Law Management: Opinion: Income inequality in New Zealand

Opinion: Income inequality in New Zealand

Article from-   http://www.interest.co.nz/

Posted in Opinion December 5, 2010 - 01:41pm, Neville Bennett

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By Neville Bennett


'No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,' said Adam Smith.

Some claim that there are no poor and miserable people in New Zealand. There could be an exception, it is allowed, for derelicts whose vices and sloth have smitten them. But anyone with any “go’ can become prosperous.

I would not put the issue in stark black and white terms.

I would concede that we have a welfare state that has done a good job in providing good providing accessible education, free health (not dental) services, state housing, old-age pensions and social welfare benefits. These have resulted in a minimum standard of living well above the desperate conditions that might be seen elsewhere.

I want to retain this system and regret that a culture has arisen that is indifferent to the growing disparities between rich and poor, but admires the banking elite and the unfettered operation of markets, sneers at the public sector, is unconcerned about sustainability, and embraces endless expansion.

I believe in efficiency and equity, and prefer that NZ follows models such as Japan and the Nordic counties which enjoy much higher levels of education, income, equality, health and welfare.

It is appalling that New Zealand has slipped down the prosperity ladder.

Obviously there are other faults with our economy, especially a poor export performance.

While we were leaders in per capita income in the nineteenth century, and even in the 1950’s, we are #22 now in the 30 member OECD. As late as 1970 we were ninth. We were also more egalitarian in the 1970’s, but I would be hesitant to claim any causal link between our growing wealth/income disparities and declining prosperity versus other countries.

I raise the disparity of wealth and income as an issue because I believe we cannot become really prosperous until that disparity is redressed.

One argument is that our children must get meaningful opportunity.

At present around 20% of children endure a degree of hardship. The Ministry of Social Development admits:

New Zealand’s children suffer not only a higher rate of hardship than other New Zealanders, but a greater share of New Zealand’s children face hardship than in many other countries. The comparison to other countries shows that New Zealand is unusual in choosing to impose such a burden on the youngest segment of the population.

It does not make sense to allow our next generation to be impaired. The nature of work means that poorly educated and trained people have difficulty in earning a high market income.

We need this, especially as our demographic situation means implies a low ratio of workforce-to-retirees.
Our future workforce will have to be incredibly productive in order to meet their own needs of education and training, service their student debt, save for their housing and transport, and support themselves despite rising taxation to meet accumulated state debt and increased expenditure on health and superannuation.

Inequality
I have already established in Part 1 of this series that wealth distribution in NZ is much skewed. I have found more recent data since my article which indicates that the bottom 30% have negligible wealth, the bottom 70% owns only 20% of national wealth. The top 20% owns 70% of our wealth, and only the top 10% has significant assets in investment property, farms, business and financial assets, and trusts.

Market income increased for high deciles 1987-1997. Since the 1980’s there has been a trend to pay top managers more. In 1968 the CEO of General Motors’s pay package was 66 times the average GM worker. The CEO of Walmart now earns 900 times the average employee pay. In NZ, the CEO of Westpac gets $5.6 million, about 140 times average pay of $40,000, or 110 times average pay of $50,000. Click onthis link to see a chart of wage and salaries in NZ.

That chart also shows most market income is in the $30,000 to $60,000 range. About 34% of market income is earned by the top 10%, the bottom 30% get 5%. The top 3% pay 26% of income tax, the top 9% pay 42% of income tax.
Wages are rising for high-income earners but the unskilled are going backwards, even though many are in firms which are raising productivity.

The Employers and Manufacturers report that employees have received an average of 3% this year, but workers in unskilled jobs averages a 0.1% decline in pay this year. Pay rates dropped for a quarter of the 215 job types in the survey. These workers were not suffering pay cuts but new entrants were offered lower rates.

The measure used for income internationally is the Gini coefficient. NZ is the seventh most unequal in the OECD (our score is 34). This is a higher score than Australia, and puts us in company with the US, Portugal, Turkey and Mexico. We are a world apart from the Nordics and Japan. This link to the NZ Institute gives excellent information on the Gini and graphics showing NZ low relative rating.

The Consequences - Hardship

Hardship is defined by a specific set of deprivations, in which the household is forced to forego goods that are considered required for a basic or minimal acceptable lifestyle.

For New Zealand these include the ability to keep a home adequately warm; a washing machine; a meal with meat, fish or chicken every second day; a phone; a colour television; a private car; one week’s annual holiday; the ability to pay mortgage, rent and utilities on time; and the ability to face unexpected expenses of $1,500.

The age group with the highest incidence of hardship is children, and the age group with the lowest incidence of hardship is those over 65.

One aspect of hardship is inadequate housing. Housing costs have greatly increased for most NZ groups but especially the poor. 17% of children live in crowded conditions nationally, 25% in Manukau. Crowding helps disease: we have a disgracefully high level of meningococcal disease which is a Third-world disease.

The Consequences - Disadvantage
In the UK and US research shows that social mobility is low. The poor stay poor. This may be the case in NZ now, although it was not in the 1950’s and ‘60’s.

Those unable to escape low incomes are more subject to ill-health, missed educational opportunities, and depression (with some symptoms of alcohol abuse, obesity, drug abuse and minor criminality). The unemployed and under-employment lose skills and suffer anxiety and stress.

Inequality is associated with crime. NZ has the second highest rate of prison sentences in the world. It has one of the highest rates of teenage pregnancy. Our health outcomes are quite good unlike the USA which, despite massive spending, has a life expectancy just above Bosnia and slightly better than Albania. But infant mortality in NZ used to be similar to Denmark but is now twice as high.

Inequality is corrosive. Competition for status and goods increases, people feel a sense of superiority or inferiority because of their possessions, some harden their attitudes to the less well-off and the pathologies of disadvantage flourish.
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* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.
neville@bennetteconomics.com

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