Money is a five-letter word that's sometimes been viewed as a four-letter word in New Zealand.
We like to think of ourselves as egalitarian, where anyone can get ahead, but the economic divide in New Zealand is getting wider.
Max Rashbrooke is with The Institute for Governance and Policy Studies at Victoria University.
He explains the profound implications the M-word has for us all in his book Too Much Money: How Wealth Disparities Are Unbalancing Aotearoa New Zealand.
Max Rashbrooke Photo: Supplied
The top 1 percent of New Zealand now owns 25 percent of the country, he told Jesse Mulligan.
“We've become a very unequal society in the last 30 or 40 years, which won't be news to some people - the wealthiest 1 percent of New Zealanders, that's about 40,000 people, own a quarter of the entire country.”
Our inequalities of income and wealth are basically indistinguishable from those of Great Britain, he says.
“Which, of course, is the country that everyone holds up as being terribly class-ridden and terribly unequal, in which, some people's ancestors, including my own, came to New Zealand to escape.
“So, the country we like to compare ourselves to and think we're better than we are actually now, in the same situation as.”
The system is loaded to favour wealth holders, he says.
“The share market is a great one in New Zealand, 70 percent of all the shares in this country are owned by that wealthiest 1 percent.
“So, if that's doing well, it's mostly telling you that the 1 percent are doing well. And you know, and what we're seeing often in the last 30 to 40 years in this country is growth in things like that being relatively strong, but the share that goes to the average wage earner is massively lagging behind.”
Since the early 1990s, he says, if the average wage had kept pace with productivity, it would be about $6 an hour higher than it is now.
“Because we've got all this growth, but it's disproportionately going to people who own companies rather than the people who work in them.”
It’s almost a return to the age of Jane Austen, he says.
“One of the things that that books like Pride and Prejudice really tell you about is the power of accumulated wealth. So, Austen fans will know that there's points where Mrs Bennett is saying sort of ecstatically that Mr Darcy has 10,000 pounds a year, my dear.
“That income of 10,000 pounds a year that Mr Darcy gets, is basically it's a 5 percent return on a fortune of about 200,000 pounds, which in today's money would easily put Mr Darcy in the top 1 percent probably the top 0.1 percent.”
French economist Thomas Piketty argues that we're reverting to that world, he says
“There's huge amounts of accumulated and inherited wealth, and it gets these returns that grows at 4 to 5 percent a year.
“Meanwhile, the rest of us, we're working for a living and our incomes and our ability to save might increase by 1 to 2 percent a year.”
He lists ten reasons for the increase in inequality … one is a flaw in market economics.
“The rewards that markets hand out, the salaries and wages that people get are often unfair, they're often divorced from what they actually should be.
"And one great example is bringing up children. I mean, that's an incredibly valuable occupation, one of the most valuable that there is, but there's no way to reward that in the market.”
If you work for wealthy people you will also earn more, he says.
“That's part of the reason why people in financial services earn so much money, but it's not because they're providing a particularly useful service.
“It's not a service that's more useful than aged care. But the people for whom they are doing the work are extremely wealthy, and so can afford to pay really high fees for it. And so that's another way in which market rewards are unfair.”
Society has tilted over to disproportionately favour the wealthy, he says.
“We know from Inland Revenue research when you look at the very wealthy, people who have fortunes of over $50 million, a lot of them, nearly half of them, are paying less of their income in tax than someone on the minimum wage, you know, they're paying a lower than 10 percent tax rate on their income.
“Those are kind of the issues that I'm really concerned about that there are people at the upper end, who just not fulfilling their tax obligations, they don't feel bound by the same rules that you and I do.”
And at the other end people through no fault of their own are struggling, he says.
He believes a Kiwisaver for children could help address the disadvantages many children face at birth.
“We could all chip in a bit more, pay a bit more tax, in order to fund something like a kid's KiwiSaver scheme, you know, so that every child is enrolled in KiwiSaver at birth.
The government provides incentives and support for poor families to save on their children's behalf. So that everyone, you know, hits 18 with some kind of wealth state behind them.”
This would level things up as young adults start out in life, he says.
“What I'm talking about is not sort of tear it all out massive hair shirt kind of thing. It's just about how do we ensure that the very wealthiest people are fulfilling their obligations? And how do we do more to support those people who've been unlucky in their start in life?”
He rejects the rising tide argument that if everybody gets richer, so do the poorest.
“The bulk of economic research now, I think, would say that that’s a false opposition because actually, it's the most egalitarian economies that grow the most quickly.
“And its’ no surprise, many of the Scandinavian societies have very, very strong economies that have generally outperformed those of much more unequal countries.
“There's lots of reasons for that, but a really simple one is in a more egalitarian country, you've got a greater contribution from the wealthiest members that supports things like an education system, more funding for low decile schools.
“And so then you have more poor children who are reaching their potential, they better supported, they go on to become the entrepreneurs in a highly educated workforce of the future.
“Tackling poverty and inequality is actually good for the economy.”
