International Socialists

(surprise, surprise)

Alf King

Those of use who have been witness to events in New Zealand since 1984 have always argued that the reforms were designed to benefit the wealthy. So it has been little surprise to see, in recent years, a number of reports confirming this.

The latest of these reports, titled Distributions and Disparity: New Zealand Household Incomes, was released by the Ministry of Social Policy late in 2001. The report clearly identified what many people already knew - that under the reform process initiated by Labour in 1984 and continued under National from 1990 onwards, those already wealthy became more so and those at the other end of the scale became worse off.

The report received little mention in the media when it was released. The disturbing lack of coverage of the results presented in the "Household Incomes" report suggests a lack of interest by the media in examining the outcomes of 16 years of government policy.

Report
In the report the Ministry of Social Policy report uses data from Statistics New Zealand's Household Economic Survey to track real (adjusted for the effects of inflation) income for a range of different types of households over the period 1982 to 1998. This timeframe captures the economic restructuring unleashed by the Labour Government between 1984 and 1990 and its continuation by National after its election in 1990.

The overview of the report includes a reminder of the many events that assisted in the transfer of wealth to the already wealthy. These events included the significant reductions in the tax rate for high earners from 66% to 48% in 1986 and then to 33% in 1998, the introduction of GST in 1986 and large rise in the unemployment which occurred in the late 1980s and early 1990s. For those who have forgotten it also details the cuts made to benefits in 1991, when reductions for single beneficiaries were between 10% and 25% and for couples with children between 3% and 11%.

The report notes that "In 1998 dollars, median household incomes (an income level such that half of all households have incomes below it and half above) showed a drop to 1993, then rose from then to 1998, but only about halfway back to the 1988 level." The table below contains the actual numbers.

Median incomes in 1998 Dollars, selected years

When analysed at a higher level of detail the results show how the impact differed widely for different income groups. For the highest decile (the highest earning 10%) after tax income rose by approximately 6% between 1982 and 1998, from $66,553 to $70,549. For the lowest 10% after tax income declined by 15.7% over the same period, from $13,974 to $11,778.

Household incomes
When household incomes are equivalised (this is were household income is adjusted to take account of different household sizes) the picture becomes even more extreme. For those people in the lowest decile (10%) mean equivalent disposable income was $11,522 in 1982, falling to $9,557 in 1998. This was a drop of around 17%. For the top decile (the highest earning 10%) mean equivalent disposable income was $67,057 in 1982, rising to $91,291 in 1998, an increase of 36%. The graph above indicates the changes.

The economic policies of the period were justified partially on the grounds of a "trickle-down" theory. That is, if the wealthy were given tax breaks and increased income they would invest and create jobs which would provide employment for those on lower incomes. However, what happened instead was a flood of money upwards - exactly the reverse.

The full report is downloadable for the Ministry of Social Development's website.