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An Overview Regarding Inequality in New Zealand (as a small state)

by Kyle Hargraves

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It is worth pointing out that the recent (2021) study of inequality in New Zealand undertaken by Max Rashbrooke relies, by Rashbrooke’s admission, upon Piketty’s “Capital” or Capital in the Twenty First century (2014) which examines economic global growth (what might be considered as GDP) and the (global) return on capital assets for a millennia or so. The difference, as Piketty argues, effects inequality. What is interesting is that the data from the Industrial Revolution to the present is similarly representative of the longer historical trend! Statistics NZ (2016) reports that “Twenty percent of households (the top quintile) accounted for around 70 percent of total household net worth. In contrast, 40 percent of households (the base two quintiles) owned just 3 percent of all household wealth”. New Zealand is by no means the exception in this respect. Indeed, as Perry (2019) points out, below, such a state of affairs is more or less normal for the first world; in fact globally as Piketty1 insists. The following graph refers.

Interpretation: The respective percentiles for each decile sum to 100 (actually 100.1 due to rounding). Thus the lower 20% of income earners receive 7.4% (2.9 + 7.4) and the top 20% receives 41.5% (14.9 + 26.6) Between 1980 and 2000 New Zealand’s gross domestic product grew by 63.5% and a further 67.7% to 20182. The majority of that increase accrued to those already with the wealthiest portfolios as the accompanying graph conveys. Income shares in terms of households, as percentiles, conveys that “the top 10% receive just over a quarter (27%) and the top 30% receive just over a half (54%) of the total population (equivalised) income. This is much the same as in recent years. For example, the average figures from HES3 2007 to HES 2012 were 25% and 53% respectively”. A table following has the notation: “[this] shows that the distribution of household income in New Zealand is broadly similar to that in the UK, Australia and Canada, but more dispersed than for Finland and Norway (Perry, 2019, p. 50). Apart from Piketty’s data, another indicator of income inequality is the Gini coefficient4. The Gini for New Zealand has increased (i.e. inequality increased) from the early to mid 1980’s, i.e., from 0.27 in 1986 to a value of 0.33 by 19945 which is also consistent with the global thesis of Piketty. Over the interval from 1982 to the present the increase in the Gini is 25.4% which is a large increase by any standard.

The economic and sociological literature regarding effects of inequality and the causes of inequality is extensive and they have sufficed, in part, to motivate a book6 by Max Rasbrooke whose purpose is to treat the topic in a systematic matter. Rashbrooke has contributed to the research which has also been undertaken by various bodies including the Parliamentary Research Paper (2011) ‘Household Incomes, Inequality and Poverty’7. This study refers to OECD data from 1985 and 2008 “where the the Gini coefficient indicated that inequality increased in 17 of 22 countries

Although there is no official ‘poverty line’ in New Zealand and no formal agreement about exactly how to measure poverty a typical measure is an income below 50% of the median income. This statistic is the OECD standard for poverty. A working definition of poverty includes an observation to the effect that fundamental benefits that are deemed ‘normal’ for a given community are not being met. There is a tacit “fixed line measure” in New Zealand of “60 percent of median income adjusted for housing costs conveyed that 15 percent of the total population lived in poverty in 2010”8. By ‘adjusted’ it is intended that a given income and the median income are compared net or after housing costs.

In addition to, or prior to, reading the book by Rashbrooke there are a number of good reviews9, for which this article has no desire to compete. However, the recommendations by Rashbrook are deserving of emphasis.

Policy Options for New Zealand Piketty argues that progressive wealth taxes and progressive income taxes can reduce inequality10 and Rashbrooke is in complete agreement with a capital gains tax being a priority. In order to suppress the increasing inequality, globally, the conditions to the 1960s need to be emulated where the majority of taxation is paid by companies and not by wage and salary earners. Eighty years ago, indeed to the 1960s, NZ companies paid the majority (in excess of 60%) of the tax. If one is to add GST to PAYE the fellow in the street is paying upwards of 70% of total taxation receipts and company tax has declined to the current level of 14% of total taxation receipts.

There seems to be some basis for this recommendation because Perry (p. 52) has constructed a graph whereby the application of post taxes and transfers does reduce the value of the Gini coefficient (as per the following graph. Taxes applied across the OECD Clearly, the application of taxes has the effect of diminishing the Gini and (hence) the inequality to a value encountered during the early 1980s.

