NZIER's Derek Gill argues poverty is the problem in New Zealand, not income inequality, and this limits social mobility

The following is a press release from the New Zealand Institute of Economic Research.

The New Zealand Institute of Economic Research (NZIER) has today released a new Insight titled “Peak Inequality – New Zealand’s False Truth”. The Insight is based on new data and shows that despite popular opinion, income inequality in New Zealand hasn’t changed in the past 20 years, and it’s been at the current level before.  

Derek Gill, a Principal Economist from NZIER, said “The data tells us that our current level of income inequality is actually the same as it was in the 1930s and 1940s. A real concern is poverty and how this leads to reduced social mobility. Social mobility is not necessarily related to income inequality." 

Gill believes that that current popular discussion about inequality mixes together a range of issues that Kiwis care about.

“A recent survey by UMR reports that housing was the number one issue that Kiwis cared about. In April 2017, 21% of respondents ranked housing as the most important issue while immigration is an increasing concern at 11.2%. Poverty and homelessness ranks second (11.6%) while inequality and wealth distribution ranked fourth (9.1).” 

Gill would like to see the debate focus more on poverty and how that limits social mobility. In a place where social mobility is limited, people stay poor and have very few opportunities to improve their situation. 

“Kiwis are rightly concerned about fairness and people not having enough. Nobody in New Zealand wants kids going to school without shoes or lunches. But that’s poverty, not income inequality.”

“Most Kiwis support more young people going on with their studies and having more highly-paid individuals like doctors and engineers. But having more skilled people would increase income inequality. So you see it’s not black and white. We just can’t say that income inequality per se is bad.” 

This new long term inequality data set was collated in a partnership with Victoria University of Wellington. It can be found along with other economic data, on NZIER’s Data1850.nz website – funded as part of NZIER’s Public Good programme. The Data1850 website provides valuable information about the country’s past economic performance, and helps people consider the future.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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50 Comments

I'd recommend that the NZIER read Thomas Piketty's Capital in the 21st Century. Then they could understand what the discussion about inequality is, rather than trying to relabel it and marginalise it to their preferred neoliberal economics.

If those in poverty had more income inequality would reduce along with poverty. Until someone can counter Piketty the inequality discussion isn't going to go away.

If the economy improved such that every one got more money including those in poverty then those in poverty will be better off but income inequality could still get worse because those at the top might make even more. Why is it bad if everyone makes more?

I issue with having a lot of income inequality is that it makes it harder for the people at the bottom to ever get ahead.

As for everyone having more money, absolute values are not the issue either. I see the problem being about relative income.

For example if people at the bottom get 2% increase in income, people at the top get 4% increase in income and inflation goes up 2%. The bottom have not moved but the top is better off and over time this will lead to the top being so far ahead that there is simply no bridging the gap.

Or another example is giving the lowest income bracket a $1 per week tax cut while those in the highest bracket receive a $5 per week tax cut. This is National's proposed tax cut. Everyone earns more but those in the lowest bracket will use the tax cut to survive. Those getting the $5 per week are more likely to be able to save or invest all of the tax cut.

There's also research in the US that shows that the key driver of inequality in the US is the difference between those that invest and those that do not. Some are getting ahead and others are being left behind.

Exactly right dictator! Good example. The top end will use the extra income to create more income and due to compounding the benefit will amplify this over time. It boggles the mind that this kind of bribe is acceptable!

Rich people are robbing poor people by creating profitable businesses, those profits need to be returned to poor people, which is why we need more taxes.

One problem with your example ....

Those who are unemployed and on the dole won't even receive the $1 per week ...

They stand still or fall even further behind

Do you really want NZ to end up like the US with severe inequality. People at the bottom may get more income but if billionaries are buying up all the property and land the people at the bottom get priced out of the market, oh wait we're already heading there.

There is always going to be inequality it's all a relative matter of how bad the inequality is. Making inequality worse doesn't help the poorest 50% of the population.

It'll pair beautifully with our importing more folk from third world countries. Especially ones from Muslim nations - because nothing works out for host countries like importing large numbers of Muslim folk then impoverishing them through discrimination and lack of opportunity.

@ Dictator , I borrowed Thomas Pikety's book from the Auckland Library when it first came out , and was frankly disappointed with its contents .

