OECD wants tax help for middle class

Governments need to do more to support struggling middle-class households, with help such as targeted grants, financial support for loans and tax relief for home buyers, according to a report from the OECD which says it has become more difficult for younger generations to make it to the middle class

The OECD report, Under Pressure: The Squeezed Middle Class, says that the middle class has shrunk in most OECD countries. While almost 70% of baby boomers were part of middle-income households in their twenties, only 60% of millennials are today, with the middle class defined as earning between 75% and 200% of the median national income.

The economic influence of the middle class has also dropped sharply. Across the OECD area, except for a few countries, middle incomes are barely higher today than they were 10 years ago, increasing by just 0.3% per year, a third less than the average income of the richest 10%.

OECD secretary-general Angel Gurría said: ‘Today the middle class looks increasingly like a boat in rocky waters. Governments must listen to people’s concerns and protect and promote middle class living standards. This will help drive inclusive and sustainable growth and create a more cohesive and stable social fabric.’

The report found the cost of a middle-class lifestyle has increased faster than inflation. Housing, for example, makes up the largest single spending item for middle-income households, at around one third of disposable income, up from a quarter in the 1990s. House prices have been growing three times faster than household median income over the last two decades.

More than one in five middle-income households spend more than they earn and over-indebtedness is higher for them than for both low-income and high-income households. In addition, labour market prospects have become increasingly uncertain: one in six middle-income workers are in jobs that are at high risk of automation, compared to one in five low-income and one in ten high-income workers.

The OECD is calling for a comprehensive action plan to help the middle class. It says governments should improve access to high-quality public services and ensure better social protection coverage. To tackle cost of living issues, policies should encourage the supply of affordable housing.

Targeted grants, financial support for loans and tax relief for home buyers would help lower middle-income households. In countries with acute levels of housing-related debt, mortgage relief would help overburdened households get back on track.

Housing makes up the largest single spending item for middle-income households, at one third of disposable income, up from a quarter in the 1990s

As temporary or unstable jobs - often offering lower wages and job security - increasingly replace traditional middle-class jobs, more investment is needed in vocational education and training systems. Social insurance and collective bargaining coverage for non-standard workers, such as part-time or temporary employees or self-employed, should be extended.

Finally, to foster fairness of the socio-economic system, the OECD says policies need to consider shifting the tax burden from labour income to income from capital and capital gains, property and inheritance, as well as making income taxes more progressive and fair.

OECD report, Under Pressure: The Squeezed Middle Class

Report by Pat Sweet

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