Weekend Life: What becomes of the middle classes?

Bill Birch's last Budget had no impact on a new class of strugglers - those on middle incomes. Carroll du Chateau talks to New Zealanders who should but can't make ends meet.

YOU'VE got a great job that pays $55,000 - that is $33,000 above the average wage. You live in a leafy suburb in an architecturally remodelled house. You have a company car, a cellphone, a computer that runs games and a high-speed modem. Your wife gets round in a cool four-wheel-drive.

And it's the second time this month that your cashflow card has been rejected.

In short, you have all the signs of affluence, except that most of the time you're broke. Welcome to the reality of the new middle class.

The phenomenon, says Tim Hazledine, an economist at the University of Auckland and author of Taking New Zealand Seriously: The Economics of Decency is caused by a "hollowing out" of the middle class. After 15 years of economic reform centred around targeted welfare assistance and user-pays charges, "people are falling off the end and being pushed down."

"But the particular problem in New Zealand is that only a very few people are doing very well. The rest of us have slipped back, certainly relative to people like us in Australia who didn't go through massive reform."

As Hazledine points out, over the second half of the century New Zealand moved inexorably down the affluence scale. In the mid-50s we were third in OECD income charts. By 1993 we were down to 19th and still sinking.

But not doing well? You must be joking. Every second car seems new and shiny, the cafes are full, cellphones two a penny. Hazledine's explanation is clear. The 10 per cent of households that bring in $140,000-plus a year are doing very well indeed. The overall top 20 per cent who earn $68,000 to $140,000, are doing pretty well too.
Then there's the middle class, which economists define as stretching between $30,000 and $70,000 a household a year, fighting to look good in their Japanese imports with new plates, clutching their candy-coloured Nokias, wearing Glassons designer-copy clothes.

Most worrying is the new generation of non-savers who have simply given up the savings fight. Rather than slogging out their 20s and 30s with a huge mortgage, tight household budget and 60-hour weeks, they've opted for the good-ish life.

Take Christena and Giuseppe Morelli. Nestled on the slopes of Onehunga, the couple have created a little piece of Italy. Coffee, thick with crema, hisses out of an outsize espresso machine. Stainless steel pots hang from hooks in the kitchen, Italian platters decorate the walls. Even the jewellery which Christena imports and sells, bringing in about $20,000 a year, comes from Matera in Italy where Giuseppe grew up.

It's only when you look hard at the carpet or walls that you notice the signs of wear and tear created by four children hurtling their way through this modest three-bedroom house. Says Giuseppe, who at 40 is a waiter at toney Cin Cin on Quay, bringing home $28,000 a year, "No, we can't keep up. Other young couples are earning more than us but ..." he smiles. "We've got all the commodities. We've got the cellphone, the Internet, Sky. We've got two computers, two TVs and three videos."

Never mind that the house is rented ($330 a week), Christena's four-wheel-drive Hilux old and imported, the family's second vehicle a Honda 450 motorbike.

How do they manage with four children ranging from Alexander, aged 9, to Stephanie, 7, Luca, 4, and Isabella who, at just 1, is taking her morning nap? With difficulty, admits the indomitable Giuseppe.
"In Italy it's a totally different system. They help families. They see children as the future of the country. Pregnant women get 75 per cent of their salaries. There's free medical care. And they look after their elderly people.

"Here there's virtually no help from the Government. We've got no health insurance so we pay for the children's doctors' appointments and medicines. School costs $90 a term and Luca's private kindergarten $240 for three mornings a week ... my whole salary goes on essentials."

While Giuseppe handles the hand-to-mouth living with gusto, getting his kicks from glamorous Cin Cin, friends, family and outdoor adventures, Christena is struggling. "I get frustrated because to me we make enough money - it just doesn't go far enough."

She'd also like to be able to pay someone to look after the kids on the occasional weekend. "My friend Susie looked after the three eldest and another friend took Isabella about a month ago," she says. "It was the first time we'd had a weekend together without the kids that I can remember." She snuggles up to her husband, "Bliss."

It wasn't always like this. Six years ago the couple owned a house in Manurewa which they sold to buy an old "do-up" in Onehunga plus their own II Piatto restaurant at Greenwoods Corner. But Christena, who was pregnant with Luca, couldn't handle the mouse-riddled kitchen. And Giuseppe found working 60 hours a week, including weekends, too tough.

These days he works 32 hours a week, helps with the kids and Christena's jewellery business, and says: "Now I have a life."

Overall, the Morellis live frugally but well. They have no credit cards, no hire purchases, no debts. "Because we eat a lot of pasta, food only costs us $100 a week. And because of the babysitting problem we entertain at home. Friends come round every Sunday for a big Italian lunch with lots of pasta, seafood, bread and wine. The children don't feel they're missing out. In the holidays there's something going on for them every day - Kelly Tarltons, the movies, lots of friends round."

Probably the biggest worries are schooling, particularly for Stephanie, who has needed reading recovery and doesn't seem to be learning well. "Unless you've got money, average children are not going to get a good education and the ability to get ahead," Christena says.
"We have friends in exactly the same boat as us. They used to own their own houses, now they're renting. I don't think we could ever get a deposit together again."

Superannuation? A $66,000 house in Italy bought four years ago with what was left when they sold the restaurant. "It's our retirement plan. Old people are far better looked after over there."

HIGH ON the hills of Oratia, with a breathtaking view over the city, Murray Gray and his partner Naomi McCleary are living out their 50s in a similarly idyllic situation. Plenty of good food, pretty house, rosellas in the kowhai trees - and a deep sense of disquiet.