So what if Capital assets grow faster than your earnings ?

He proposes taxing wealth that people have saved and accumulated and ignores that fact that those people have forgone consumption to acquire those assets .............its a bloody choice after all .

I save and invest because I want to , its hard work and requires discipline , and dont want anyone to interfere with me when I do this .

I certainly dont want it taxed and spent or squandered by a government that spends my money far less carefully than I do

The underlying conclusion is that if assets increase in value faster than GDP then inequality increases. In real terms that part of it is really about getting people to invest in productive (income producing assets) and not using methods to conceal or transfer wealth.

Taking a critical view of his book I think more work needs to be done. He's come up with a lot of information that wasn't available at all. It would be good if somewhere in the world some of the ideas were trialed. Although NZ is experimenting with high immigration to try to drive inequality as hard as possible. Although so far the GDP per capita figures seem to be floating around 0% growth and not going negative.

If NZ is trying to drive inequality as hard as possible, it is making a truly terrible job of it.

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John Key did such an excellent job of driving inequality he put 295,000 children into poverty and got a knighthood for it. Reality is very different from your low effort post.

Saving and investing is not hard work.Digging a ditch in Auckland clay is hard work. The latter is taxed and if you are getting interest on those savings that is taxed too. Seems about right despite the fact that the original savings were taxed income from real work. If they tax interest on money why not also tax anything you sell for more than you paid for it? Such as houses? Might be a slight disincentive to improve your property but why worry about taxes on profits - at least you have a profit. This seems OK now but I lived through 25% inflation so profit has to be adjusted for inflation. As an example my house bought for $300k would now 12 years later for about $750k - the difference being $450k. That could be split as $150k inflation, $100k tax - I'm still put $750k in my bank so why complain about giving the government $100k?

Much of his methodology is also quite debatable .For instance things like state pension entitlements ( which did not really exist until relatively recently ) are simply ignored when comparing inequality levels across time.

because the masses (and their combined spending power) are what keeps commodity prices viable.

What exactly makes you think NZIER does not want those in poverty to have more income?

You've missed the point completely by not understanding it (you should put more effort into your trolling).

I do indeed not understand, I am trying to do so. Perhaps you could help me by addressing my question. What makes you think NZIER does not want those in poverty to have more income?

Let me ask you a question. Why are you too lazy to read the above posts and are insisting on a low end trolling tactic? If you give an honest answer I will consider responding to you but otherwise I'm not going to waste my time on you.

... I think you raise a very good point Ms de M . .... that NZIER want the whole economy to be strong , such that even if a few at the top become mega-billionaires , the rest of us still benefit too from the trade/services they create which brings wealth into our country ...

XERO being a case in point ... we need more information tech success stories such as this , and WETA workshops , the yachting industry ... ( things which create wealth and jobs but without pooping up the environment ... how cool is that ! )

Gummy I recommend that you liquidate everything you have and buy XERO shares. What could possibly go wrong?

... I will if you will !

It'd be quicker to take the money out as cash and burnt half of it.

ha oh yeahhh. XERO who has yet to make a dime, WETA that has benifited from massive tax payer subsidys via film industry grants, $36 mill we threw at the yachting this year and the $2.5 billion thrown at housing subisdys via wff to make lanlording the career of choice, power discounts to aluminium smelters, no carbon or polltution charges on farmers, irrigation subisdys galore..............cripes poor old tax payer joe has a lot to support out there...roskstar for sure.

Well said, maybe that's why the RB sounded disappointingly soft for some.

Uh, no some ppl want more wealth, if the side effect is rising inequality or more poverty they dont care as long as their wealth is increased. As Mark Blyth says of course the Hamptons are low lying beaches and in-defensible when the poor come for you. Of course the wealthy dont see such an event as possible.

More Kiwis approaching retirement with money trouble Read more

Occasionally I refer to the Good Book , and it tells us the poor will always be with us , and in my years of living and working in many countries I have realised that throwing more money at a problem such as poverty seldom works

Its better to educate people in managing their money and making good life choices , reducing the destructive behaviour that affects health issues , and restricting abusive behaviour by the likes of money lenders who prey on the poor , vulnerable and uneducated.

You are talking about solutions to help people out of poverty. Are any of the political parties genuinely considering these?

@dictator Regrettably not , but we could start with our education system .

