Prospect: Jacinda Ardern, the God of small steps

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New Zealand’s geology and culture are often at odds. Famously prone to earthquakes, the South Pacific nation has, nonetheless, a low-wattage, “she’ll be right” attitude to life that does not lend itself to political landslides, at least not since it adopted proportional representation three decades ago.

But it just got an electoral earthquake. Despite the wear and tear of holding power for three years, Jacinda Ardern has led her Labour Party to an astounding 49 per cent vote tally and an outright majority, consigning the opposition National Party to a mere quarter of the vote. It was a rout, a “blue bloodbath,” and a swing to an incumbent party for which there are few if any modern parallels.

Yet it is hardly the decisive left-wing victory that it might appear to the outside world. If the New Zealand Labour Party is on a journey, it is one in which some important paths have been firmly blocked off, their vistas disappearing from view, even as other ones open.

There is no argument that Ardern has, in some respects, profoundly changed the political landscape. Her compassionate response to last year’s terrorist attack on Christchurch Muslims, combined with her impressively competent handling of Covid-19, have shown that kindness is not a political weakness but in fact a virtue, a form of strength.

I summed up her emerging “ethos of kindness” in a profile for Prospect last year, and it is an approach which has now been thoroughly vindicated in narrow electoral terms, gaining her unparalleled trust among centre-right voters. It has also completely changed the tenor of New Zealand politics, at least for the present. She dominates the political scene, and can now carry the country with her on issues that might otherwise have seemed out of reach.

Free school lunches, currently being piloted in a handful of schools, will be rolled out to hundreds of thousands of children. So-called fair pay agreements will allow workers who win good terms with one employer to get those conditions spread right across their industry. New Zealand’s equivalent of council house building will be ramped up, minimum wages lifted, dirty rivers cleaned up.

Economical with radicalism

Few of these policies are especially innovative, though; many are already standard in countries like the UK. And it seems unlikely that Ardern will surpass them in the next three years, for the simple reason that she never campaigned on doing so. Labour’s 2020 manifesto was notable principally for its lack of ambition. Its biggest initiative to address child poverty, one of Ardern’s signature issues, was a pledge to increase the amount that beneficiaries can earn before their benefits are clawed back. Its headline climate change policy was—wait for it—to make the public bus fleet zero-emissions by 2035.

And it is on economic issues, long the left’s weak point, that Ardern’s limitations are most evident. Labour’s only tax change this term will be to raise the top income tax rate from 33 per cent to 39 per cent, a move that will at best raise hundreds of millions of dollars, not the billions required to address climate change and child poverty. On the campaign trail, even a desperately enfeebled National Party was able to goad Ardern into ruling out a wealth tax, a key policy plank for her former coalition partner, the left-wing Green Party. Ardern dismissed it not just for the next three years but for her political lifetime. And she has previously done the same thing for a capital gains tax, a policy that is part of the furniture in many developed countries.

Meanwhile, the public discussion about New Zealand’s modest levels of Covid-induced public debt, forecast to peak at around at 50 per cent of GDP, which—for comparison—is around half of the ratio the US and the UK are now looking at, is nonetheless dominated by the supposed need to slash borrowing.

Ardern has, in short, been unable—or unwilling—to change the conversation about tax, spending, the size of the state, and government’s role in the economy. When it comes to tax in particular, the impression is of a party left trying to govern in a constantly shrinking space.

Centre forward

These are the paths that are being closed off; at the same time, others have opened up. While Ardern has given way on economic issues, she has cleared space on many social ones. New Zealand’s antiquated abortion laws have finally been modernised, a change that the election entrenches.

She has also won—and won big, without having to give ground on the standard conservative issues—crime, “security,” immigration, welfare spending and the like—and in that sense, at least, offers a real-break with Third Way triangulators in the mode of Tony Blair and Bill Clinton. And now freed from having to work with the conservative New Zealand First party, her other more populist former coalition partner, Ardern may in fact take steps towards a gentler, more restorative approach to criminal justice issues. Tougher hate speech laws may also follow to protect minority groups.

In a wider sense, though, Ardern remains fundamentally cautious—progress will have to be forged through consensus rather than struggle, and will only be delivered in increments. Disdaining even the term “progressive,” she will govern from the centre, aiming to hold onto as many of those newly won centre-right voters as possible and hoping that, by gradually acclimatising them to change, she might win a mandate for slightly firmer steps in 2023. A plan that will only work if nothing trips her up between this rare moment of opportunity, and then.

