Why Howard is rooted in one simple graph

What this graph highlights is the Oppositions primary vote as determined by Newspoll and the percentage of household disposable income that goes towards interest payments from 1986 to today.Notice how they move together?

Their intimacy is fundamentally important to the electoral fortunes of both parties at the coming election.

There are three things that individually or in combination increase the interest payments to disposable income percentage.

1. Interest rate increases.
2. Asset prices increase (meaning the debt needed to be taken out to purchase those assets increases)
3. Disposable income decreases.

For every household in Australia that has a mortgage, at least two, but in some cases all three of these things have occurred in the last 5 years.

Interest rates have increased four times since the last election. Asset prices (but importantly to us here, house prices) have dramatically increased over the last 7 years, thus the size of the debt required to purchase a house has increased, and these two things combined have dramatically increased the servicing costs of that debt you need to buy a house. That is how the size of the interest payment in the ‘interest payment to disposable income’ ratio has increased.

The final part, decreasing disposable income, is where Workchoices is impacting directly upon some households, and where there is a perception that it is threatening to impact upon some other households.

Because the government won’t release the AWA data, we are working in an information poor environment here. However, some things have become apparent.

Some lower income earners are getting reduced take home pay as a result of overtime and penalty rates being replaced with small increases in the basic hourly rate, a key consequence of Workchoices. For many two income households, the second income earner falls squarely into this group. That reduction in take home pay has reduced their disposable income. The interest payments to disposable income ratio is increasing as a result of all three effects hitting them.

This is fundamentally important to households, because households judge “the state of the economy” by what they experience first hand. It is even more fundamentally important to median income households where they don’t enjoy much wiggle room to begin with when it comes to their disposable income.

When interest payments start taking up larger proportions of their disposable income, the actual income that households have left available for discretionary spending decreases. That discretionary spending is what defines the lifestyle quality for many many people. Reducing the money available for discretionary spending effectively reduces the self-perceived standard of living for those households.

This is why Howard’s claims of superior economic management have, and will continue to fall on deaf ears for a large part of the electorate, and it’s why the more he uses that claim, the more alienated that part of the electorate will become.

They don’t see superior economic management, they see reduced discretionary spending, they see their lifestyle becoming unaffordable, they see their costs of living becoming larger as a percentage of their discretionary income, and they see lower living standards (even if its only self perceived) as a result.

They see interest rate rises being a broken promise, house price increases being a pain in the arse and Workchoices being not only an assault on their living standards, but probably the final straw.

When governments tell these people that “they’ve never had it so good” when their personal experience runs to the contrary – they not only stop listening to the government, they become hostile too it.

And this group is large enough to not only change government come election time, they are well and truly large enough to create landslides. If you add higher petrol prices into this mix, the likelihood of a political bloodbath at the next election is almost a foregone conclusion.

Seats with large proportions of middle income, two income households with 1.5 jobs will topple like dominoes.

The interest rate payments to disposable income raw data came from the RBA here:http://www.rba.gov.au/Statistics/Bulletin/B21hist.xls

The Opposition primary vote data came from http://Newspoll.com.au

UPDATE : Thanks to Andrew for pointing out that I cant add up.The graphs are now much more reflective of observable reality.

 

Here’s how the Government Primary Vote looks against Interest Payments to Disposable Income, with the interest payments scale inverted.

UPDATE II:

The brilliant Simon Jackman has a delicious stats based piece on housing using a clever mortgage stress variable in a regression on 2004 election outcomes over HERE. Well worth a read if you’re that way inclined