Max Rashbrooke: Rich get richer. The poor? Have a guess

There does not appear to be a wave of well paid jobs on the horizon.Picture / Michael Craig
There does not appear to be a wave of well paid jobs on the horizon.Picture / Michael Craig

This year's Household Incomes Report is out, and with it the news that income gaps in New Zealand continue to fluctuate wildly, falling on the latest figures (gathered between 2011 and 2012) after rising sharply the previous year.

Income gaps in New Zealand increased extraordinarily quickly in the 1980s and 1990s, in what was the developed world's fastest rise; they then fell a little under Helen Clark, thanks mostly to Working for Families, but since the global financial crisis have been pretty flat.

The question is, what's underlying those recent trends, and what's going to happen in coming years?

The report shows that most low-income households have had small - a few hundred dollars a year - increases in their spending money (after taxes and housing costs are accounted for) since the GFC.

Against a backdrop of falling wages and high unemployment (especially in the 2011-12 period for these figures), these very small increases seem to be due to the Government's tax cuts, and the welfare state insulating some households from the worst of the recession.

Income trends elsewhere are variable. Middle-income households are not much better off than they were a few years ago. People in the upper reaches, those just below the top 10th, have had a decent - $2000 or so - increase in their discretionary cash. They get most of their money from salaries, and those higher salaries have grown despite the tough times. But the top 10th have seen an 8 per cent dip in income, owing to lower returns on their investments, which make up more of their income.

In all this, rising housing costs - which have outweighed many other gains - are crucial. They are partly responsible for the child poverty rate stagnating at around 270,000, one-quarter of all children, on the broadest measure (those living in families with less than 60 per cent of the average income, after housing costs). This rate had fallen sharply in the early 2000s, and is important because families under that line struggle to afford the necessities of life, according to both local focus groups and international evidence.

So what of the future? In Britain, by way of comparison, inequality is at its lowest since 1986 - but is forecast to pick up towards pre-recession highs, simply because the top has taken its pain, while the lower end is still to suffer the full effects of the post-GFC changes.

The story will be different here, but perhaps not that much. People's income from wages and salaries has fallen 2.6 per cent a year since the GFC, and is being propped up only by the welfare state. There is little sign of an increase in well-paying, full-time jobs.

Questions must also be asked about what is happening to the incomes of the large numbers of people who are currently being moved off benefits, potentially into even more severe poverty, or having their benefits cut.

Falling unemployment - if forecasts are right - might help, but not all that much if the jobs created are low-paid ones. And a more powerful influence on inequality, in all likelihood, will be the (expected) upturn in investment income for those at the top.

So it seems likely that inequality will rise in the next few years. If so, questions will be asked about how evenly the rewards of growth are being shared.

As a final point, it's also worth remembering that none of this changes the overall picture, which is that in the last 30 years, incomes for those at the top have doubled, while those at the bottom have stagnated. Someone in the lowest 10th of the country has, after housing costs, just $11,500 a year to spend. That figure (adjusted for inflation) in 1982? $11,000.

That's why inequality is now such a live issue.

Max Rashbrooke is the editor of Inequality: A New Zealand Crisis

Debate on this article is now closed.

- NZ Herald

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