The state of poverty and inequality in 2017

Today the Ministry of Social Development published its 270-page Household Incomes Report, the gold standard annual record of poverty and inequality in New Zealand. So what did it tell us? Below are four key conclusions I have drawn, based on pulling out a few key figures and graphs. The discussion is slightly technical, but as little as is humanly possible.

1. Poverty remains stable since the Global Financial Crisis

There are lots of different ways of measuring poverty, and they tell slightly different stories. But overall poverty seems to have been relatively stable since the Global Financial Crisis. For instance, the proportion of households living on less than half the national average (for households their size) was 9% in 2009, and 10% in 2016. The proportion of households living on less than 60% of the national average was 18% in 2009 and 18% in 2016.

Those figures are before housing costs are deducted. After housing costs are deducted, 14% of New Zealanders were on less than half the average income both in 2009 and 2016. Some 19% were on less than 60% of average income in 2009, and 20% in 2016.

For children, it is roughly the same story. Before housing costs, 13% of children were in households with less than half the average income both in 2009 and 2016. The equivalent figure for households with less than 60% of average income is 20-21% in both years.

After housing costs, 20% of children were in households with less than 50% of average income in 2009, and 19% in 2016. The equivalent figure for households on less than 60% of the average is 27% in 2009 and 25% today.

The stability of these poverty numbers reflect the fact that income increases for the poorest fifth of the country, at around 12% since 2009, are roughly the same as those for middle New Zealanders, so the poor are pretty well ‘keeping pace’. That also means that, relative to the poverty line ‘fixed’ in 2007, there are fewer poor households and poor children. (Since, however, I think the most important poverty measures are the fully relative ones that shift as average incomes increase, I have concentrated on those.)

The exception to the above story is for the more extreme poverty – children in households with less than 40% of average income, after housing costs. Those numbers have increased from 10-11% in 2008/09 to 13% in 2016 – an increase in actual numbers from 120,000 in 2009 to 140,000 in 2016 (and that figure had gone as low as 105,000 in 2008).

This may reflect the severity of the housing crisis for the poorest. Data reported in the media recently (not from the Report) also show increases in homelessness, rough sleepers, people using food banks, and so on.

In contrast, when it comes to material hardship measures based on asking families what they can’t afford, the rate for children in material hardship has fallen from 16% in 2009 to 12% in 2016. That covers the households missing out on 7/17 key items, such as being able to afford decent clothing. But the most severe rate of material hardship (missing out on 9/17 items) has also fallen, from 9% to 6%.

What is clear either way is that, despite some claims to the contrary, overall poverty numbers have not increased under the current government. But at the same time, our high levels of poverty (twice those of some European countries, especially for children) have not been reduced, and indeed, worryingly, seem to be becoming ‘baked in’ and normalised.

On an unrelated note, it remains the case that around 4 in 10 poor children are from households that have not had anyone on a benefit in the last 12 months. Work is clearly not sufficient for escaping poverty, despite the popularity of that idea.

2. Housing is important – up to a point

Housing is clearly a major concern at present in New Zealand. The Report has many figures on this, but perhaps the most striking is that the poorest fifth of the population are paying on average half their income (51%) in housing costs. The housing situation is obviously dire and needs urgent action, whatever one’s views about the best way to do that.

However, one must be careful about asserting that housing is the dominant factor in inequality. It is true that after-housing-costs measures of inequality have increased more than others since the GFC, and housing is obviously an important lens through which to see inequality at present.

But 18% of the population are poor (living on under 60% of average income) even before housing costs are taken into account (as above), and that figure increases only a further two percentage points, to 20%, after housing costs. My own rough estimate (set out here) is that, of the overall increase in inequality since the mid-1980s, only one-tenth can be attributed to increased housing costs.

Clearly, while housing matters, it is hardly the sole or even the main cause of inequality. Other issues – such as jobs, training, wages, benefits and taxes – are equally or more important individually, and clearly more important as a whole.

3. Inequality is up slightly since the GFC

The figures in the Report continue the story of recent years. On almost all the measures, one can see a slight rise in income inequality under the current government, enough to cancel out the slight fall under the previous government. The Gini coefficient graph (where 0 would imply income being equally shared and 100 would imply all income being held by one person) shows this clearly.

Because the rise under National cancels out the fall under Labour, New Zealand’s current level of inequality is roughly equivalent to its early-2000s level. (Describing it as ‘stable’, however, can be misleading, since policy changes, especially Working for Families, have both reduced and increased it in that time.)

Income gains have been reasonably even across the spectrum since the GFC – between 10% and 15% for most groups, with only slightly higher rates for the richest groups contributing to slightly increased inequality. Again, this is in contrast to some of the narratives around ‘skyrocketing’ inequality under the current government. Again, however, there is no progress on reducing inequality, and indeed the progress made under the previous government has been lost.

It is worth remembering that New Zealand experienced the developed world’s biggest increase in income inequality from the mid-1980s to the mid-2000s. Since 1984, incomes have increased just 29% (after inflation) for the poorest tenth and 38% for the average person, but 96% for the richest tenth. Nothing has happened since the big rise in the 1980s and 1990s to rebalance the income distribution.

4. All these numbers need to be seen in the longer context

Some people will conclude from the above figures, especially those showing inequality still at its early-2000s level, that there is no issue (except the housing crisis). However, there is an equally good argument that the long-standing nature of these problems actually makes them worse.

Poverty has profound impacts on individuals, and inequality tends to damage the social fabric, increasing the social ‘distance’ between people and thus diminishing trust, cohesion, and so on. The fact that those problems have been left to compound for the last 20 years – and in particular have major effects on children that will continue throughout their life – arguably means they are worse than if they had just sprung up yesterday.

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