Some landslides, in short, remake the landscape only gradually, if at all.

RNZ: Jacinda Ardern has huge majority but that may not be much use to her

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"I want us to simply be the country we already believe we are." That's how Jacinda Ardern described her ambition for New Zealand in 2018, and it won't have changed in the light of last night's extraordinary election victory. The ambition is especially pertinent when it comes to inequality and child poverty, which stand in stark contrast to the lingering belief in New Zealand as an egalitarian nation.

As Labour commands an absolute majority for the first time in the MMP era, the party could in theory go all out to bring the facts back in line with the belief, slashing poverty rates and restoring a sense of fairness to the nation. But in practice they cannot, because they have already tied their own hands.

While it is still possible that Labour will make some kind of arrangement with the Greens to bring them into the government tent, such a move would at best extend only to the less controversial Green policies in areas such as conservation.

Nonetheless Labour will undoubtedly take some steps to reduce poverty and inequality. They will significantly increase the amount of money beneficiaries can earn before having their benefit clawed back, reducing the welfare system's notorious poverty traps.

They will increase paid sick leave to 10 days, pay the Living Wage to government contractors, and create fair pay agreements that allow workers who win good terms and conditions at one employer to spread them right across their industry. They will make trades training free, build 8000 state homes, and continue the roll-out of free school meals until they are so embedded as to be very hard for a future National-led government to abolish.

None of this, however, will make a major dent in the poverty rates that see around one in five New Zealanders lacking the income they need for a life of minimal dignity and participation in society.

This is especially true in the light of Covid-19. Pre-coronavirus, Ardern had made modest inroads into child poverty, according to early statistics and Treasury modelling. But tens of thousands of people are losing their jobs and the economy is heading back into recession.

Absent further government action, this will push many more families into poverty. If Ardern is to stay on track to meet her child poverty reduction targets, which involve more than halving it over a decade, she will need some real financial firepower.

Other ambitions, such as making New Zealand's rivers swimmable again, can be met through regulation - that is, without major cost (to government, at any rate). But not so inequality, which is quite literally a question of cash. And cash is precisely what Ardern has denied herself.

Either a wealth tax or a capital gains tax could have raised billions of dollars from the wealthiest New Zealanders in order to support a better life for the less fortunate. But Ardern has ruled both of them out, not just now but for her political lifetime.

The prime minister may have had a moment's pause on election night, reflecting that she had forever ruled out a wealth tax - or indeed any new tax this term except one new top income bracket - in order to hang onto a final 2-3 percent of swing voters that, as it turns out, she didn't even need (given the wasted vote, even 47 percent would have been enough for an outright majority).

But that's already in the past. Ardern now has to work out how on earth she will reduce inequality, all the while holding back the tidal wave of poverty represented by the newly jobless, without the extra revenue she needs for the task. The prime minister may have unparalleled popularity, but that huge majority may not be much use to her.

Guardian: Want to build high-rise homes for 74,000 more people in Wellington? Build consensus first

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It’s like a slow-moving nightmare, in which the same battle is fought over and over again, without resolution.

The city council in Wellington, New Zealand’s capital, has announced plans to house an extra 74,000 people – plans that would require some low-rise inner-city villas to be replaced by dense modern apartments.

This has provoked howls of outrage from property-owning 70-year-olds – who, in turn, face sneers of derision from young would-be house buyers. Both sides are entrenching themselves behind their battle lines, the same lines that have bisected recent attempts at increasing urban density in cities in New Zealand – and indeed around the world.

But there might be a path out of this impasse. In the 1980s, the US city of Seattle tried to densify, but saw its efforts sunk by intense neighbourhood conflict and Nimbyism (the ‘Not in my backyard’ phenomenon). So a decade later, the city council took a different tack: it decided to trust its communities.

City council staff, in particular their legendary neighbourhoods department head, Jim Diers, realised they needed to rebuild relationships – both between the council and residents, and within fractured communities. The council appointed neighbourhood development coordinators who acted as “intermediaries of trust” and held hundreds of one-on-one meetings with often-suspicious residents.

