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    Essential Information on an Essential Issue

    Letter No.95

    19 February, 1999

    From the Statistics NZ Incomes Report

    The gap between rich and poor New Zealanders grew significantly between 1982 and 1996, according to the latest incomes report from Statistics New Zealand. The report, part of the New Zealand Now series, examines long-term trends in national income, the distribution of income and compares the distribution of income within New Zealand to that of other countries.

    Statistics NZ says that over the past 50 years, NZ's Gross Domestic Product per capita has almost doubled. Despite this, our ranking in terms of Gross Domestic Product per capita has dropped from fourth in the OECD in 1960 to nineteenth in 1993.

  • A major change in the distribution of income occurred in the 1986 to 1991 period, resulting in a significant increase in income inequality for New Zealanders at this time. Little change in the distribution of income occurred in the 1991 to 1996 period.

    Over the 14 years, the wealthy were gaining a much larger slice of the New Zealand income pie. In 1982, the most wealthy 10% of NZ households earned about 20% of the country's after-tax income. By 1996, that same group was earning 25% of the income.

  • The report identifies that the increase in income inequality is caused by those at the top end of the income range gaining more income, and those in the middle gaining less income. There was no significant income change for those at the bottom of the income range.

    Chief Statistician Len Cook says that changes in the distribution of wages and salaries made the largest contribution to the increase in income inequality. Cook: "Our general findings aren't new, but they do confirm results from other New Zealand researchers as well as going into greater detail..."

  • The proportion of households that gained more income from benefits and superannuation than they paid in taxes increased between 1982 and 1996. In 1982 and 1986, the bottom 30% of households gained more from this government income than they paid in taxes. In 1991 and 1996, however, the bottom 40% of households were in this category.

    Statistics NZ: "This increased reliance on benefits and superannuation reflects some ageing of the population, the more deliberate targeting of the benefits at low income households, and higher unemployment. For example, those without qualifications in 1996 got twice as much of their income from benefits compared to 1986 or before..."

    The types of people over-represented at the bottom of the income range include people aged 65 and over who live alone, sole parents and couples with no children where the woman is aged 65 and over.

  • Maori people, women and children also feature at the bottom end of the scale in disproportionate numbers. In 1996, over 25% of New Zealand's children lived in households in the bottom 20% of income distribution. Around 28% of Maori were in that same low income group.

    Over the fifteen-year period to 1996, however, women have fared better than men, at all ages. The purchasing power of women is similar to 1982, while the marked fall that occurred in men's income between 1986 and 1991 has persisted.

    Over the period, Maori and other ethnic groups have seen a more significant reduction in income shares than European, although by 1996 there was some reversal in the large fall in income shares experienced by Maori between 1986 and 1991.

  • The report also states that New Zealand's increase in income inequality seems as large, or larger, than other OECD countries for which similar data is available. Over the 1982 to 1996 period, New Zealand's income distribution moved from a position of being relatively equal when compared to other countries, to being in a position of relative inequality compared to other countries.

    excel.gif - 1224 Bytes
    A Microsoft Excel file of all the data behind the figures for the incomes report can be downloaded from here.

    "Changes in income distribution are a result of many social, demographic and economic factors. Different methods of analysis can give different results, and it is not always possible in studies such as this to say unequivocally whether income inequality has increased or not.

    What is striking about the results in this report is that the results are unequivocal: income inequality has increased substantially..."

    --Len Cook, Government Statistician

  • Finance Minister Bill English welcomes the release of the New Zealand Now report, and says it will encourage a more honest debate about income disparity in New Zealand.

    English: "Many New Zealanders have felt uneasy about the sense of a growing gap between rich and poor. The report shows that income disparities were stable in the early 1980s, then increased significantly between 1986 and 1991, and appear to have stabilised again since 1991.

    "It shows that there has been no statistical increase in the proportion of people below the Hikoi poverty measure. The gap widened because higher income households have benefited considerably, while there has been a slight decline for middle income households. Most of this shift occurred in the late 1980s"

    "Big cuts in the top tax rate in the late 1980s may have contributed to an increase in inequality. Another reason for the top 10 percent being better off is a widely understood premium for skills and knowledge in a changing economy. It is also likely that social changes such as more low income single parent households and more high income double income households will also increase inequality..."

    (The Hikoi poverty measure, referred to here by Bill English, was popularised by Anglican church leaders in last September's Hikoi of Hope. It is set at 60% of median household disposable income.)

