Over in The Oz, George Megalogenis writes, “THE existential divide between real and imagined financial stress can decide the coming election. Well-off Australians can be convinced to toss out the Government on the false assumption that their living standards have gone backwards, whether through the spectres of Work Choices, interest rates or climate change.”

He’s spot on – but he’s missed the economic measurement that ties most of this up in a neat little bundle that longer term readers here know about well.

Interest Payments to Disposable Income

So let’s redo the two key graphs again. First the Newspoll estimations of the Opposition primary vote (on the left hand side) and the Interest Payments to Disposable Income percentage (on the right hand side) going back to 1985.

howardsproblem101.jpg

Next let’s do the Newspoll government primary vote estimation (on the left hand side) and the Interest Payments to Disposable Income (on the right hand side, log scale and inverted).

howardsproblem102.jpg

Source: http://www.rba.gov.au/Statistics/Bulletin/B21hist.xls
http://www.newspoll.com.au

What’s important here is not necessarily the growth in the size of interest payments to disposable income, but how how that growing debt servicing obligation impacts upon discretionary (rather than disposable) income for a key demographic- middle income earners with 1.5 jobs and a large mortgage.That’s where it bites in the self-perception of living standards for mortgage holders as discretionary spending is what funds lifestyle, and lifestyle is a key self-perceived yardstick of household standard of living. As a greater proportion of disposable income keeps flowing to debt servicing, that leaves a smaller proportion of income for discretionary spending.We discussed the ins and outs of this at length over here for anyone interested and whom may have missed it the first time.

The Howard government may have many problems on its hands, but its this one that will cause them the most electoral grief.

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