One coordinator, interviewed by the academic Carmen Sirianni, described their role this way: “I find people who are frustrated and are not plugged into the process and are just throwing rocks, and I meet with them and help them understand how they can work with their neighbours.”

Community ties re-established, the council then made their pitch, which in essence was: “We all know we need a denser inner-city, but you’re fearful about that – so you take charge. You draw up the plan for how this will go down.”

Communities earmarked for greater density were given $10,000 each to develop their plans. That done, they got further funding for the next stage – but only if they could prove they had reached out to every part of the community and hadn’t let the usual suspects dominate. Officials supported these “citizen planners” with neighbourhood design toolkits and software that mapped demographics, land use and transport flows.

The community plans were then tested at “alternatives fairs”, sent to residents for approval, reviewed by officials, and subjected to neighbourhood hearings. Displaying remarkable engagement, some 20,000-30,000 residents took part in a city of 560,000.

After years of conflict, the process brought together politicians, neighbourhood leaders, and even local groups that had formerly been at loggerheads. Best of all, it delivered densification: added together, the neighbourhood plans provided all the housing the council had sought.

Along the way, a pro-development, anti-Nimby constituency was born. Seattle today remains – for various reasons – one of the few American cities to be densifying effectively. Citizen planning hadn’t been quick or cheap but, as Sirianni puts it: “The city council’s investment of money and time ... had clearly paid off.”

All this might seem counterintuitive, given Seattle’s previous animus towards densification. Two factors made the difference: control and environment.

People often feel more relaxed about change if they have a modicum of control over it. And in a good, well-facilitated environment, one where people are encouraged to listen deeply to the arguments of others, consensus can be reached where it seemed impossible. People who shout slogans at each other in vox pops or newspaper front pages can find surprising common ground.

Such results could be expected in Wellington, or indeed elsewhere. It’s easy to laugh at older left-wingers opposing the housing so badly needed by those they claim to help. But what if baby-boomer fears about densification turn out to be legitimate concerns about what private developers will build if left to run rampant? What if, once they hear good arguments in a relaxed setting, their concerns can be assuaged by stringent rules that ensure high-quality architecture?

What if, conversely, young people who see no merit in draughty old villas come to better understand the value of built heritage, the stories of old houses and neighbourhoods that can so profoundly enrich the present? What if they realise that some suburbs do need more protection than the city council’s plans allow, and that mouldy houses can be improved, not just demolished?

This potential consensus is the prize on offer. The challenges of running such a deep, community-led process are of course real, and complex. In New Zealand, there would have to be elevated role for local iwi (indigenous tribes), given their role as mana whenua (groups holding customary land rights and authority).

The alternative to dialogue, though, is all too predictable: a long bout of trench warfare, one in which bickering prevails, the council’s plans are dragged through the courts, catastrophic amounts of time and money are wasted, and no one gets what they want. Right now such an outcome seems likely – but not, as Seattle shows us, inevitable.

Guardian: New Zealand’s astounding wealth gap challenges our ‘fair go’ identity

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The extent of wealth inequality in supposedly egalitarian New Zealand has been laid bare by figures showing the wealthiest individuals have over NZ$140bn (US$93bn) stashed away in trusts – and overall have nearly 70 times more assets than the typical Kiwi.

The new data, drawn from the 2017-18 Household Economic Survey, are likely to underestimate true inequality, as the ultra-wealthy are generally reluctant to take part in such surveys.

The data show that New Zealand’s wealthiest 1% of adults – around 38,000 people – have $141bn in trusts. Another 150,000 or so people, rounding out the rest of the wealthiest 5%, have trusts worth a further $122bn.

Trusts are vehicles through which individuals can notionally give their assets to trustees to hold on behalf of named beneficiaries. In practice, the “givers” often retain control of the assets while having superficially ceded ownership. In the past this has allowed wealthy individuals to avoid taxes, hide assets from spouses and creditors, and receive care subsidies to which they are not entitled.

Although some of these practices have been curbed, the figures will raise renewed questions about the need to overhaul trust law. IRD research has revealed extensive use of trusts among wealthy individuals who pay relatively little tax.

The wealth inequality data, developed in conjunction with Statistics New Zealand researchers, also show that the 1% have an average (mean) of $3.6m held in trusts, $1.6m in shares and $470,000 in cash. Their debts are on average just $80,000.

The typical (median) person in the 1% is worth $6.2m. In contrast, the typical New Zealander is worth only $92,000 – 68 times less.

