The truth about inequality in New Zealand

Tuesday, 17 January 2017

Income inequality has remained stubbornly high in New Zealand.

Two Kiwi billionaires have a combined wealth greater than the bottom 30 per cent of the adult population of New Zealand, according to a report on inequality released by Oxfam.

While that kind of statistic grabs headlines, it doesn't tell us much about the standard measures of inequality in New Zealand. So we decided to take a closer look at the numbers, here's what we found.

THE HOUSEHOLD WEALTH GAP

The distribution of wealth among households in New Zealand is skewed heavily in favour of those at the top of the income spectrum.

The wealthiest 20 per cent of households in New Zealand hold 70 per cent of the wealth, while the top 10 per cent hold half the wealth.

At the other end of the household wealth spectrum, the bottom 40 per cent of households account for just 3 per cent of total wealth.

HOW WE COMPARE

Wealth concentration of 53 per cent of wealth in the hands of 10 per cent of households, is greater than the OECD average, but not bad as the United States, where 10 per cent of households hold 76 per cent of the wealth.

IT WASN'T ALWAYS LIKE THIS

Whichever way it's measured - and there are multiple measures - inequality increased markedly in New Zealand in the late-1980s and 1990s.

The chart above shows household income inequality as a ratio of a household in the 90th percentile with one in the 10th (P90:P10) and the same for an 80th percentile household with one in the 20th percentile.

The one below shows the Gini coefficient, a measure which takes into account the income of every household.

Each shows a steady increase in income inequality beginning in the 1980s and continuing into the early-2000s.

Income inequality appears to have fallen slightly in the middle of the 2000s.

It is increasing again in recent years according to the Gini measure and is fairly flat according to the P80:P20 and P90:P10 measures.

HOUSING COSTS MAKE INEQUALITY WORSE

However, none of the above takes into account the impact of housing costs. For each of these three measures the level of income inequality becomes worse when housing costs are accounted for.

This makes sense given that poorer households would expect to pay a higher proportion of their income in housing.

The P90:P10 and P80:P20 measures both show a slight increase in household income inequality in recent years, when housing costs are taken into account.