Blog

Let's save the middle class!

The dream of belonging to the middle class is associated with achieving a good level of financial security and comfort which could be interpreted into a position for the individual to be able to pay the invoices on time, have a steady job and secure a pension. 

The characteristics of belonging to the middle class on the other hand can be distinguished if the individual has: 

1. A home owned;

2. A car;

3. A guarantee for full education for children;

4. A secure pension;

5. A possibility to take family vacations without getting into debt and without breaking the daily routine, as well as;

6. A qualified health service.

The middle class is also defined as the stratum that earns between 67% to 200% of the average annual income, which in real terms in Albania belongs to the group that earns from income from work at the levels of 3,960 Euro / year up to 9,960 Euro / year.

But is this dream increasingly difficult to achieve? 

Given the ability to pay invoices on time, steady work and guarantee a pension it can be said that a group of more than 120,000 individuals can meet these criteria, which are seemingly simple for an even larger number of individuals.

However, frequent layoffs from work, as well as the lack of a complete and comprehensive statistic limit the right to calculate the number of layoffs. 

According to our daily reality and based on the indicators that describe the performance of income and well-being of Albanian citizens we can say that a minority of the Albanian middle class can achieve to have secured or guarantee all the features together as above.

The number of those who can fulfill these features has increased from year to year. 

But let us face them one by one with the Albanian reality. 

1. According to the statistics regarding the status of ownership of a house by Albanians, it can be seen that over 90% of them are owners of a residential apartment/house. This statistic shows that Albanians are not poorer than the rest of the region’s countries, who register ownership of at least one house at lower levels. 

2. Meanwhile, 1 in 5 Albanians owns a passenger vehicle, which clearly shows that even according to this criterion there is a group of 20% of Albanian citizens who own a car. 

3. Following the test of fulfillment of the features, we can mention, taking into account the UNESCO statistics, that close to 25 thousand Albanian families manage to meet the conditions for their child to be educated abroad. 

4. Regarding the pensions, almost all Albanians, at retirement age who have been paid with an average salary, meet the conditions to benefit a pension payment that can go up to 500 - 550 Euros per month. 

5. And based on the fact that the fifth criterion is met, which is related to family vacations, we can explain the statistic that over half a million Albanians go abroad to take vacations, which extend during the months of the summer season. This means that at least over 125 thousand families can manage to go for vacations, which for the most part is made with the income provided by the salary or family capital. 

6. When it comes to benefiting from a qualified health service, which means a health service abroad or in private clinics and hospitals, individuals spend an average over 72 million Euros per year. This characteristic is still unfulfilled and does not exceed a limited number as much as 20% of all patients per year in total who are hospitalized.

After getting acquainted with the level of prevalence of the middle class, taking into account the characteristics listed above, we see that if we refer to the annual income criterion, a number of 91,000 individuals who profit income from work between the level of 67% to 200% of average salary in Albania. 

For most of the middle class the main source of income is those from work.

If their salaries remain unchanged for many years, or are not indexed up to the level of inflation rate, then they feel the effect in the most difficult way possible. The slow rise or fall of average salaries is one of the biggest economic issues. In this context, strengthening the middle class must be chosen as the main priority of strengthening the state itself. 

At a glance, at the performance of the middle wage category in the country, we see that incomes are either stalled or have started to decrease for the middle class if we take into account inflation impact.

Thus, the average salary in 2013 was 52,150 ALL / month, while in 2020 it is 53,232 ALL per month (average salary for both private and public sector), with an increase of 2% in 7 years. Inflation rate in these 7 years has increased in total by at least 13.6 percent. When analyzed this increase of inflation, it shows a decrease of the income level of the middle class by 11.6% in these 7 years, which is really a threatening and shrinking effect on the income of the middle class.

While the costs of living standard continue to increase with other requirements that are not included in the formal economy, but that belong to the expenses that are actually incurred by individuals and families. As a result of real declining incomes and the negative effect in increasing savings, the risk of the middle class falling behind economically is increasing.

A weak middle class hurts us all by stifling our country's economic growth and undermining our democracy. 

In this context, we Albanians should not wait for what politicians and government officials think on this topic. We can and should influence the necessary political and economic investments in the status of middle class, such as expanding access to lobbying for current and future policies, as part of a package that reduces the chances of the middle class leaving its fate in the hands of others. But beyond the risk of decreasing labor and income values, a progressive taxation policy has exacerbated more this middle-class financial situation.

As for the fiscal burden they bear, it is obvious that the tax burden has shifted precisely on the stratum of middle-income individuals.

The share of the tax on salary income in relation to its total in the budget is 48.5% of it. If we include in the calculation that this stratum also pays withholding tax, including a category of over 31 thousand individuals who work in two jobs, but coincide with the category of income as a middle class, then their burden in relation to the tax on it personal income can reach up to 29% of its total. 

If we analyze how much the progressive taxation has affected the middle-wage category (which earns between 67% to 200% of the average annual income), the calculations show that their personal tax burden has increased by at least 25% comparing its dynamics in these last 7 years. If this share was smaller, this stratum would benefit more income. 

Smart fiscal policies and the change in the average wage that should be linked to the increase in the minimum wage impacted from the cost of living should top the list of policies that can be used to improve the health, happiness and overall well-being of Albanian citizens. 

If the middle class is to be exploited in this way, how they will be able to cope with the reforms that are being approved and required to be implemented?