Polity: Inequality trends

Written By: - Date published: 9:16 pm, May 27th, 2014 - 7 comments
Categories: benefits, equality, tax, welfare - Tags: ,

polity_square_for_lynnThe original of this post was written by Rob Salmond at Polity. He has a series of posts in recent days that have been well worth reposting but alas they missed due to travel. Who gained from National’s tax switch? and May TV polls. He is on fire – perhaps the aussies spiked his drinks? But this one looking at the probable shifts in inequality in NZ in the future is pretty damn sobering to anyone who thinks that we need a more equal society.

As I mentioned yesterday, New Zealand’s Gini coefficient has been fairly status since the late 1990s. Why no movement? There has certainly been lots going on the New Zealand economy.

The answer to that backwards-looking question helps us understand what is coming in future years.

Fifth Labour government
Why did inequality stay the same during Labour’s period in office? Increased taxes on high-income earners should have brought inequality down, and much more money started going to low-income families via Working for Families, too. Why didn’t inequality fall? The answer is because the economy was buoyant through Labour’s time in office, and high-income earners’ investment returns soared to offset the tax increases.

Current National government
In National’s time, we might have thought inequality should fall as well. The GFC brought the rich’s investment returns down to earth with a thud, and the Christchurch earthquakes would have dented some of those returns still further1 Why didn’t inequality drop ithe face of those circumstances?

The answer there likely lies in the tax system. National’s tax “switch” in 2010 provided higher returns to the rich, no matter how you look at it, and those disproportate returns halped make up for the rich’s investment losses.

Beyond 2014
Projecting forward, we now have this uncomfortable combination of one of the most pro-rich tax systems in the developed world, along with rebounding investment returns.

That is a recipe for increasing inequality over the next few years, which is what Treasury’s forecasts are obliquely predicting through their forecasts that per person GDP growth will be much higher than wage growth. Unless, that is, New Zealanders vote to change it.

1. Some jobs, of course, disappeared at the low end as well, but the dollar impact (though not the welfare impact) for a rich person would have been much bigger.

7 comments on “Polity: Inequality trends ”

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  1. Draco T Bastard 1
    27 May 2014 at 9:21 pm

    Thomas Piketty’s real challenge was to the FT’s Rolex types

    Piketty asks the question that mainstream economics doesn’t want to answer: do we want a society based on work and ingenuity or on rent?

    We have moved to being a rentier economy since the 4th Labour government put in place an economic paradigm that simply rewards the rich for being rich while penalising those who actually work.

    I haven’t read this yet but some would be interested in it.

  2. Gosman 2
    28 May 2014 at 11:30 am

    Inequality rose when Nation first got in to power before settling back down. This is at odds with you view that the GFC reduced inequality and the Tax cuts worsened it.

    http://www.stats.govt.nz/browse_for_stats/snapshots-of-nz/nz-social-indicators/Home/Standard%20of%20living/income-inequality.aspx

    • KJT 2.1
      28 May 2014 at 2:56 pm

      Dropped with WFF and rose with National’s stupid tax cuts and increase in GST.

      Thanks for confirming it.

    • Frank Macskasy 2.2
      29 May 2014 at 12:50 am

      Geez, Gosman. You’ve stopped spouting your mis-leading BS on THE DAILY BLOGand started here?!

      Ok, by the numbers…

      Inequality is not “settling back down:.

      The (revised) Perry report, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012 Revised Tables and Figures 27 February 2014 firmly shows that After Housing Costs inequality has increased, as I pointed out to TV3’s Torben Akel (http://thedailyblog.co.nz/2014/05/25/review-tv3s-the-nation-let-them-eat-ice-cream/).

      Specifically, income inequality for After Housing Costs increased from 34.9 (1992) to 37.7 (2012)

      However the actual graph (from Perry’s report) shows a better picture here

      Indeed, if one looks at the chart from 1982 to 2012, the increase in inequality is startling.

      That, plus falling home ownership rates;

      In 2013, 64.8 percent of households owned their home or held it in a family trust, down from 66.9 percent in 2006.
      The percentage of households who owned their home dropped to 49.9 percent in 2013 from 54.5 percent in 2006.
      Of those households who owned their home, 56.4 percent had a mortgage, and 43.6 percent did not have a mortgage.
      There were 215,283 households (14.8 percent) that reported holding their home in a family trust.
      Over a third of households (35.2 percent) did not own their home. This was an increase from 33.1 percent in 2006. Most households who did not own their home were renting (453,135 households).The rest of this category was made up of households who were not paying rent, and a small number of households who did not indicate whether they were paying rent.

      Source: Stats NZ, 2013 Census QuickStats about national highlights

      So please. Keep your misinformation (aka “Gosman facts”) to yourself. If we want fantasy, we’ll check out Disneyland.

  4. Poission 4
    28 May 2014 at 2:46 pm

    Carney he Governor of the Bank o England has a speech on the ubiquitous nature of inequality today,that identifies inequality as a real fact of life.

    This gathering and similar ones in recent years have been prompted by a sense that this basic social contract is breaking down. That unease is backed up by hard data. At a global level, there has been convergence of opportunities and outcomes, but this is only because the gap between advanced and emerging economies has narrowed. Within societies, virtually without exception, inequality of outcomes both within and across generations has demonstrably increased.

    http://www.bankofengland.co.uk//publications/Pages/speeches/2014/731.aspx

  5. swordfish 5
    3 June 2014 at 4:08 am

    Just doing some testing…

    And in the Euro Elections these