Among those in the poorest half of the country, meanwhile, the average person owns assets worth just $46,000 and has debts of $33,000, leaving them with a net worth of $12,000. They have negligible wealth in trusts and on average just $4,000 in the bank, leaving them vulnerable to sudden financial shocks.

When it comes to the middle classes – the 40% of the country who are above the mid-point but below the wealthiest 10% – have a higher net worth, on average $352,000, most of it tied up in housing.

Overall, the wealthiest 10% have 59% of all the country’s assets, and the middle classes around 39%. That leaves the poorest half of the country with just 2%.

These inequalities may well be embedded. The 2017-18 figures represent the status quo inherited by Jacinda Ardern’s government, whose record to date will be revealed by the 2020-21 net worth survey, now underway.

Not much change should be expected, however. On becoming Labour leader in August 2017, Ardern resuscitated the idea of a capital gains tax, 80% of which would have been paid by the wealthiest 20%. But after vociferous opposition from property investors and the National party, she eventually ruled it out under her leadership. She has also been distinctly lukewarm about the Green party proposal for a tax on wealth over $1m.

When it comes to the most unequally distributed forms of wealth, such as trusts, shares, bonds and direct ownership of companies, Ardern’s Labour-led government has shown little appetite for redistribution. In housing, a substantial and accelerating state house-building programme cannot make up for the failures of Kiwibuild and other initiatives.

Some commentators would argue that New Zealand remains the land of the “fair go”, a country where all have opportunities to get ahead. Its wealth inequality is only slightly worse than the developed country average. But it is difficult to see how it can be fair for any individual, however meritorious, to be “worth” nearly 70 times the typical New Zealander.

There are also good reasons to think that opportunities are far from equal. Wealthier parents are able to provide their children with many opportunities unavailable to poorer kids, as well as access to exclusive schools and networks.

Analysis of the NBR Rich List shows a strong dynastic trend: over one-third of businesses on the list are actively being run by descendants of the fortune’s originator, with the number of family members passively receiving the proceeds of that wealth undoubtedly higher still.

While some rich listers are entrepreneurs, developing useful new products, fortunes made in finance, insurance and real estate are predominant. Conversely, the country’s essential workers – including health staff on the front line of the coronavirus pandemic – earn so little that they are often unable to save for a house deposit.

IRD research, meanwhile, shows that more than half the country’s ultra-wealthy individuals – those with over $50m – declare incomes of less than $70,000, an implausibly low figure. They avoid tax, the IRD argues, by taking their income as untaxed capital gains, undervaluing the services they provide to their own companies, and transferring wealth to charities which they control but which make “little or no charitable donations”.

Such findings are challenging to New Zealand’s self-identity. The country’s egalitarian image was once memorably described by the historian Melanie Nolan as “a rich amalgam of truth and myth”. These new wealth figures suggest that the latter increasingly predominates.

Greens wealth tax

The Green Party have just announced a wealth tax – 1% annually on net worth above $1 million, and 2% above $2 million – as part of their Poverty Action Plan.

I’m very pleased to see this tax announced, as it follows substantially the recommendations made in my paper earlier this year for Tax Justice Aotearoa. In particular, it’s pleasing that there are no exemptions for certain kinds of wealth – business assets, for instance, or KiwiSaver – as it is the riddling of such taxes with exemptions that has hampered them in other countries and paved the way for their removal.

Such a tax is unlikely to become a reality in its proposed form; even if the Greens and Labour were in a position to form a government after September’s election, it would undoubtedly be made less radical by the larger party. But it has great merit, focuses debate on inequality, and enlarges the public’s sense of what is possible.

Full details of the Plan, including the wealth tax, are available here.

Budget openness survey has mixed news for NZ

Earlier this month the results of the latest Open Budget Survey were released – and they make mixed reading for New Zealand, despite our high overall score.

The Open Budget Survey is one of those classic international comparison tools, in which independent observers run the rule over a country’s practices in a particular area – in this case, whether the government is open about the processes and information surrounding its Budget.

Overall, New Zealand scores 87/100, a world-leading tally. And that reflects the fact that we publish lots of information about the Budget – for those who know how to find it. We also score 81/100 for Budget oversight, which is roughly speaking a measure of parliamentary scrutiny of the Budget – and again, that’s not bad, although it could be improved with an independent fiscal institution, as others have advocated.

