Inequality falling despite rising headlines

Wellington (26 June 2015): The country needs to change its tune on inequality, according to The New Zealand Initiative, with a recently published report by Treasury showing that the gap between rich and poor has been stable or falling over the past 20 years.

The Treasury working paper by Christopher Ball and John Creedy analysed annual income and expenditure since 1984. While inequality across a range of measures rose from the late 1980s through the early 1990s, it has levelled off or declined since the mid-1990s, albeit with some variability.

Eric Crampton, Head of Research at the public policy think tank, welcomed the release of the report, and said that it confirmed the results of other recent government reports.

“Income inequality has risen in many parts of the world,” said Crampton. “Unfortunately, we seem to have imported the narrative that the gap between rich and poor in New Zealand has been widening to the same degree.”

“The most striking finding in the latest Treasury work is that inequality in consumption is lower than it was before the reforms of the 1980s. While salary-based measures of income inequality have not declined as dramatically, a lot of work ignore the fact that the tax and transfer system already works to equalise incomes. In the end, it’s consumption-based measures that give us a better picture of real differences in how people live.”

The Treasury paper also demonstrates that the rise in real incomes following the reforms of the 1980s more than compensates for the rise in income inequality that came during the reforms.

“It is about time that people recognise that, despite the growing number of headlines and stories about inequality, the statistics point strongly in the other direction. It makes sense to think about policies to address poverty and especially about the effects of housing affordability for the poor. But New Zealand simply has no problem of rising inequality.”

The New Zealand Initiative is currently conducting research into poverty, inequality and welfare, with the first report in the series due to be released before the end of the year.

Supplemental materials
See below: Graph comparing inequality measures against media mentions in New Zealand from 2001-2014, and video with Dr Eric Crampton discussing the issue.

Christopher Ball and John Creedy. 2015. “Inequality in New Zealand 1983/84 to 2013/14”, New Zealand Treasury Working Paper 15/06 is available here.

The Ministry of Social Development’s work on income inequality, “Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2013” is available here.

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