, I feel your pain''. It has heightened voter expectations and created unnecessary political pressures.

''Even people on $150,000 people seem to feel poor,'' he says. ''How on earth did we get to that?''

Saunders too believes that a constant pitch to a fuzzily defined middle has become a double-edged sword for Canberra. ''If middle Australia is portrayed as hurting or threatened in some way, then everyone thinks that's them.''

Social researcher and author Hugh Mackay points out that ''average annual household income for the top 20 per cent of Australians is $330,000. This is not middle Australia. Yet there are people earning $300,000 a year, talking in a way that suggests a real sense of entitlement [to government benefits] and their kids are developing that too.''

Rebecca Huntley, of research company Ipsos, which publishes the regular social trends study Mind and Mood, recalls sitting down recently with a group who were on household incomes of $200,000 a year, living in expensive homes no more than five kilometres from the city centres of Sydney and Melbourne.

''What was so interesting,'' she tells Fairfax Media, ''is that most of those people saw themselves as middle class. Some would say, 'Well, we're not rich'.''

And yet $200,000 a year puts them firmly within the top 5 per cent of all Australian households measured by income, according to Australian National University analyst Professor Peter Whiteford.

The flattening of income tax scales, which began under Bob Hawke in the 1980s but accelerated under John Howard and was perpetuated by Kevin Rudd, may have further clouded perceptions of what it means to be well off.

These days there are far fewer tax brackets and you have to be earning $180,000 or more before the top tax rate kicks in.

''The tax system no longer sends cues to high income earners that they have entered top earning echelons,'' Denniss argues.

All the muddy political rhetoric and confusion about who sits where feeds into growing uncertainty about what constitutes middle class in today's world. Once, as the famous British TV skit with John Cleese and the two Ronnies had it, the tall man in the bowler hat (played by Cleese) looked down on the man in the suit, who looked down on the man in the cloth cap.

The working class got its hands dirty at the bottom while the middle class toiled in white-collar jobs in the professions or middle management, and the upper class had the posh accents and most of the loot.

But in Australia, as in other advanced Western economies, those paradigms have been turned on their head. Today's economy is very different from the 1950s, when nearly half the workforce was employed in manufacturing and agriculture, many in semi-skilled or low-skilled jobs. Now those two industries account for about one in 10 Australian workers.

At the same time the nexus between education, the social status of certain kinds of work and higher incomes has been weakened. These days a highly successful tradie with his or her own contracting operation in the western suburbs, employing others, is likely to exceed many professionals in income.

''One of the most important things that hasn't been given enough attention is the extent to which intelligent working people or intelligent skilled tradesmen became themselves little capitalists,'' former Hawke cabinet minister Dr Neal Blewett says. ''A lot of them in the past would have been active unionists. Now they are contractors, employers of labour. And as the trade union movement broke down there has been more and more opportunities for contractors to get in on the act.''

Huntley says when she surveys these people, they will ''call themselves tradies but they will also say, 'Well I'm really running my own business and doing my own BAS every three months'''.

Leader of the powerful Australian Workers Union, Paul Howes, acknowledged this week most of his members were doing very nicely, despite their traditional blue-collar designation. He told the Financial Review that his members tended to be older, mid-40s, and ''middle to high income depending on your definition''.

''The reason why workers get high money is not always education,'' Phil Ruthven, founder of business analysis and forecasting firm IBISWorld, says.

''It can be driven by labour shortages, industries experiencing fast growth or union hegemony. The old ideas of where the money came from are pretty well gone.''

A social researcher in Sydney's west, Dr Kate Huppatz of the University of Western Sydney, has heard similar stories from the women she has been speaking to for a recent book on gender and class.

One student had been working as an exotic dancer to fund her studies at an eastern suburbs university. She coveted the greater respectability that would come from working as an occupational therapist once she graduated. At the same time, she was loathe to give up the greater income she earned as a stripper.

Despite the fact many of her interviewees came from what once would have been described as a working-class background, Dr Huppatz says most prefer to identify as being middle ''because they see middle as average''.

''That's how middle is used in political rhetoric. You don't see politicians saying middle class, they say middle Australia because we are uncertain of this term 'class' and perhaps even resent it.''

Social scientist Dr Keith Hancock, of Flinders University, also believes the numbers who wear the working-class label with pride are much diminished. ''That's consistent with the dramatic fall in trade union membership (now around 18 per cent of the workforce) and maybe also the fall in membership of the Labor party,'' he said.