Where we don’t look so good is on public participation. Our score there is just 54/100. We don’t publish a citizen’s budget, which is an accessible way to present Budget information – for instance through a comic, video materials, infographics, and so on. In other words, we’re not so good at publishing information for those who don’t know how to find it.

We also don’t have regular processes for getting public input into the Budget. As the survey notes, our public bodies are pretty good at doing consultation when they are forced to for big set piece events. But they don’t seem to see the need for deep and regular participation in setting the Budget, which is a shame.

One modest contribution I would make to that debate is to propose something like a citizens assembly budget, in which 100 or so randomly chosen citizens, representative of the wider country, were brought together to draw up an outline Budget. Obviously they couldn’t do all the detail, even if given a whole day or weekend. But they could, with the help of experts, jointly discuss and decide how much money they would like to see spent in various areas – health, education, welfare and so on – and what tax rises or tax cuts they would correspondingly recommend. I think it would be a powerful way to reveal what the public actually wants to see in the Budget, and create a mark against which governments could be judged if they diverged from its conclusions.

Building a bridge across the coronavirus ravine

Yesterday I had the pleasure of appearing in front of the Epidemic Response Committee in a session about the potential economic and social shape of the recovery from coronavirus. My fellow speakers were Rod Drury, Traci Houpapa, Ian Proudfoot, Oliver Hartwich and Ayesha Verrall. The video of the session is here; below is a version, somewhat elaborated, of the key points I made to the committee.

When we look at the graphs that the Treasury has prepared on coronavirus’s effect on the economy, even the best-case scenarios look like a very deep V. We might think of that as being like a ravine, or a crevasse. And the sad reality is that although some New Zealanders will have enough wealth, enough security, enough by way of buffers to build themselves a bridge over that ravine, others will not, and risk falling into it, either permanently or temporarily.

When we look back at the last major calamity to New Zealand, the global financial crisis (GFC), we see that although our government handled it better than many of its overseas counterparts, inequality still resulted. Incomes for those in the richest tenth barely fell, then rose rapidly from 2010. Incomes for the poorest New Zealanders fell distinctly after 2009, and did not recover their pre-crisis level until 2015.

Even temporary dips in income can be devastating. We know from the Dunedin longitudinal study that children who were poor in their early years end up, on average, with much lower reading scores than those who were never poor. They also experience worse health. Even temporary poverty can leave lasting scars.

Some adults, meanwhile, never find their way out of the ravine. The sudden economic shock leads to job loss and poverty, which leads to life falling apart, marital and family breakups, resort to substance abuse as a coping mechanism, depression, and sometimes suicide.

We should be worried about these things recurring in the current crisis, because many households are not well buffered against it, economically speaking. The 2018 Household Economic Survey showed the average or median household had just $8,000 in cash, the kind of “liquid” asset they could use to deal with income losses and build their own bridge across the ravine. A separate 2018 survey showed that a quarter of people have no cash in the bank at all.

So we need to do more collectively to help our fellow citizens manage their way through this crisis. In saying this I reflect the experiences of my distant ancestor Harry Atkinson, a politician for several decades in the second half of nineteenth-century New Zealand. A farmer by background, he believed in hard work, thrift and individual enterprise.

But he saw in the 1870s and 1880s that major economic shocks and depressions simply overwhelmed individuals’ – and even small communities’ – attempts at saving and building up reserves. Accordingly, he became an early proponent of the welfare state, arguing in 1882:

“The only effectual remedy against pauperism seems to me to be not private thrift or saving, but cooperative thrift or insurance, and that to be thoroughly successful… must be national and compulsory.”

This vision of collective security has been constantly renewed by successive governments of all stripes. The coronavirus crisis offers us an opportunity to renew that vision once again.

So what can we do to collectively manage this crisis, both in the short term and long term? In the short term, we need to build a bridge on which everyone can walk across the ravine. We need to enhance stability and security for everyone.

That means, for instance, helping people who have lost their jobs, by providing detailed and high-quality skills and retraining schemes. People may not have security in a particular job, but they can have security of overall employment.

It also means doing more for casual and gig-economy workers – making it easier for them to show that they are in fact permanent employees and deserve all the relevant rights, but also building a welfare system that they can access seamlessly and which tops up unexpected shortfalls in income in real time.

