Income inequality: How NZ is one of the worst in the world

Finance Minister Bill English is expected to make some efforts to address child poverty in this week's Budget but is it ...
Hagen Hopkins

Finance Minister Bill English is expected to make some efforts to address child poverty in this week's Budget but is it too little, too late?

When Finance Minister Bill English delivers the Government's seventh Budget this week, he is expected to focus on addressing the divide between the haves and the have-nots.

Just how bad is our inequality problem?

INCREASINGLY UNEQUAL

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Rising inequality has been the norm in most developed countries, but few have seen it increase by as much as New Zealand.

Since the 1980s, New Zealand's inequality - which had been low by OECD standards - drew closer to levels seen in more unequal countries like the United States. New Zealand's rate of increase in inequality has been exceeded only by Finland and Sweden.

One measure of inequality compares the incomes of those near the top (the 80th percentile) with those near the bottom (the 20th percentile). In 1980, someone near the top earned 2.4 times what someone near the bottom did, after factoring in housing costs. Now, they earn 2.97 times more.

Even when inequality by such measures isn't increasing, the nominal gap between high and low incomes continues to rise.

Since 2007, the pre-tax incomes of households at the bottom increased by $4000, on average. But at the same time, those at the top had an average $43,000 rise. Despite this, the ratio between the two stayed roughly the same.

WHY DOES INEQUALITY MATTER?

Recent studies suggest that inequality isn't just bad for those at the bottom - it affects people all along the income scale.

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One study by the OECD suggests rising inequality was responsible for wiping a third off New Zealand's economic growth in the past 30 years.

It estimated the rate of New Zealand's GDP growth was stunted by as much as 15.5 percentage points between 1990 and 2010 - more than any other OECD economy.

Max Rashbrooke , editor of Inequality: A New Zealand crisis, says a growing income gap causes people to "lose their sense of what life is like for people in the other half".

"They trust each other less, and they care about each other less and so they're less likely to extend a helping hand and feel like they've got something in common with everyone else," he says.

There'll always be a bit of inequality in any society, says Rashbrooke , "the question is at what point does it become really problematic"?

"One of the ways that you know it's a real problem is you no longer have any meaningful social mobility."

In 1986, the top 10 per cent took home 26.5 per cent of New Zealand's income. In 1999, it was 37.8 per cent and in 2004, it was 33.2 per cent.

Y BOTHER?

Generation Y - those born in the 1980s or early 1990s - are in the midst of their own particular inequality struggle.

Increasing numbers of New Zealanders under the age of 25 are falling into lower income brackets, while there are very few over 65 at the bottom of the heap.

Despite this, government payments to those over 65 have increased dramatically while those to young people have hardly changed. Since 2007, transfers to those over 65 increased from $252 to $319 a week. Average government payments to 20 to 24-year olds went from $56 to $61 per week over the same period.

This is in part because in 2010, the Government decided to link the pension to the average wage instead of inflation. The average wage has typically increased by more than inflation.

For some young people, higher education is not helping much. The proportion of people with bachelors degrees in the lowest income brackets has steadily increased.

Unemployment rates for young people have also not recovered as fast as those in older age brackets since the Global Financial Crisis.

CHILD POVERTY

In December last year, the second annual Child Poverty Monitor showed a slight decrease in the number of Kiwi children living in income poverty, from 27 per cent to 24 per cent. But 30 years ago, it was 14 per cent .

A United Nations report in October last year showed New Zealand's child poverty rates had fallen by less than half a per cent since 2008.

By contrast, Australia reduced its child poverty rate by more than 6 per cent over the same period, and Finland and Norway, countries with similar populations, reduced theirs by more than 4 per cent and 3 per cent respectively.

 - Stuff

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