When I left school I had no idea about money , my Mom had opened a savings book for me and there were a few Pounds in it, not much but she set in place a savings culture which I have passed on to my children ( with fair success altho not great )

That I can relate to. I only really got the savings and no debt part from family then rest of my financial education was only because I was interested in the subjects.

I agree with changing the education system. Above the core education of literacy and numeracy their needs to be an education leading people to becoming business owners, competent managers, financial literacy and creative design. We need to produce a population with those skill sets included so that they aren't functionally redundant by the time they finish high school or their tertiary education.

Absolutely Boatman. In my opinion the 2 most important subjects missing from the school curriculum are, 1) Money management 2) Parenting

I have worked in poverty alleviation in the third world and I broadly agree - with the caveat that the efforts in your second paragraph do require investment (as well as, ideally, volunteerism). Having spent time in third world poverty, what's remarkable to me is how much the problems of relatively impoverished 'slums'/depressed communities here in NZ resemble those in third world slums.

What we cannot avoid is that money does need to be involved. Neither John Key nor Paula Bennett would be where they are today without social welfare money. Paula Bennett was a solo mother beneficiary, or "bludger" as many would term it. John Key was likewise the child of a "bludger".

The problem with the growing disconnect we're seeing between rich and poor is that this disconnect is a fundamental component of perpetuating poverty. Read a book like Hillbilly Elegy and you'll see it. Likewise I saw it in the third world, and one way we worked to counter it was through mentoring of the poor by wealthier communities...including teaching basic foreign concepts such as "saving" (what is saving when you've never had any money to save?).

Arguably we're wasting lots of money on those who don't need it - e.g. social welfare to the rich who have reached a certain age, subsidies to businesses and property investors, subsidies to companies and to irrigation schemes for farms.

(As an aside when I last checked the Good Book it also suggested to me that Bill English, as a supposedly devout Catholic, should not be telling lies deliberately and repeatedly by commission.)

... I presume that by " the Good Book " you are referring to " Jones on Property " ...

Sir Bob has an awesome article in this weeks Listener magazine .... although , have a stiff drink to gird your loins if you own commercial property in the boondocks ... he doesn't pull his punches old Bob ... a living legend ...

DP

I'm inclined to agree Boatman;, people are, for the most part, the authors of their own misfortune, some of them need a bloody good wake up call, boot camp or something. However and I've raised this before, the figures above are wildly inaccurate with the lower income folk in a far worse relative position than indicated for several reasons: little or no opportunity to enjoy capital gains, little opportunity to rort the tax system and housing, food etc. a very high percentage of income. Because we are one of the few countries that don't consider capital gains as income we have pretty useless data. Until we have that we are only pretending we know the extent of the problem.

Matthew Rognlie says that inequality may not grow in the way Piketty predicts, finding that the long-term rise in capital income is driven mostly by housing, not labor division.
https://www.brookings.edu/wp-content/uploads/2016/07/2015a_rognlie.pdf

What does(n't) NZIER say to this:

The distinctive feature of the New Zealand economy is that land is an important input into the productive process. This is obvious with the agricultural,fishing and forestry sectors but it also applies to international tourism. In a simple model of the New Zealand economy where the supply of land is fixed, and New Zealand’s isolation means it is not a ‘natural’ location for the production of a broad range of internationally traded goods and services, then an increase in the labour supply through large scale immigration will reduce the
marginal product of labour. As a result:

Real wages will fall

Owners of land will benefit

There will be an outflow of ‘native’ labour in search of higher wages in Australia

The economy will be bigger, but average incomes will fall

Resources will flow into low value service production.
http://www.tailrisk.co.nz/documents/TheSuperdiversityMyth.pdf
Optimal size for New Zealand, 15 million NZIER
http://www.stuff.co.nz/national/politics/8024613/Optimal-size-for-New-Ze...
NZIER are part of the Growth Lobby $
http://www.waikato.ac.nz/__data/assets/pdf_file/0009/189459/Natalie-Jack...

15 bloody million? Bloody hell.

Very interesting that SuperDiversity report.