It means providing greater security and dignity for people on benefits – not through a Universal Basic Income, which spreads its support too thinly, but something like a Guaranteed Minimum Income, a generous and no-sanctions benefit which is slowly and carefully clawed back (abated) as people earn more income.

It means providing greater security of housing – both greater rights for renters, but also a renewed drive to build more public housing, using prefabricated techniques to save money, reduce waste, and provide a guaranteed boost to the nascent prefab market.

It also means ensuring that the welfare state does not just provide secure incomes but also helps people build up assets – through, for instance, a Kids KiwiSaver scheme that provides government support for poorer families to save and ensure their children reach adulthood with solid savings.

Finally, once we have reached the other side and are assessing the financial costs of coronavirus, we will need to think about how payment of those costs is apportioned. Former Prime Minister Bill English has already suggested that a capital gains tax might need to be back on the table, if the stock market recovers quickly and it looks as if the pain is not being evenly shared. Gareth Kiernan from Infometrics has suggested a wealth tax. Others are discussing land taxes.

Whatever solution is chosen, we must all be relentlessly focused on ensuring that the coronavirus crisis does not exacerbate inequality. Thinking about inequality cannot be an add-on; it must be woven into everything government does. We need to do everything possible to ensure that a bridge is built for everyone to cross this dangerous ravine, and to ensure that everyone has the stability and security that has always been part of what it means to live well in this country.

A wealth tax for New Zealand

Tax Justice Aotearoa have just published my paper on the case for a net wealth tax in New Zealand. Below is a brief summary of the proposal.

The idea

A wealth tax would be a small annual levy, perhaps 1% or 2%, paid by individuals on the wealth they have above a certain threshold, perhaps $1 million or $2 million.

The justification

In New Zealand, we pay tax on our income (salaries and wages) to fund public services we all rely on, and to help those less fortunate than us. Unlike other developed countries, we don’t ask for the same contribution from people with wealth (assets such as shares and business investments).

But those assets are, just like incomes, generated partly thanks to public infrastructure like roads, broadband, schools and the justice system. Wealthy people often work hard, but they don’t get rich alone. So it’s fair to ask them to pay back into the pot. Yet many wealthy people find ways to pay very little income tax. That’s why every other developed country taxes wealth in some kind of systematic way – and why a wealth tax would make our system fairer.

The benefits

A wealth tax would be levied on net wealth – that is, the value of people’s assets once their debts have been subtracted.

Such a tax would be highly redistributive. Levied at 1% on wealth over $1 million, it would affect only the wealthiest fifth of the country. And it would generate around $6 billion a year. Even a more modest version, starting for instance at $2 million, would generate billions of dollars a year to fund public services, help those who are struggling get back on their feet, and protect the environment.

There are other ways to tax wealth, and they have their merits, but in general they are either too complicated, generate little revenue, or fail to address the real drivers of wealth inequality.

The design

Just as the income tax system works mostly through employers reporting our incomes directly to Inland Revenue, a wealth tax would rely on banks and other companies automatically reporting the value of the assets people hold with them. This would make the annual valuation process simpler, and evasion harder. Other assets have regular valuations (houses) or insurance valuations (valuables). Small household items would not need to be valued. And the growing trend for countries to swap tax information would hinder efforts to evade the tax by parking wealth offshore.

The summary

A wealth tax would fill a major gap in New Zealand’s tax system, thus enhancing fairness, and bring us into line with other developed countries. It would also generate much-needed revenue for tackling pressing social and environmental problems.

Inequality and poverty: a summary of the 2019 Household Incomes in New Zealand report

The Ministry of Social Development’s key annual report, ‘Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2018’, by Bryan Perry, makes for depressing if not surprising reading.

Economic inequality remains at the very high level the country was left with in the late 1990s following 15 years of market-based reforms. Very modest progress under subsequent Labour-led government appears to have been undone by National-led governments.

Poverty rates for the general population and children remain high. Relative poverty rates virtually all increased 2008-17. In contrast, material deprivation decreased. Nonetheless, the overall story is the continuing absence of substantial action against economic inequality and poverty, both of which damage individuals and the social fabric alike.

