Household incomes dropped and inequality rose to its highest level ever in New Zealand last year, a Ministry of Social Development report shows.

The Household Incomes Report measuring the wellbeing of New Zealanders by their total after-tax takings has revealed a fall in average incomes for the first time since the early 1990s.

It shows the gap between rich and poor widened substantially in 2011, putting inequality at its highest level ever.

Middle and lower class workers saw their incomes fall sharply, while the rich saw their earnings increase.


Incomes for the richest New Zealanders - named as decile 10 earners - rose the most sharply.

The median income for all workers fell three per cent in real terms after going up little from 2010 levels.

It is the first time the average household income has dropped since it hit a low point in the early 90s, the report said.

The widening gap between rich and poor was down to volatility caused by the Global Financial Crisis, it said.

Meanwhile, child poverty rates have remained flat from 2009 to 2011, with 230,000 children in beneficiary households and 25 per cent in houses with no full time worker.

Half of all poor children were Maori or Polynesian and half lived in single parent families.

Seven out of 10 children identified as poor lived in rental accommodation.

An average of 15 per cent of the population lived in poverty - identified as living on less than half of the median household income - at any given time.

The next Household Incomes Report measuring results for 2012 is due to be released in mid-2013.