Director's Law: New Zealand edition

Matt Nolan brings Director's Law to the Timaru Herald:

So with a recession, spiralling inner-city house prices and a rising cost of living, is the Kiwi middle-class also feeling the squeeze? You might think so, but some economists reckon the numbers tell us we've never had it so good.

"They don't know how lucky they are," declares analyst Matthew Nolan of Wellington's Infometrics.

Jean-Pierre Du Raad, chief executive of the New Zealand Institute of Economic Research, agrees. The middle-class squeeze is "a bit of an urban myth", he says.

Since 2001, our middle-class median income has risen by 21 per cent. Yes, the recession has hit, but it's arguable the middle class has suffered less than the poor and the rich. In part, that's because of Director's Law.

Named after the late American economist Aaron Director, it suggests the middle class will always have undue political influence because of its size and aggregate wealth.

"The middle class has political power, so the things they are concerned about are acted on," says Nolan.

"They are always trying to transfer things to themselves. They are not being selfish as individuals... we all want our lives to get better, it's just human nature."

So in New Zealand, that means political decisions that benefit the middle more than anyone else: The expansion of Working for Families tax breaks, the removal of means-tested superannuation, subsidised healthcare and interest-free student loans.

Du Raad says 40 per cent of the extra $1.5 billion invested into Working for Families went to middle-class families (a two-parent family with two children earning less than a combined $126,300 will receive Working for Families assistance) and says the 2010 tax switch, where GST rose and income tax went down, benefited the middle class by $10 to $25 a week.

Nolan also notes that a proportion of people around the 60th percentile (that's richer than 59 per cent of people, poorer than 39 per cent), who aren't paying net tax, they get more from the Government than they give - almost certainly due to Working for Families.

So where did the myth of the middle-class squeeze come from? Well, says Nolan, the middle class knows how to make a noise, everyone's feeling the recession, and many have paid attention to the noises coming from America.

He concludes:

"It seems strange," concludes Nolan, "to demand transfers [of wealth] to the middle-class at the same time we're demonising those unemployed during a recession and making it harder for them to get benefits."

I'm not sure there's been that much demonisation of the unemployed here; welfare reform has been more targeted at longer term beneficiaries with a goal of getting those on the domestic purposes benefit back into work. There may have been tightening up of regs around the unemployment benefit (Matt will know more about this than I do), but I've not seen much excoriating the currently unemployed.