18 Sep 2014

Opinions mixed on income inequality

9:52 am on 18 September 2014

A Wellington accountant has sparked criticism after saying there is no evidence of growing income inequality in New Zealand over the past 20 years.

A new debate over income inequality is taking place ahead of Saturday's election.

A new debate over income inequality is taking place ahead of Saturday's election. Photo: PHOTO NZ

Peter Sherwin, a partner at Grant Thornton New Zealand, told Morning Report he decided to research income inequality as a result of political parties' statements in the lead up to the election.

Using figures from the OECD, the Ministry of Social Development (MSD) and Statistics New Zealand, Mr Sherwin said he found no growing divide between the country's poorest and richest since the mid-1990s.

"It's interesting to actually understand that and compare that to what is actually being reported," he said.

However, Max Rashbrooke, the editor of Inequality: A New Zealand Crisis, said Mr Sherwin's statements were "very partial" and misleading.

"He started from the mid-1990s and said 'well look there hasn't been any great increase since then so what's everybody worried about'. He's missed a whole decade of data."

Source: Household Incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013 (July 2014)

Source: Household Incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013 (July 2014) Photo: MSD

According to MSD's Household Incomes Report, which looks at data from 1982 to 2013, there was a large increase in household income inequality in the late-1980s to mid-1990s, but there has not been substantial change since then.

The report used what is considered the most comprehensive measurement, the Gini, which takes into account the income of all individuals.

Source: Household Incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013 (July 2014)

Source: Household Incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013 (July 2014) Photo: MSD

When looking at data used by Mr Sherwin - comparing the top and lowest 10 percent - the MSD report shows, the richest had six times more income than the poorest in 1984. That went up to 8.2 times in 1994, 9.1 in 2004, 8.6 in 2009 and 8.3 in 2013.

Mr Rashbrooke said income inequality had only plateaued following the early-2000s because of Government intervention including Working for Families.

Despite little movement in the income gap, the MSD report found the poorest households are struggling more than in the past.

In 2013, about 27 percent of households had housing costs of more than 30 percent of their disposable income. For the bottom 10 per cent, it was 42 per cent, and the MSD report said there is evidence the "housing stress" has been rising over recent years.

Mr Rashbrooke said capital gains and the wealth gap also needed to be addressed when discussing inequality.

The richest 10 percent accounted for around 50 percent of the total wealth - the average for the OECD - while the top 10 percent of earners accounted for 25 per cent of the total income, according to the MSD report.

"Over the last decade, the housing market has really taken off," Mr Rashbrooke said. "People in the top 10 per cent with most wealth would have made really large capital gains."

He made reference to Thomas Piketty's Capital, released earlier this year, which argues the return on capital outstrips the rate of growth and warns that the level of inequality will be unsustainable.

"The build-up in wealth will be creating a situation of compounding inequality in the decades to come and that's another thing to be really concerned about," Mr Rashbrooke said.

Child poverty

Mr Sherwin also commented on the number of children living in poverty, saying those dependent on an adult receiving a benefit fell from 280,000 children in 1998 to 200,000 in 2012. "It's coming down, but not nearly fast enough."

But MSD figures show New Zealand now has two out of five poor children in families with at least one adult in full-time work or self-employed.

And according to the 2013 Child Poverty Monitor, a project between the Children's Commissioner, the JR McKenzie Trust and Otago University, poverty among children has nearly doubled from 14 percent in 1982 to 27 percent in 2013.

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