Sensitivity around class is why some commentators are questioning Julia Gillard's reversion to labels such as ''blue collar'' in her recent pitch to manufacturing workers with an industry package aimed at shoring up the sector.

''Modern Australia'', she declared in a speech a week ago, could have a ''great blue-collar future''.

To some, this was a reversion to old class-speak.

''I think its very dangerous for any politician on either side to start talking class, or using code that seems to imply class,'' Mackay warns. ''Its a kind of ghost, a fantasy figure, its not about bringing Australians together or saying something visionary about who we are.''

He draws a contrast with the Labor rhetoric of the Hawke and Keating years, particularly Hawke's emphasis on consensus and reconciliation.

''Labor's golden years in Australian politics in the mid '80s to mid '90s were all about a radically new paradigm. This [blue-collar talk] is about the old paradigms. We seem to have reached the point where the message is, 'Don't forget what we used to stand for, don't forget the unions etcetera'. Well the more that is emphasised, the better the faithful will feel and the more the rest of the electorate will drift off.''

Blewett partially agrees. ''Gillard's is, I think, a fairly desperate strategy because it has the danger of alienating whatever the middle class is, and I'm not sure how attractive that is given the weakness of the working class.''

Huntley says when she conducts focus groups among electricians, or garbage collectors or maintenance workers ''they have never described themselves as blue collar''.

''If blue collar is about physical work that is relatively low paid, you've got women, often migrant women doing that work, they are in cleaning and jobs like that. But it's not unionised. It doesn't really fit.''

Gillard has been on safer ground talking about ''working families'' or more recently ''modern families'' though the latter, Blewett feels, is ''an attempt to encompass both the working family and the middle family''.

She has also talked occasionally of ''everyday Australians''.

Blewett says her pitch ''is, of course, very strongly against a narrow upper class, the sort of $150,000 to $200,000 people'' but the great mass of Australians may not read the rhetoric that way.

''I think she has been [hinting at] cuts in upper-class welfare or the very well-off segment of the middle class but as with all these things, it resonates further down the chain,'' Blewett says.

Clive Hamilton, professor of public ethics at Charles Sturt University, believes the term middle class has been largely drained of meaning other than as a way of denoting income.

''In an earlier era, the middle class was defined much more by cultural features than by financial ones; by education, say, or how you lived, the professions, the things that you valued culturally,'' he says.

''There was quite a close parallel between the amount of cultural capital you owned, and the amount of financial capital you owned. That's been washing out over the last 30 years, meaning it's hard to find any criterion of middle classness other than a financial one.''

Lower down the middle bands, Huntley listens to her focus groups talking about what they think ''middle classness'' means, and how they can attain or hold on to that place on the totem pole.

''I've sat in groups in the last 18 months, with people talking about the middle class being squeezed, and not being what it used to. They say things like, 'We consider ourselves middle class but we don't know if we can afford to keep the second car', or , 'We're thinking of having a third kid but not sure about whether we can put a third through private school'.''

She adds ''They do recognise that part of [their anxiety] is escalating expectations, around things like travel, education, possessions, technology and all the rest, its driven by their own and society's expectations of what the middle class should look like. But generally they are saying that for certain people to stay in that middle-class bracket, its becoming harder for some, even though both parents are educated and working.''

Such anxiety is real, but perhaps driven more by apprehension about an uncertain global economic future than by the reality of what most Australians have experienced over the past 15 years, the ANU's Whiteford says.

The increase in household incomes in Australia since the middle of the 1990s was the second highest in the developed world at every level, from the poorest to the highest, he points out.

''The middle in Australia has had about the biggest increases in Australian history'' while ''the richest 10 per cent of Australians have had the largest increase … around 60 per cent over the last 15 years''.

Despite this, Whiteford remains cautious about any attempt to cut middle-class welfare at the top of the mid-echelons.

''It depends how you define middle class and it depends on how you define welfare,'' he argues. ''But if you just look at our social security payments and our family payments, Australia has the lowest middle-class welfare in the OECD … And if you look at the top 20 per cent of households, we give them a lower share of spending on social security than any other OECD country.''

On the other hand, he concedes that tax concessions on negative gearing and super are skewed to upper income groups . ''So it depends on how you define welfare.''

Professor Saunders believes that, while muddled, the escalating debate about middle-class welfare might force some clearer thinking about the levels of income above which people should not receive direct government assistance.

''Perhaps it should be the opposite of a poverty line. Perhaps an affluence line,'' he suggests. ''If you are above that line, you shouldn't get anything.''

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