The following document highlights key points from the 300-page household incomes report, focusing on inequality and to some extent poverty, with some material from the companion ‘non-incomes report’. To assess the record of the last National government, this document looks at the changes between 2009 (i.e. data gathered between mid-2008 and mid-2009, the last year in which people were essentially ‘living’ with Helen Clark’s policies) and 2018. Page numbers from the incomes report serve as references.

Income inequality

Looking at the share of income going to the various fifths (quintiles) of the population, New Zealand is now slightly more unequal than the supposedly class-ridden UK, with its poorest fifth taking less, and its richest fifth taking more, than their British counterparts (p.50). (NB: On other measures the UK remains more unequal.)

Table B.9  Shares of total income by quintiles (fifths) of disposable household income (%): international comparisons for c 2016

In terms of the New Zealand trend, the household incomes report notes the sharp increase in inequality between the mid-1980s and the late 1990s (the largest in the developed world). Since then, it notes “perhaps … a slight fall in the early to mid 2000s and a slight rise since, back to where it was in the mid1990s” (p.240). This fall and rise corresponds broadly to the periods in office of the recent Labour and National governments. This result should not be overstated, however, as some of it may be driven by fluctuations in the number of very rich people taking part in the relevant surveys. The report is not definitive on this point. (Note that in the Gini coefficient measure below, 0 = income evenly shared, and 100 = all income going to one person. So a higher number represents an increase in inequality.)

Figure K.6 Inequality in New Zealand and the OECD trend: the Gini coefficient

When it comes to international comparisons, the latest rankings put New Zealand at 22nd out of 34 OECD countries, on the edge of the poorest-performing one-third of rich countries. New Zealand’s Gini coefficient, at 33, is noticeably higher than the OECD average of 31.

Figure K.5 Income inequality across the OECD: Gini coefficients c 2014

User-friendly income inequality measures

Most income inequality measures are extremely difficult for ordinary people to understand. Using the household incomes report data, I have calculated two further measures.

The first shows how much someone in the richest tenth of New Zealand makes compared to someone in the poorest tenth. In the 1980s, someone in the richest tenth typically made 5-6 times as much as someone in the poorest tenth. That ratio is now over 9 times. (These figures are for people’s disposable income – that is, after tax.) (Appendix 9.2)

Using the same data, the second graph shows the changes in income since the 1980s for three groups: the poorest tenth, the average person, and the richest tenth. (These figures are again for people’s disposable income.)

The after-tax income of someone in the poorest tenth has increased roughly 30% (adjusting for inflation) since 1982. For the ‘typical’ middle New Zealander, that figure is roughly 40%. But for someone in the richest tenth, their income has doubled.

Wealth inequality

Wealth inequality is slightly higher in New Zealand than in many other developed countries, again a challenging finding for a supposedly egalitarian nation (p.266). Note that the figures below are for households; the share held by the wealthiest tenth of individuals is nearer 60%.

Table M.2  Wealth inequality: shares of total wealth held by the top tenth (%)

Poverty

‘P10’ denotes the people on the boundary of the poorest tenth of the population. In 2017 and 2018, their income (after housing costs) finally surpassed its 1986 level, hitting $11,900 and $11,800 respectively, compared to $11,600 back then. In short, 30 years of significant economic growth has almost entirely bypassed a full one-tenth of the population (p.88).

Inflation-adjusted household incomes (AHC): tenths (decile) boundaries

In absolute terms, the poor are getting richer. The proportion of people who have less than half of 2007’s average (median) income has fallen from 10% in 2007 to 6% in 2018. In relative terms, however, they are getting poorer: incomes have grown more slowly for poorer households than they have for other families. The proportion of people living on less than half of the contemporary average income (that is, the average income in the relevant year) has risen from 8% in 2009 to 10% in 2018. Likewise, the proportion living on less than 60% of the average income in a given year has risen from 17% to 20% (p.134).

The above figures are for people’s incomes before housing costs are included. Figures after housing costs are included tell a similar story, with increases in the proportion living on less than 40% of average income (9% to 11%), less than half average income (15% to 16%), and less than 60% of average income (22% to 23%) (p.135).

In my personal view, the poverty measures looking at how many people have less than an amount fixed in time (50% of the 2007 average income, for instance) are not the most important, though they are useful. After all, everyone in modern day New Zealand has more than half of the average income in 1907. The most important measures (in the long-term) are the ones looking at how much people have compared to the current average income, because that measures the extent to which poor households are falling behind others and will become increasingly unable to afford the things that others take for granted. Looking, therefore, at New Zealand’s progress on those numbers gives the following result (based on pp.134-35). Note: BHC is before housing costs; AHC is after housing costs.

