Despite what you hear, inequality has risen in New Zealand

Inequality has risen in New Zealand, argues Max Rushbrooke.
Fairfax NZ

Inequality has risen in New Zealand, argues Max Rushbrooke.

OPINION: Observant New Zealanders, who have noticed the number of children with poverty-related skin diseases soaring while gated communities proliferate, may be surprised to hear a think-tank claim that New Zealand has 'no problem of rising inequality'. That surprise would be justified, since the gap between rich and poor has in fact widened dramatically. And the damage that has been done in the process is something we should urgently address, not sweep under the carpet.

The New Zealand Initiative's claim that there is no problem is based on a Treasury paper showing that income inequality has been stable for the last decade. And indeed it has, thanks to Working for Families propping up low incomes and the global financial crisis temporarily biting into higher ones (through, for example, lower stockmarket returns).

But what this selective reading omits is the fact that in the two decades from the mid-1980s on, the rich-poor divide widened faster in New Zealand than in any other developed country. Incomes for the richest New Zealanders have doubled, while those for the poorest have barely risen (and, after housing costs, have actually fallen over 30 years). That change has altered New Zealand society profoundly.

In a system where income goes disproportionately to the already well-off, ordinary workers are missing out on the rewards of their efforts, to the tune of billions of dollars a year. Welfare benefits, cut by a quarter in 1991 and increased just 8 per cent in the last budget, are far too low to meet people's basic needs.

The result is a doubling of child poverty and the return of childhood diseases unknown in most developed countries – a national embarrassment, as one researcher described it. Our cold, damp homes can be death traps, as a recent child fatality tragically showed. Our still-excellent schools are buckling under the pressures of dealing with children whose parents can't afford to buy them warm clothing, feed them breakfast, or provide a quiet space for studying.

There is evidence too that, as gaps have widened, people's trust in others and willingness to help them have declined. And with rich and poor children getting such different starts in life, there are real questions about whether our much-vaunted 'fair go' still exists. All these things may have their roots in the past, in that rapid post-1984 rise in inequality, but they are happening now. That is why our newspapers are rightly full of inequality-related stories.

The Treasury's paper does show that inequality of consumption (spending, in other words) has fallen slightly since the 1980s, but it is dangerous to place too much weight on this finding. Consumption levels can look fairly stable because poor families artificially inflate their spending by massive borrowing – and that, as the global financial crisis showed, is a castle built in the air, unsustainable and illusory.

To accept that consumption inequality is a useful measure, you also have to believe that large numbers of our poorest households can, in the Treasury's words, engage in 'consumption smoothing' by drawing on stored-up assets to tide them through temporary poverty. I spend a fair bit of time interviewing poorer families, and I can't say I've noticed a lot of 'smoothing' going on; I think 'paddling desperately to stay afloat' would be nearer the mark.  An asset base is precisely what these families don't have. Conversely, wealthy people do build up large asset bases, and the saving that they do in the process reduces their spending – and thus inequality of consumption.

For these reasons, none of the major OECD, IMF or World Bank reports uses this consumption measure, nor do any of the key international thinkers on inequality. Taking it seriously – and thus discounting the reality of inequality in this country – risks turning New Zealand's attention away from the crucial international conversation about widened income divides.

That might suit those who think that the concerns about inequality in New Zealand have somehow been imported from other countries, such as America. But the thing is, we don't need to look overseas in order to become alarmed. The New Zealand facts are frightening enough.

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Max Rashbrooke is the editor of Inequality: A New Zealand Crisis, published by Bridget Williams Books, and a research associate at the Institute for Governance and Policy Studies

 - The Dominion Post

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