International Socialists

The growing gap between the rich and the working class in New Zealand

Brian Roper

Inequality in the distribution of income and wealth has increased more rapidly in New Zealand than any other advanced capitalist society since the early 1980s. Currently, New Zealand has the second most unequal distribution of market income in the OECD, second only to the United States, which has the most unequal distribution of income and wealth of any advanced capitalist country. You do not need to be a rocket scientist, or even a dumb economist, to work out why this has happened. It is because from 1984 onwards, successive Labour and National Governments have implemented policies that have benefited the richest ten percent of New Zealanders, while making the rest of us worse off.

Inequality during the post-war Long Boom, 1945-1973
Income and wealth have been always been unequally distributed in post-colonial New Zealand society, despite the assumption that it was an egalitarian society free of class divisions, although the extent to which this is true has varied. The post-war period of 1945 onwards can be divided into two distinct periods. The first period from 1945 to 1974 was characterised by a small but significant decline in income inequality over time. The second period from 1975 to the present has been characterised by a sharp rise of inequality in terms of the distribution of income and wealth.

Economist Brian Easton points out that while between 1951 and 1976 income became slightly more equally distributed, by 1976 income was still clearly distributed in a highly unequal manner. In 1951 the richest 10 percent of the adult population earned 38.5 percent of total market income while the bottom 50 percent of the population earned only 4 percent of total income. The situation was only slightly better in 1976 when the richest 10 percent of the population earned 34.6 percent of total income while the poorest 50 percent of the population earned only earned only 7.7 percent of the total income.

There is now abundant evidence that the distribution of both market income, that is income such as wages, salaries, rents and profits, and disposable income, that is total after-tax income including benefits and other state transfer payments, became increasingly unequally distributed following the collapse of the long boom in 1974. The growth of inequality became particularly dramatic as successive Labour and National governments implemented the policy agenda of the New Right from 1984 onwards.

Impact of Labour last time on inequality, 1984 to 1990
In 1991 three New Zealand economists observed that "market income - income prior to any government redistribution - became less equally distributed among households during the 1980s." A 1995 investigation by the Rowntree Foundation found that income inequality in New Zealand had increased at a faster rate than any other OECD country during the 1980s.

According to the Income Distribution Group, "for individual employees in general, real incomes fell during the 1980s. Only for the top fifth of full-time employees did the purchasing power of their after-tax income increase over the decade". The richest 20 percent of the population earned a bigger share of the total income each year: 54.4 percent of market income in 1981/82, 54.6 percent in 1985/86 and 55.8 percent in 1987/88. The poorest 60 percent of the population earned a smaller share each year, just 16.7 percent of the total income in 1981/82, 17.5 percent in 1985/86, and 15.9 percent in 1987/88. In other words, inequality increased under the Fourth Labour Government - the rich got richer and the poor got poorer.

National rules for the rich: Impact on inequality, 1990-99 
The National Government's social and taxation policies of the 1990s, which can be accurately summed up as "tax cuts for the rich, benefit cuts and user pays for the poor," further increased inequality during the 1990s.

In 1991 the richest 10 percent of the population earned 38 percent of total market income while the bottom 50 percent earned only 5 percent of total income. 59 percent of the total market income was earned by the richest 20 percent, while the remaining 80 percent of the population earned just 41 percent of total income.

In a comprehensive survey of the existing studies of income distribution in New Zealand commissioned by the Treasury, an economist observed that "the average incomes of those in the top tenth of households have risen significantly in real terms between 1982 and 1996. Average real incomes of those in lower and middle-income groups fell." New Zealand's capitalist free market economy has a remarkable propensity to distribute income in a highly unequal manner across the population as a whole.

It is important to recognise that these figures understate the actual income of the poorest part of the population because, being non-wage earners, individuals who receive no market income generally receive some kind of income support from the state (for example, welfare benefits and superannuation). Hence disposable household income is more equally distributed than market income. Nonetheless, while disposable income is more equally distributed than market income, it is still distributed unequally and, in fact, the unequal distribution of disposable income increased significantly from 1988 onwards.

Between 1988 and 1998, the real disposable income of the richest 20 percent increased by 26.5 percent, while the remaining 80 percent experienced a decline of -2.8 percent. By 1994, The Economist ranked New Zealand as the third most unequal country in the OECD, and by 1996 New Zealand had surpassed Australia to become the second most unequal country.

The unequal wealth of this nation
Personal wealth is even more unequally distributed than income. Data on wealth is less clear, particularly because the wealthy tend to disguise the full extent of their wealth and income for taxation purposes. Brian Easton's data shows that "in 1966 about 20,000 people owned about one-fifth of the total wealth; and 100,000 owned half of it. Allowing for the smaller population, the situation in 1956 is not dissimilar. Thus there is a substantial concentration of wealth in few hands."

In 2001, the top 20 percent of the population held 81 percent of total net worth for all age groups, and 66.33 percent of the net worth of the wealth held by those 25 years of age or older. Of the $366.978 billion of positive net worth, the richest 10 percent holds $194.546 billion or 53.01 percent.

Anecdotal evidence, such as that provided by the National Business Review's annually composed "Rich List," suggests that these figures may underestimate both the real concentration of wealth in few hands, and the extent to which inequality in the distribution of wealth increased during the 1980s and 1990s, because so much wealth is actually owned by a very small number of "super-rich" individuals and families that may not be covered by the survey.

For example, the total wealth of the ten richest families reported in the 1987 Rich List (before the October sharemarket crash) was $1.531 billion, in 1995 $1.655 billion, and in 2003 $3.950 billion. The total wealth of the ten richest individuals was $3.036 billion in 1987, $1.850 billion in 1995, and $5.115 billion 2003. In 2003, the wealth of the richest family - the Todd family - was conservatively valued at $2 billion and the richest individual - Graeme Hart - was estimated to be at least $1.2 billion.

In short, since 1974, the real incomes of the poorest 60 percent of the population have fallen, while the incomes and wealth of the richest 10 percent have increased considerably.

Further reading:

• Brian Easton, In Stormy Seas: The Post-War Economy, University of Otago Press, Dunedin, 1997.
  

• Statistics New Zealand, Incomes (www.stats.govt.nz)