Percentage of the population below selected poverty lines

50% BHC       60% BHC     50% AHC   60% AHC

1986            6             8             13 15

2009            8                 17                   15              22             

2018           10                 20                  16              23          

On all measures, poverty is higher now than it was in 1986 or in 2009.

Material hardship

In contrast, rates of ‘material hardship’ have fallen consistently since 2009. (The data only go back to 2007, so longer comparisons are impossible.) The distinction here is that the ‘poverty’ numbers above are based on people reporting their income (and how far it is below the average), whereas the ‘material hardship’ numbers are based on people reporting how many basic items (like being able to afford decent clothes or heat their home) they have to go without. The table below essentially shows how many people (measured as the whole population, children, and retirees) say they have to go without 6 or more of 17 basic items (non-incomes report, p.71).

Table G.1A  Material hardship trends (rate %), 2007 to 2018

How can it be that poor families appear to be doing better even while (as above) their incomes fall further behind those of others? Well, there are very different experiences among those living in poverty, or close to it. The report suggests the falling hardship rates are driven by increased work, work hours and minimum wages for those at the bottom end of salary scales. It is a story, crudely speaking, of working people. However, because benefits have not been linked to wages, those who are out of work continue to see their incomes fall behind those of others, an effect which at least partly explains the increased poverty rates. It is a story, crudely speaking, of beneficiary families. All this is a good reminder that poverty is extremely complex, and hard to reduce to a single, neat story.

Child poverty

Unsurprisingly, the story for child poverty is similar to that for the whole population. Absolute poverty has declined: fewer children now live in households with less than half of the 2007 average income than was the case in 2007. As the graph immediately above shows, material hardship rates for children have declined strongly in the last decade. But relative poverty has increased, as the following table shows (based on pp.140-41):

Percentage of the child population (0-17) below selected poverty lines

50% BHC        60% BHC      50% AHC    60% AHC

1986           10                    19                12                   21          

2009           10                    20           21                   29    

2018           15                    24                21                   31     

Again, child poverty is higher now than it was in 1986 and 2009.

It remains the case that (on a conservative estimate) four in every 10 children in poverty have a parent in full-time work. (As a side note, among two-parent families, the proportion with both parents in full-time work has increased from 30% in 1982 to 46% in 2018 (p.174).)

In terms of international comparisons, New Zealand is among the worst half of developed countries. Its child poverty rate (defined here as children in households with less than half average income, before housing costs) is 14%, some 4-5 times the rate of the best performer, Denmark (p.232).

Table K.3  Child poverty rates (%) in the OECD-35, c 2014: 50% of median threshold (BHC)

Green shoots of open government

One of the current government’s most famous commitments was Clare Curran’s statement that it would be the “most open, most transparent” administration ever. I think this is technically true, in the sense that it hasn’t unwound any previous open-government policies, problems like abuse of the Official Information Act are probably no worse than previously, and the government has added a couple of substantive pro-openness initiatives, such as publishing ministerial diaries.

I’m not sure the claim is yet substantively true, however, because we haven’t seen the big shift towards openness and transparency that I think the above claim implies. But there are a few further promising signs emerging.

Reforms to the justice system announced earlier this year by Andrew Little, for instance, promised that future initiatives would be codesigned with Maori, a significant step – if made reality – compared with the traditional approach of telling Maori what kind of services would be delivered for their benefit.

There has also been, finally, increased funding for Whanau Ora, which again is a codesign process that redesigns services around family needs, and which – in my view – can dramatically enhance the accountability of public services to citizens. The employment of more ‘navigators’ to help homeless people navigate the welter of services available to them is another such step.

At a different level, the Department of Internal Affairs recently issued a tender for research on how local councils could more closely connect with their communities, including case studies on citizens’ assemblies and participatory budgeting – two of the most exciting innovations in democratic practice.

None of this is transformative, of course: real transformation would involve the actual uptake, on a broad level, of things like participatory budgeting, or major reform of the Official Information Act, or some other genuinely world-leading move. Nonetheless these moves could be seen as the green shoots of an eventual flourishing of open government. Let’s hope!