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Herald on Sunday editorial: Rich-poor gap is NZ's shame

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Photo / Janna Dixon
Photo / Janna Dixon

Weighty reports by major international organisations can make for eye-glazing reading. Packed with polysyllabic jargon and mathematical formulae, they can seem bloodless and pointy-headed.

But the landmark report released this week by the Organisation of Economic Co-operation and Development (OECD) is the statistical face of disadvantage and suffering: the numbers provide a macro view, but the story they tell is of hardscrabble lives, of families struggling to stand still or just to stop going backwards.

The report, Divided We Stand: Why Inequality Keeps Rising, quantifies with some precision what most of us know instinctively to be true: in the three decades leading up to the global economic downturn, the income inequality - the gap between rich and poor - widened in most OECD countries.

This occurred even when the countries were going through a period of sustained economic and employment growth.

It should be remembered that the 34 member countries of the OECD are the world's most affluent and politically progressive. Membership requires a commitment to democracy and a firm belief in the wisdom of the market - which is to say a distaste for government intervention in the economy. And in that company, New Zealand is not performing very well at all.

Three weeks before the election, a report by the United Nations Development Programme (UNDP), the global network headed by former PM Helen Clark, ranked New Zealand as the fifth-most-developed nation in the world in health, education and income.

That statement of average welfare may seem gratifying - and certainly the average New Zealander is better off than the average citizen of Angola or Guatemala - but that report, too, highlights a growing wealth gap.

With the "Rogernomics" revolution of the mid-1980s, this country became a pioneer (and a laboratory) of the market-driven economic policies that would be so enthusiastically adopted by other countries as the key to prosperity.

But in the years since, the gap between rich and poor has widened in 17 out of 22 developed countries. Here, the richest 10 per cent of people in the country earn, on average, 10 times as much as the poorest 10 per cent. That differential ranks us as the 23rd most unequal country on the list of 34 - the US and UK are more unequal.

But the most sobering finding is that we are getting worse faster than anyone else: the gap has widened further in New Zealand than in any other except Sweden, where it was only half the size to start with. In percentage terms it is stark: the average annual increase in our household income over the period has been 1.5 per cent; among the poorest group, it was 1.1; among the richest, 2.5.

Since the OECD report only covers the period up to 2008, it may seem a bit rich for outgoing Labour leader Phil Goff to try to duck responsibility for its implications: a Labour administration began the policies of financial deregulation that started the rot. But in fact the figures show that during the years of the Clark Government, the trend slowed, and there is ample testimony from non-governmental social service agencies that it has gathered pace in John Key's first term.

National has been able to claim, with some justice, that the worldwide recession has frustrated its attempts to improve economic equality but the truth is that, during the entire period under review, both parties have been singing from the same ideological song-sheet.

The promise has been that creating an environment favourable to business and the wealthy will fuel the recovery on which prosperity depends. Yet as the OECD's Angel Gurria says, the study dispels the assumption - so often and for so long recited as holy writ - that the benefits of economic growth will automatically trickle down to the disadvantaged, "There is," says Gurria, "nothing inevitable about high and growing inequalities."

National had to suspend its programme of lowering taxes for top earners when the global downturn hit. And, interestingly, the OECD does not endorse the simple solution of taxing the rich more by simply raising the top marginal rate.

It is more interested in improving compliance and eliminating tax breaks - in particular "reassessing the role of taxes on all forms of property and wealth, including the transfer of assets".

Labour laid down the gauntlet with its bold policy of rigorously enforcing the capital gains tax, which is poorly policed and easily avoided.

That's anathema to Tory ideologues, of course. But, having stitched together a stable minority Government, Key now needs to show us that he has what it takes to be a leader not just a beancounter.

In the space of a generation, New Zealand has become a country that many New Zealanders do not recognise or like much. If the OECD report tells us anything, it tells us that it is not enough to carry on doing what we have been doing and hope for a different outcome.

- Herald on Sunday

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