Income gap between children and elderly widened faster in NZ - OECD report

Incomes of the elderly held up better than in younger age groups both across all countries on average, especially in New Zealand, says a new OECD report. Photo / iStock

The income gap between children and the elderly has widened faster in New Zealand than in other developed countries during the recent recession, a new report shows.

The OECD report, In It Together, says New Zealand's overall after-tax household incomes dropped by 0.5 per cent a year from the onset of the recession in 2007 to 2011 - exactly in line with the average of 33 OECD countries.

But the incomes of the elderly held up better than in younger age groups both across all countries on average, and especially in New Zealand, because their pensions were protected from the employment downturn affecting all younger age groups. Elderly New Zealanders' incomes rose by 3.7 per cent a year, compared with 2.2 per cent in Australia and an OECD average of 0.9 per cent.

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In contrast, the incomes of children and their parents dropped faster in New Zealand than the OECD average - down 1.3 per cent a year for children and 0.8 per cent for adults aged 26 to 65, compared with OECD average declines of 0.5 per cent for children and 0.6 per cent for working-aged adults. Incomes actually rose in Australia for both children (up 1.2 per cent) and adults (up 0.6 per cent).

As a result, New Zealand's relative poverty rate amongst the elderly dropped faster in New Zealand than in all other OECD countries except Estonia, despite a 1 per cent rise in this country's overall poverty rate.

"The protection of the elderly from the crisis can be considered a positive outcome of the social protection system," the report commented.

"On the other hand, the rise in child poverty is particularly worrying. Poverty in childhood can have a damaging and lasting effect on people's future outcomes, such as cognitive and behavioural development or health outcomes.

"In the long run, early childhood poverty is associated with reduced adult working hours (and so earnings) and higher poverty risks and welfare dependency in later life."

The report says rising inequality is harmful for economic growth, estimating that the increase in income inequality across the OECD between 1985 and 2005 knocked 4.7 percentage points off cumulative growth between 1990 and 2010.

It says the biggest drag on economic growth is the fact that the bottom 40 per cent of the population is falling further behind the top 60 per cent, and says the main cause of this widening gap is that the children of the bottom 40 per cent are falling further behind in education.

It recommends investing more in high-quality early childhood education, using the best teachers to teach low-income children in schools, improving minimum wages and other protections for workers in part-time and casual work, and developing more progressive tax and benefit systems including taxing inherited capital gains.

It also recommends better childcare support and paid paternity leave to reduce the gap between men's and women's earnings. However it says the gap between male and female median wages is lower in New Zealand (5.6 per cent in 2013) than in any other OECD country. In Australia the gap is 18 per cent and the average gap across the OECD is 15.5 per cent.

Read the full report here: