This election year there will be claim and counter-claim from National and Labour about whether the recovering economy is a rising tide that will lift all boats, or whether wealthier New Zealanders will benefit most as poor and middle-income earners continue to struggle.

In their respective state of the nation speeches, Prime Minister John Key said income inequality in this country was declining while Labour leader David Cunliffe yesterday said there was an increasing gap between the haves and have-nots as the wealthiest continued to do well, those in the middle struggled to stay there and those at the bottom went backwards.

Analysis from the Ministry of Social Development, which Mr Key's comment was based on, does little to support either claim. What it does show is that during the late 1980s and early 1990s, income inequality increased quickly. But between 2004 and 2007 it decreased, although not to pre-1987 levels. The ministry's analysis puts that decline from the mid-90s down to Labour's Working for Families policy.

But since 2010 measures of income inequality have gone up and down in the aftermath of the global financial crisis and Canterbury earthquakes. The ministry concludes it is too early to say whether the trend is higher or lower.


Mr Key's office said the Prime Minister was referring to the decline in income inequality since 2005 and wasn't suggesting that was all up to the current National Government, but was pointing out the longer-term trend to correct the misunderstanding that inequality has been increasing.

With no clear trend, the ministry analysis doesn't support Labour's view that inequality is increasing but Labour argues that work doesn't tell the full story. It argues the data it is based on doesn't include much of the income more well-off New Zealanders get from realising assets. It is exactly that income Labour would target with its capital gains tax.

What the ministry's analysis does point out is that wealth is distributed more unequally than income. It cites 2004 data showing that while the top 10 per cent of income earners earned 25 per cent of the total income, the wealthiest 10 per cent of New Zealanders had 50 per cent of all wealth in this country although that wasn't particularly unusual by international standards, the ministry noted.