NZ Initiative reviews the latest evidence on income inequality in New Zealand and contrasts that with the media mentions

NZ Initiative reviews the latest evidence on income inequality in New Zealand and contrasts that with the media mentions

Content supplied by the NZ Initiative

The country needs to change its tune on inequality, according to The New Zealand Initiative, with a recently published report by Treasury showing that the gap between rich and poor has been stable or falling over the past 20 years.

The Treasury working paper by Christopher Ball and John Creedy analysed annual income and expenditure since 1984. While inequality across a range of measures rose from the late 1980s through the early 1990s, it has levelled off or declined since the mid-1990s, albeit with some variability.

Eric Crampton, Head of Research at the public policy think tank, welcomed the release of the report, and said that it confirmed the results of other recent government reports.

“Income inequality has risen in many parts of the world,” said Crampton. “Unfortunately, we seem to have imported the narrative that the gap between rich and poor in New Zealand has been widening to the same degree.”

“The most striking finding in the latest Treasury work is that inequality in consumption is lower than it was before the reforms of the 1980s. While salary-based measures of income inequality have not declined as dramatically, a lot of work ignore the fact that the tax and transfer system already works to equalise incomes. In the end, it’s consumption-based measures that give us a better picture of real differences in how people live.”

The Treasury paper also demonstrates that the rise in real incomes following the reforms of the 1980s more than compensates for the rise in income inequality that came during the reforms.

“It is about time that people recognise that, despite the growing number of headlines and stories about inequality, the statistics point strongly in the other direction. It makes sense to think about policies to address poverty and especially about the effects of housing affordability for the poor. But New Zealand simply has no problem of rising inequality.”

The New Zealand Initiative is currently conducting research into poverty, inequality and welfare, with the first report in the series due to be released before the end of the year.

Supplemental materials
Christopher Ball and John Creedy. 2015. “Inequality in New Zealand 1983/84 to 2013/14”, New Zealand Treasury Working Paper 15/06 is available here.
The Ministry of Social Development’s work on income inequality, “Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2013” is available here.

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The OECD says something entirely different

But the OECD isn't saying anything about our country, just Europe and the US. 

The GINI is calculated for NZ by the experts at MSD. And they are highly respected.

yet food banks are supposed to be empty? The Q is why is there this discrepancy?

While salary-based measures of income inequality have not declined as dramatically, a lot of work ignore the fact that the tax and transfer system already works to equalise incomes.

This is the problem as I see it - we rely on measures such as the accommodation supplement and WFF to maintain a measure of equality, or a reasonable standard of living for young families in NZ. Seems to me that those in their most productive years (i.e., the 20-40yo age group) should be fully contributing taxpayers at this, the most productive stage in their lives. Instead, we see them working full time, more often than not both partners in the family unit doing so - and yet, still living cost subsidies for the most basic of necessities are required. It just makes no sense.

How do you work out that people aged 20-40 are the most productive? If this was true, then that's also the age at which their earning would also peak.

it always has, the Q is taking away transfers ie I suspect without the "new" WFF inequality would indeed be worse.

I think we would all prefer that those at the bottom (and middle) could earn all of what they need instead of relying of welfare, all WFF and accommodation top ups are is welfare for employers and landlords either not paying enough or charging too much. I would much prefer Peter Dunne's idea of income splitting for families with a sole earner.
I believe this survey was done with vested interests at the fore

Better and cleaner to do this through the tax system, rather than make middle income families become state beneficiaries.

They think income is the cause of inequality? Thats laughable in the face of house prices that year after year after year go up faster than most people even earn money.

It doesn't matter what you earn anymore, it's not enough.

Yes, they should be looking at expenses inequality. Its a generational thing... depending upon whether you got yourself established before the 1991 ”mother of all budgets"

specious argument - an argument that appears good at first view but is really fallacious

Its the Theory-Induced Blindness again (and apparently it's a real thing)

yep nowadays even if you are in the top tax bracket you can't live on one income in AKL, if it's family with kid-s. House prices are not the problem. Shitty incomes and high taxes on incomes are.

Completely disagree - even if they doubled the average income you would struggle to afford a reasonable house in a reasonable part of Auckland with a reasonable commute to the city.
I don't think our taxes are that unreasonable - you work 40 years paying 30% tax and then you live off the state for 30 years with free medical!.

I think the taxes are unreasonable. And that's because the numbers say so. Better performance could be achieved with 10% tax rate.

Just need to get the government leeches off the big gravy train. You see the results from the latest about MBIE, them ticks is getting _fat_

Actually you are mostly incorrect. a) The historic norm for house to salary ratio was 3 to 1 maybe 3.5 to 1. Currently Auckland is north of 8 to 1, so you would have to triple wages to buy, but, b) House prices are set on ppls ability to pay so if you triple wages house prices would also take off. c) much of the rest of NZ is not especially over-priced V wages. I agree we are too poorly paid because a) our best produce like fish etc gets shipped overseas and we are left with the crap that isnt worth buying b) they ship in produce from developing nations like fish products, chinese pork, garlic etc yet we are a huge producer, makes no sense.

Only in some parts of NZ. many others parts see no such increases.

The problem here seems to be a focus on NZ's income inequality. We may be overlooking a bigger/faster growing imbalance in wealth (or net assets). Its not easy to measure. An old survey (SOFIE) gave us an idea of this but havent read of more recent approaches. Shamubeel E alluded to wealth imbalances with his warning about the new 'landed gentry' transferring tax-free propery wealth from one generation to the next, over the heads of the 'renting class' trapped by relatively static incomes and endless rent repayments.

not landed gentry that are the problem, its government :

base your inequality here:

And the average wage in NZ is NOT 50k, that;s the average Auckland wage, everywhere else much much lower

Collapse, Part 2: The Nine Dynamics of Decay

he missed one. the big one.
A friend of mine who is a priest of Dionysus pointed it out. Decadent society wouldn't strongly record a collapse, and would decay in pieces. this did not happen to Rome.

What happens is those in power make a big crackdown to try and get their income back up to scratch and regain control "like the old times". they do this completely wrong, installing great discipline and very tight laws and heavy penalties. This is what sends things into chaos and destruction - that is why we have so many records and they end so abruptly. It's what we see with the corporatism and loss of rights and liberties, and with places like Greece who should be growing their private productive sectors so they can support their country - but they won't they declare the government is great tax the private sector more to try and prop up government salaries but there is no feedback path into the majority of the private sector, and you can't tax your way to wealth...especially when the only people with money to pay the taxes are the government workers being paid from the taxes.