Why families earning $100,000 still struggle

Friday, 8 February 2019

The living wage has a serious flaw. (Video first published in September 2018 - the living wage increased to $21.15 on September 1, 2019)

OPINION: Some Kiwi households are still struggling, even if they earn $100,000.

Is that good enough and if not, what can be done?

An MP from each side of the house shares their opinion.

**Dr Deborah Russell

Labour MP for New Lynn**

A six figure salary sounds like a huge amount. So it's easy to think that someone earning that much but finding it tough must be doing something wrong.

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But it depends on all sorts of factors. For starters, we need to take tax into account. If that $100,000 is earned by just one person, then after tax and ACC and KiwiSaver contributions, they'll have just over $71,500 left in their back pocket each year. If the $100,000 is earned by a couple, and split evenly between them, then they will end up with about $79,500 between them.

Surely that's enough to live on? But think about all the other complications. The couple might need to pay for childcare and the single income might still be paying off a student loan.

Then think about housing costs. Whether people are paying rents or mortgages, it still takes a huge chunk out of their after tax income. And over the last decade, the cost of housing has risen astronomically.

So it's unsurprising that even people on what seems to be a high income can find it hard to make ends meet. Yes, some of the time it might be because they're making bad decisions about spending, but at least some of the time, it's because things are genuinely tough. And they're tough for two major reasons. One is that housing costs too much. And the other is that wages are too low.

The Coalition government has a number of strategies to reduce housing costs, including building more social housing, getting KiwiBuild up and running, and ensuring that only people who are resident here can purchase houses.

Plus we're working on increasing wages: the minimum wage is going up, and within central government, all employees earn at least the living wage. And we increased Working for Families and started up the Winter Energy payment. All of these initiatives help to get more money into people's back pockets.

Some people suggest that tax cuts are the answer. Yes, it could be good to restructure our tax system, but bear in mind that every time taxes are cut, services need to be cut too. Most people are asking for more spending on health and education and other basics, not less.

Let's get the basics right – incomes, housing, health, education and so on – and then we can worry about whether we should be pointing the finger of blame.

**Stuart Smith

National MP for Kaikoura**

New Zealanders who are struggling to live on an income of $100,000 mostly live in our major cities, particularly Auckland.

I would have thought that this is just another reason to move to the provinces, where living costs are on the whole lower.

But there are other reasons behind this struggle, and it should not be the sole reason for city-dwellers to uproot their lives and move away.

Even in a city, $100,000 should still be enough for a New Zealand family to live on, relatively comfortably.

One of the most obvious reasons some are struggling is that rent and housing costs as a proportion of income have reached such high levels.This is due to three factors: The increase in the value of land outstripping inflation, due in large part to planning laws that are restricting supply; the increases in building material costs, which is because of a lack of competition in the building supplies market; and the complex and difficult Resource Management Act (RMA), which is urgently due for an overhaul.

The latter is one that National intends to address this year by bringing out a new bill to reform the RMA.

Another factor eating into Kiwis' incomes is what's known as bracket creep, where inflation pushes their income into higher tax brackets.

The National Party has already pledged to change this by introducing legislation that automatically increases tax thresholds every three years in line with inflation. This small change will do a lot to help New Zealanders keep more income in their pockets, while the impact on the overall tax take is not significant enough to reduce spending on crucial services for Kiwis' wellbeing.

This Government has spent a lot of time and money on programmes intended to promote wellbeing. But to achieve wellbeing, we must have an adequate income to support it. That means an economy that supports innovation, and encourages investment in enterprises that will provide more well-paid jobs.

It would be easy if we could vote ourselves rich. However, we only need to look at Venezuela's extreme food shortage, political unrest and resulting mass exodus of people to neighbouring countries to see all the reasons why socialism doesn't work.

Wellbeing means that living comfortably off $100,000, whether it be in Auckland or Invercargill, is something all Kiwi families should be able to expect.

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