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Press Release

Budget 2016: inequality is about more than income

10 May 2016 7 min read

There is a growing income gap in New Zealand and as some Kiwis get further ahead, some fall further behind with, it is argued, not enough money to meet their needs, enjoy their lives or to participate in society.

But is the living wage the answer to the wage gap and inequality?

The living wage, which is not a uniquely New Zealand idea, has emerged in response to growing poverty and inequality that continues to hold back so many New Zealanders, their families and our economy. However, and regrettably, the living wage is based on a notional calculation of what it would cost for a nuclear family of a mum, dad and two kids to live with a reasonable amount of discretionary income.

This does not fit easily with single people starting in employment and those families that choose to have more than two children.

The real issue is that there is no perfect measure of inequality in New Zealand and any measurement requires a judgement call about what poverty looks like.

So, where to from here?

First and foremost we need to define Kiwi inequality. It’s a multifaceted issue and if New Zealand is serious as a country about wanting to solve inequality, then we need to develop a multi-faceted solution that targets those most in need. It’s very easy to use the upper income benchmark of the multimillion dollar salaries paid to CEOs. The reality in New Zealand is that there is a very small number of New Zealanders earning over $1million per year. In fact, the top 1% of income earners in NZ earn an average of $337,000 per annum.

The more realistic comparison is the median wage of $51,000pa with the top 1% of income earners’ average income of $337,000. This is a much more palatable 6.6 times the 2014 median wage. There needs to be a gap to provide the motivation for talented New Zealanders to stay here, otherwise they will move offshore like some of the 800,000 New Zealanders who live overseas.

There is clearly a need for money. Budget 2015 aimed to reduce hardship among children in New Zealand’s poorest families and announced a $790 million child hardship package including a benefit rate increase for families with children of $25 each per week after tax. This is first time since 1972 that core benefit rates have increased by more than inflation. This package came into effect on 1 April 2016.

New Zealand ranks poorly for child poverty – 25th out of 34 developed countries – and Budget 2016 is an opportunity for this Government to be bold. I don’t believe that there will be any further significant amounts of money to reduce child hardship and inequality, and more money is not what is needed now. A new approach is required to solve this complex problem.

However, in terms of the money that is available, the Government needs to completely rethink how it is invested. More targeted spending across health, social welfare, education and justice sectors to reduce hardship will be a good start. Big data will have an important role to play in helping to diagnose and solve inequality. Education is the key, but it takes 16 years to educate a school leaver, before they move to tertiary or trade training.

But the responsibility shouldn’t fall just at the Government’s feet. We need a coordinated approach between Central Government, Local Government, Iwi, Pacifica, Social Service providers, businesses and industry training organisations to deliver up well-paying job opportunities, particularly in the regions.

We see the extremes of inequality in a range of communities right across the country, but particularly Northland and Poverty Bay. If there was a coordinated approach and this funding was tightly targeted and spent differently, it could lead to better outcomes for all New Zealanders.

The road ahead is difficult and reducing inequality will never be solved in a three year political term. Willpower and sheer determination is not enough, the Government needs fresh thinking to build a better New Zealand.

Further enquiries, please contact:

Peter Sherwin
Partner, Privately Held Business
Grant Thornton New Zealand
T +64 (0)4 495 3777  
E peter.sherwin@nz.gt.com 

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