On paper the couple are at the high end of middle class, pulling in about $80,000 between them, Naomi as an arts administrator, Murray as a bookbuyer for the University Bookshop, UBS Books, in Lorne St.

"The crazy thing is though," says Naomi, "we're not doing that well. Where Murray and I are exposed is that we have no savings. We have this looming problem of superannuation coming up and very little prospect of national superannuation as a survival kit."

Along with many middle-aged New Zealanders, the couple are trying to establish themselves after a legacy of divorce. Six years ago Naomi split up with her high-earning doctor husband. Two years later he died, leaving the bulk of his estate to a new partner.

"At 50, and with three near-adult children, I had to transform an arts background into a paying career. I had to begin again."

Best part of the muddle was the arrival of Murray with his well-balanced optimistic outlook, steady salary and money from the sale of his small cottage at Anawhata. The most difficult part was when Naomi's elder daughter separated from her husband and began struggling to bring up three children, 9, 6, and 4, on the domestic purposes benefit.

Naomi's solution was to buy a cheap house nearby, both as a long-term investment and to give her newly separated daughter and grandchildren "quite literally, a safe house." At the same time, as was the fashion five years ago, she bought another investment property.
"I went deeply into debt," she says. And though her daughter pays half the mortgage on the second property, she still is. "Basically, I have equity of around $800,000 and a mortgage of $400,00.

"So day-to-day I feel quite limited and very hard up. That's my choice. My daughter and grandchildren need help now, not when I'm dead. I couldn't bear to see them struggling so hard. But sometimes I describe myself as being trapped by love."

Murray gently interrupts: "But on the other hand we have a wonderful life. We buy a bottle of wine when we want one, we live in one of the most sublime places in Auckland, we have huge family get-togethers every weekend."

So how does the money break down? Mortgage $300 a week, medical insurance $60, home and income insurance, food, "bailouts" for Naomi's daughter and grandchildren, vet fees, petrol, rates, electricity and telephone. Then there's the cellphone which Murray insisted Naomi carry for emergencies, plus an affluent-looking but cheap Japanese-imported Audi parked in the drive.

What do they miss out on? Restaurant meals, tickets to the opera, theatre, concerts, "big holidays" ("The only holiday we can afford is camping in the Bay of Islands"), the inability to contribute to dinner party conversations where the main topics are a new house, fancy furniture, cars, overseas trips.

And most of all, peace of mind: "I lost my superannuation scheme when the marriage broke up," Naomi says. "The fear comes because there are no longer any support services. There's a definite sense of time running out. If I stopped work for any reason the whole thing would fall over. We're 100 per cent exposed. I'm not too confident about a dignified retirement."


ACCORDING to Tim Hazledine, after 15 years of economic "reform," such stories are standard. "Twenty years ago downward mobility was unheard of. Perhaps we've lost the idea of progress being inevitable, that our children will do better than us. We've dismissed it from our psyches."

Hazledine also suggests that many young people have lost the idea that things such as houses and security are worth saving for. "Maybe it's the student loan thing," he says. "Young people can borrow for consumption purposes. Now adults can't do that, can't borrow to buy their groceries."

Hazledine offers just one piece of advice: "Spend your 20s saving and you'll be doing pretty well."

Fellow economist Susan St John talks about how benefits targetting the poor rather than the marginally better off, combined with low increases in wages, salaries and superannuation, combined with user-pay charges for doctors' visits and prescriptions, water, local government, child-care and tertiary education, are creating an impoverished middle class.

"Certainly cars are a lot, lot cheaper," she says, "but with a median income of $35,000 a year people are finding it tough. While the top 20 per cent has roared ahead the bottom 80 per cent has not kept up."

The statistics tell the story. After an initial burst to sign up for private medical insurance schemes, the middle classes are now finding them too expensive. Between 1990 and 1999 the proportion of people with private insurance dropped by 10 per cent, meaning that now just over 40 per cent of adults have cover.

Similarly, despite the pleas of the Retirement Commissioner, one in three people are not doing anything about life-after-work saving, says Debra Hall of Research Solutions, and that non-saving group is growing.

The reason? "Partly, we think, because of more demands on what people need to spend - health, education, child-care - to survive. And because they're having babies later, that's pushing these costs along the age cycle where they'd normally be saving for retirement."

Then there are the 400,000 young people who have already mortgaged their futures by taking on $2.7 billion of student loans. While on average they owe $10,800, 700 people are starting their working lives owing more than $50,000 - making it even harder to climb up to the middle class.

Increasing numbers of young couples are renting rather than buying their own houses.

Older people are reverse mortgaging or selling up and renting just to maintain a dignified standard of living on near-static weekly national superannuation payments of $325.58 (couple) and $212.69 (single).

All of which means that the middle class is being squeezed between an affluent slice of high-earners and an increasingly poor group of low-earners and beneficiaries. And the split is growing. Between 1982 and 1986 the top 10 per cent of earners increased their share of market income by 5 per cent - up to 39 per cent of all market income.

* The average wage and salary earner (excluding part-timers) picked up just $23,800 before tax in 1996. After taking inflation into account, this was actually $900 lower than it was in 1982.

* On the other hand, the top 10 per cent of New Zealand households now rake in an average of $140,000.

* The overall top 20 per cent of households earn more than $68,200 a year.

All this adds up to a middle class under threat. As Statistics New Zealand says, "The results are unequivocal: income inequality has increased substantially. We have moved from being relatively equal compared to other countries, to being in a position of relative inequality compared to other countries."

The rich are richer, the poor poorer. This is how New Zealand greets the next millennium.

Our declining bank balance - OECD