One could debate the interventionist policies of the Muldoon government but the situation, according to Rashbrooke regarding the ‘Rogernomics’ of the Lange government was the last straw. As Rashbrooke puts it (p. 47) “Making New Zealand more open did not have to involve making it more unequal”. Yet inequality increased under the subsequent Bolger government with the reduction of welfare programmes, the sale of state houses and the Employment Contracts Act of 1991 (p. 48). Home-ownership declined from 75% in 1986 to about 69% in 2001 and, as Rashbrooke notes, “a downward trend has since continued” (p. 51). As to the inequality being institutionalised Rashbrooke has prepared a graph of Labour Share of Income (p. 49) whereby, for New Zealand, the share of income directed to wages is consistently below the corresponding OECD median and well below the labour share for Denmark. In principle the matter could be corrected but Rashbrooke (2021), along with Atkinson (2015), Perry (2019) and Pippos are pessimistic.

A principal theme in Piketty’s Capital is that inequality is ideologically engineered. Individual differences and aptitudes are acknowledged but the matter turns upon a selection process that is inherent within a given society itself. As Rashbrooke expresses the sentiment: during the 1980s the incomes of the “richest 1% suddenly shot up while those of the poorest tenth declined. Yet there is no evidence that that richest New Zealanders had suddenly become varstly harder-working or that the poorest had suddenly become less meritorious” p 94.

Moreover, a person X moving from a lower salaried position to a higher salaried position does not alleviate inequality as a whole because the lower paid position is to be filled. For Rashbrooke, the problem of inequality is not so much accidental as endemic. There is an entire chapter11 on what he describes as a socio-economic hierarchy. As a concluding remark for this section Rashbrooke quotes (p. 168) former CEO of Fletcher Building, Hugh Fletcher, describing the salary of the current CEO, Ross Taylor, at 6.8 million dollars as “ridiculous”.

Rashbrooke’s Solutions Not unrelated to Andrews (2015, HUP), Rashbrooke offers five recommendations (p. 211-12) which may be expressed in in point form.

• a Kid KiwiSaver scheme that would act in a similar matter to public inheritance scheme • restrict or eliminate easy profits from non-producing assets such as real-estate that clearly favour those with access to credit or have sizeable economic portfolios and create a tax system that encourages enterprise (Scandinavian taxation systems presumably) • restore the incidence of company tax and alleviate PAYE including a means to pass on gains in productivity to employees (and less so to senior management • introduce ‘German style renting or, broadly, European style renting where the lease may be in force for decades • a wealth tax or capital gains tax on every capital item. For Rasbrook, Andrews, Pippos, Piketty and others the consequences of ignoring such recommendations is for inequality to increase, even globally, to the point of social unrest. The question turns upon the cheaper option.

Atkinson, A 2015 Inequality : What Can be Done? HUP Pippos, T. New Zealand can’t fix inequality by focusing on wages and income tax Stuff 15Aug19 Perry, B. 2019 Household incomes in New Zealand Ministry of Social Development Rawls, J. 1970 A Theory of Justice HUP

1 Piketty, T. 2014 Capital in the Twenty First Century HUP

2 Our World in Data for NZ GDP.

3 Stats NZ Household Economic Survey

4 a ‘google’ will provide all

5 Our World in Data. www.ourworldindata/country/new-zealand An increase of 0.5 is considered a large increase.

6 Rashbrooke, M. 2021 Too Much Money Bridget Williams Books

7 Listed with the references

8 Parliamentary Research Paper

9 For example : Danyl McLauchlan on Too Much Money, a book about what divides us | The Spinoff or Too Much Money: How Wealth Disparities Are Unbalancing Aotearoa New Zealand | Scoop News or Book of the Week: Kelburn Left, Remuera Right | Newsroom

10 Piketty (2014, p384, 393 & 439)

11 Cpt 17 “Sketching social structures”, p. 169

Kyle Hargraves is a Pukekohe local who has lived all over the world. He has studied extensively and has numerous degrees. His career spans many industries and he has enjoyed success as a top level executive. Kyle has always enjoyed writing and has followed the political scene with interest.

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elocal Digital Edition – June 2022 (#254)

elocal Digital Edition
June 2022 (#254)

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