  • Labour's social welfare and employment spokesperson Steve Maharey says that the large and growing gap in the difference in income levels between the rich and the poor in New Zealand cannot be allowed to continue. He says the New Zealand Now report shows "just how intolerable" the income disparity has become in this country.

    Maharey: "It is simply unacceptable that more than 25 percent of New Zealand's children live in the poorest households and 28 percent of Maori are in the same situation. New Zealanders deserve better. The statistics show that a few people are getting richer while the while the bulk of people's incomes have stayed the same or fallen. There are specific groups, such as Maori and Pacific Islanders and the elderly, who are steadily becoming worse off and this cannot be allowed to continue,"

  • Maharey says that while the report shows a major change occurred in the 1986 to 1991 period this was largely due to the rapid shift from a highly regulated to an open economy. Maharey: "Given what occurred in this country at that time we would expect that there would be huge changes in the distribution of income. No one disagrees that those changes were necessary..."
    Sources New Zealand Now- Incomes report, tables from the StatsNZ website ; press releases from Statistics NZ, Bill English and Steve Maharey;

    "This is an official declaration that the free market experiment has failed. They were wrong. Roger Douglas, Richard Prebble, Ruth Richardson and Bill Birch owe New Zealanders an apology.

    "Average real incomes for all New Zealanders have actually decreased. We are on average worse off than when the mad experiment began. Any increase in the size of the cake went to the most affluent. Average kiwi households went backwards, while the poorest didn't catch up at all. The affluent have been creaming it while average incomes have been declining.

    "A new Government will have to make it a priority to close the huge gap which has been opened up between the very rich elite and the rest of New Zealand..."
    -- Jim Anderton, Leader of the Alliance

    "The real story in this report is not the gap between rich and poor. The real story is how the hard working middle class has been clobbered by the burden of taxes, red tape and excessive Government charges. These families don't have time go on a hikoi to Parliament to tell the politicians how they are being punished by Government ..."
    -- Muriel Newman, ACT MP

    "The debate about how to deal with inequality in our society is an important one and one which highlights the difference in approach between the two major political parties. The Labour-Alliance policy to tax people who do well might pull down above average income, but it promises only dependency and a poverty trap for people on low incomes.

    "National supports people of any income who aspire to do better for themselves and their families. We have a whole range of programmes to do this, like Strengthening Families to empower disadvantaged families, and the Compass programme which right now provides a ladder into work for 16,000 sole parents. Tax initiatives such as the Independent Family Tax Credit have put more money into the pockets of low and middle income earners ..."
    -- Bill English, Minister of Finance

    "National's policies of the Employment Contracts Act, cuts to benefits, market rentals, slashing of superannuation have meant that the poorest New Zealanders have seen their incomes plummet.

    "But it is also tragic that the National Government has not put in place the kinds of policies which would allow New Zealanders to prosper in the new open economy.

    "There has been no growth, no assistance for regions, no jobs and no training. It is perhaps because the National Party has been unable to deal with these issues that Treasurer Bill Birch is on record as saying that he doesn't mind inequality. Perhaps this is what Mrs Shipley means by caring conservatism ..."
    -- Steve Maharey, Labour social welfare and employment spokesperson

    "The fall in middle incomes is a social time bomb. The fact that middle income earners have gone so sharply backwards in recent years is a disaster. Unless this trend is reversed, and middle class incomes are boosted dramatically, our social infrastructure which these people's tax predominantly sustain, is at severe risk..."
    -- Peter Dunne, Leader of United New Zealand

    "The latest statistics are one more reason why the Government needs to focus on family policy. The statistics show that sole parents and their children were among those most over-represented in the groups on low incomes.

    "It is clear that as more and more New Zealand families separate, their financial position in our society deteriorates. If the Government wants to close the gap between rich and poor it must address this issue."
    -- Ewen McQueen, Finance spokesperson for Christian Heritage

    "In addition to the huge gap in earnings increasingly emerging between rich and poor, there is a similar gap between the way we apply the law to people from different socio-economic backgrounds. Recent IRD cases involving average New Zealanders highlight how ruthlessly the law is applied to the small person while a blind eye is turned to some of the activities of the mighty.

    "It points to an inherent lack of fairness and accountability in New Zealand which is not only an indictment on those who should enforce the law _ but also on the lawmakers ..."
    --Winston Peters, Leader of New Zealand First

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