Inequality: Is it growing or not?

16:00, Jan 31 2014

When David Cunliffe tried to hit home the message that many Kiwis were struggling this week, he chose a simple, heartbreaking example.

Not only was one in four living below the poverty line ‘‘one in five don’t even have two pairs of shoes to wear to school’’ the Labour leader said in his state of the nation speech in Auckland.

Later in the week Cunliffe was challenged by Prime Minister John Key in Parliament to quote the source of the claim (as had Right wing commentators), but he did not do so.

His office is now ignoring questions on whether he sticks by it, but the foundations are shaky.

Staff confirmed that it was based on the report last year of Children’s Commissioner Russell Wills, which said 17 per cent of children (which is one in six, not one in five) were exposed to ‘‘a range of economising behaviours’’.

These included having at least two pairs of shoes in good repair, but could also mean parents cut back on fresh fruit, limit heating or avoid going to the doctor to save cash.


A minor point on the wider issue of poverty, but with Cunliffe already under fire over the details over his Best Start policy, it was another misfire in an attempt to frame the debate about the rich getting richer, and the rest of New Zealand struggling, which the Left hopes to make a dominant theme of the election.

Even before Cunliffe delivered his speech, the Beehive was in action in an attempt to undermine the idea of a growing wealth gap in New Zealand. Material was provided to the media from the most authoritative measure, Bryan Perry at the Ministry of Social Development.

It shows that the Gini coefficient, an internationally recognised measure of income disparity, rose sharply (pointing to much greater inequality) in the late 1980s and early 1990s.

Since then it has been ‘‘flat, to maybe falling a bit since then’’, Finance Minister Bill English said this week. Labour claims it shows income inequality at an all time high, but the trend looks flat.

English spent this week dismissing claims that inequality is growing. As well as quoting the MSD research repeatedly, he has taunted Labour that it simply wants there to be a growing problem in New Zealand.

‘‘They wish income inequality was growing, but it is not. It is not growing,’’ he said in Parliament this week, adding that on only ‘‘Planet Cunliffe’’ was there a crisis in inequality, manufacturing and the economy.

Labour claims Mr English’s analysis is incomplete.

Finance spokesman David Parker says income inequality is worse than the average for the OECD, and continuing at the current situation makes inequality worse.

‘‘Income inequality doesn’t have to get worse for inequality to get worse because income inequality is very high, and every year you get a further concentration in assets.’’

Parker said the situation is made worse by the fact that New Zealand has no capital gains tax, meaning those who own substantial assets get ‘‘free’’ increases in the value, while those who rely entirely on their income face the tax burden.

The OECD agrees. In its major report on New Zealand last year it said that as much income among the wealthiest was capital gain, the lack of a tax on these gains ‘‘exacerbates inequality’’ and undermines housing affordability.

But while all politicians seem to agree that housing affordability is declining, Labour admits that data pointing to growing inequality including asset measures is poor, mainly because it does not exist.

Parker notes that home ownership, which peaked at 74 per cent in 1991, had declined to 65 per cent in 2013, and as low as 60 per cent in Auckland.

While he claims that ownership ‘‘flattened’’ under Helen Clark’s Labour Government, the lack of data points provided by the five yearly Censuses – delayed recently from 2011 because of the Christchurch earthquake – makes conclusions difficult.

English says declining home ownership is not proof of growing inequality, although rapidly rising prices do.

‘‘People who are in it go up 15 per cent a year, people who aren’t, don’t.’’ Both sides acknowledge housing affordability as an issue, and both have promised action.

English says irrespective of whether the gap it growing, it exists. While the technical measure of child poverty – those living in households with less than 60 per cent of median disposable household income – is controversial, English acknowledges too many children live in poverty ‘‘however you measure it’’.

But he insists the focus should be on social mobility – improving education and employment prospects – rather than distributing money.

Had this been the solution, Working for Families would have had more of an impact than it has, he said.

‘‘The issue for people isn’t whether there’s a growing gap, the issue is the situation they’re in. There are people working hard to manage on very tight incomes, and they need a sense of hope and they need some real opportunities,’’ English said.

‘‘Not some egghead arguments about how you measure the difference between the wealthiest and the poorest.’’

Fairfax Media