Yes that diversity article certainly challenges a lot of "sacred cows". Funny how we can fall for a whole lot of complete nonsense and allow it to become accepted wisdom.
Back in the eighties some one in California noticed that successful people were more self confident. They then made the extraordinary leap to asserting that if we gave them more self esteem then folk would be more successful. Incredibly this cart before the horse nonsense gained wide acceptance particularly among the naive teaching fraternity. So we doled out medals to 15th place getters and so on with the result we have a whole generation of arrogant youth that believe they simply need to turn up to be a winner.
You couldn't make it up.
https://www.theguardian.com/lifeandstyle/2017/jun/03/quasi-religious-gre...

Thanks jh.
Does any one else find these agenda driven globalist/neo liberal propaganda outfits deeply worrying. A lot of this NZIER article appears to have been copied and pasted from the notorious NZ Initiative but the NZ Herald and TVNZ are just about as imbalanced. We've had a whole bunch of this nonsense over the past year or so (and no doubt continuing right up to the election) trying to convince us that we've never had it so good and immigration is the best thing ever. Creepy!

It is obviously in certain people's favour to push this agenda. First they use economic reasons and when that fails to hold water they move on to humanitarian/empathy/human rights/human interest/ethnic eateries and so on. The biggest lie was that it wouldn't impact natives at all. You only have to look at the heavily arming of the police around the world and here compared to the unarmed bobbies of yesteryear to get a good example of the changing landscape. Conversations about culture and religion are very suppressed nowadays too. I recall in the old days having some good dingdongs with extremists which is unthinkable now.

The impression I get is that there is a concerted effort to de-nationalise Western countries. De-nationalisation does have benefits for many people who now find that they have no real national obligations but can profit from the situation. Boomers who were brought up in highly nationalistic societies with associated soft repression and stultification with enormous welfare and obligations can probably recognise that things are better for them now from an individual freedom perspective but totally discount, even disparage, the foundations that their privileged circumstance were built upon.

To not include wealth in the equation makes the analysis almost meaningless. We all know the major issue over the last 10 years is the house price boom and the fact that a large number of New Zealanders are now locked out. Sure you've had record low interest rates which have keep mortgage payments looking affordable but as soon as rates normalise we'll find that most young people won't be able to get on the property ladder.
Also, why doesn't the research show some numbers that people can understand as opposed to a magic number, i.e. Gini, which could have been calculated with all sorts of sleight of hand. Why not provide income broken down by decile over time?

"...as soon as rates normalise we'll find..." well in my lifetime they have been over 15% in Australia and about 10% in the UK. So lets assume a rapid change to 10% - Aucklanders will get 2nd jobs, take in lodgers, take up prostitution if young enough but in the rest of the country these options will not be open. It will end up with the banks owning plenty of houses and being landlords, it will cause some banks to shake - they will freeze new loans for rather more important matters such as export businesses trying to invest (as per 2008). With plenty of negative equitiy it will inhibit workers moving (personal experience of a friend in UK 25 years ago).

Every so often, Interest publishes an article that literally makes my blood boil, and this is one of them. This business of trying separate poverty from inequality is just plain ignorant and stupid. It is so obvious that I cannot believe there are still people who cannot understand a concept as simple as this. As you have more wealth concentrated into the hands of fewer and fewer people the only possible outcome is inequality and poverty.
You know, I thought we'd sorted that last century, but no, here we go again.

Here is an interesting analysis of the different attitudes between the public and the elite in Europe:

The Future of Europe- Comparing Public and Elite Attitudes

I like this thoughtful paragraph:

A European debate that does not reflect the breadth of the public’s attitudes or give space to critics,and that delegitimizes opposition too quickly, will inevitably alienate many among the public and may serve to strengthen anti-EU forces rather than undermine them. As one observer argues, ‘the excess
of consensus in Brussels stifles European political life’.27 The past 10 years have demonstrated the way
the political actions of the EU can affect the very fundamentals of political life; yet its approach still
often reflects ‘policy without politics’ where the market place of ideas, the true essence of democracy,
has too often been replaced by bland consensus.Genuine political renewal in Europe will require
a richer, broader and perhaps even a more conflictual debate.

There's a lot of truth in that.

Equality... of what ?

Equality of income ?
Equality of worked hours ?
Equality of assets ?
Equality of what benefits a person produces for others
Equality of schooling ?
Equality of parenting ?
Equality of free time ?
.............

More or less. Inequality, like a lot of things is not too bad in small doses.