The OECD has a report out – Divided We Stand – about the widening gap between rich and poor across the western world.
Launching the report in Paris, OECD Secretary-General Angel Gurría said “The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”
New Zealand stands out: we have the greatest increase in inequality between 1985 and 2008 from a GINI index of 0.27 to 0.33. This despite inequality declining (slowly) between 2000 and 2008 under the Clark government (our GINI index peaked at 0.34 in 2000).
There are 3 main reasons for growing inequality according to the OECD, and the first two are certainly reflected here – benefits have been slashed, both in amount and in entitlement; and there have been massive tax cuts for the rich.
The third factor was massive increases in income for the most wealthy – there is now a 9:1 ratio between what the richest 10% and the poorest 10% earn across the OECD – 10:1 in New Zealand. In 1985 this was 6:1 in Aotearoa.
Quite how we’ve done under Key is unclear: obviously there have been more large tax cuts for the rich, but the wealthy have also had a significant decrease in income with the Great Recession, and benefits haven’t been slashed – yet.
At any rate there is significant work to be done to ensure a fair New Zealand where we all get a slice of the wealth.
“There is nothing inevitable about high and growing inequalities,” said Mr Gurría. “Our report clearly indicates that upskilling of the workforce is by far the most powerful instrument to counter rising income inequality. The investment in people must begin in early childhood and be followed through into formal education and work.”
The OECD underlines the need for governments to review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden. This can be achieved by raising marginal tax rates on the rich but also improving tax compliance, eliminating tax deductions, and reassessing the role of taxes in all forms of property and wealth, the report says.
A higher top tax-rate for the top 2%, increasing compliance and a Capital Gains Tax, along with heavier investment in Early Childhood Education would seem to be pretty much along OECD guidelines then. Fancy some used Labour policy Mr Key?
[Edit: Since I wrote this last night The Herald and Morning Report have gone big on this – I’ve been scooped!]
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