Real incomes decline in the top two deciles and rise in the lower

Simon Collins, social issues reporter for the NZ Herald, has written a series about Auckland's inequality which was published over the course of last week. Today he recaps and produces the answers (which are very grim):

To briefly recap where this series started: Auckland has changed in a generation from an equal city in 1986, when median incomes of most suburbs were bunched tightly around the regional average, to an unequal city by 2006, where median incomes of the city's 300-odd suburban census units spread widely across the income scale.

Similar increases in inequality have occurred across many developed countries.
The driving forces have been both technological changes, which have strengthened the power of the skilled at the expense of the unskilled; and policy changes, which have weakened unions, opened markets to free trade, cut taxes on the rich and imposed new taxes on spending that bear most heavily on the poor.

To my mind he has omitted the most important factor. The change in family structure. Single parent families  are amongst the poorest. The percentage of families with dependent children that are single grew nationally from 18 to 28 percent between 1986 and 2006. I don't have specific Auckland figures but am willing to bet the percentage there is higher based on DPB numbers. Reconstituted families are also poorer given ongoing obligations to past partners and children.

Collins might argue that this change has been an effect of all of the above in that unemployment can cause family breakdown and there aren't enough unskilled jobs to go around. I would argue that people respond to inevitable change. Human beings  are highly adaptable. Some will react positively to change by making an effort.  But some will take the easy option and adapt accordingly. And the benefit system made it all too possible to take easy options.

So naturally, over time, the gulf between these two groups will widen.

In respect of answers to the inequality, Collins continues:

At the caring end of the spectrum, the Child Poverty Action Group has been lobbying for more help for low-income families since it was formed in 1994.

 Its biggest campaign has been to pay the $60-a-week "in-work tax credit" to parents who lose their jobs or can't work, as well as those in paid work. Since 59 per cent of children in poverty live in homes with no full-time worker, this change alone would slash child poverty.

So there is the acknowledgement that a majority of the children in poverty are in single parent homes (only a small portion are in two-parent homes dependent on the unemployment or other benefit). But how can he be so certain the move would slash child poverty if another predictable effect was to draw more children onto benefits?

Further answers feature more redistribution of wealth for housing, public transport, pre-schools, youth jobs, etc via the ratepayer. The great Super City solution.

Not content with that Collins writes:

Beyond these local moves, a more fundamental shift in the policy balance might mean picking up ideas from the Council of Trade Unions' alternative economic strategy, such as raising the minimum wage to two-thirds of the average wage, strengthening rights to negotiate wages collectively, raising the top income tax rate to 45 per cent and allowing a tax-free income band at the bottom.

So more Robin Hood strategies despite the current situation which is:

-    For half of households with dependent children the amount received through welfare benefits and tax credits is greater than or equal to the amount they pay in income tax.

-    Single-earner two-child families with less than $55,000 from wages pay no net income tax.  They receive more from WFF tax credits than they pay in income tax and ACC.

When all households are counted (working age with children, working age without children, and 65+ households), and looking at households grouped in deciles rather than looking at individual households, the total income tax paid by each of the bottom five deciles is less than the total transfers received (tax credits, welfare benefits, NZS and so on).  It is only for each of the top five deciles that total income tax paid is greater than transfers received.

Finally, I have a problem with Collins using the Census 2006 data. I accept that it was the most recently available for Auckland. However he could have at least acknowledged more recent national data on household incomes. Especially as the trend since 2006 is towards reduced inequality.The Household Incomes in New Zealand: Trends in Indicators of Inequality and Hardship 1982 to 2010 was published late last year. Here are some excerpts:

Income inequality peaked in the early 2000s, then fell from 2004 to 2007 as a result of the WFF package, and in 2010 was lower again than in 2007

·         Inequality remained much the same from 2007 to 2009 – the 80:20 ratio declined a little and the Gini rose.  From 2009 to 2010, inequality declined on both measures.

·    The lower figures in 2010 compared with 2007 reflect two changes: (a) the recent (2009 to 2010) decline in real incomes for the top two deciles (lower investment returns especially), and (b) a small real gain for lower deciles.

On the latest OECD figures (c2008), New Zealand’s Gini score of 33 was close to those of Australia and the UK (34), Japan (33) and Canada (32), and a little above the OECD-34 median (31).  Countries such as Denmark, Norway and Sweden have lower than average inequality (Ginis of 25-26).  The US score is 38.  New Zealand’s Gini score in 2010 was 32.

Yes Auckland has an ethnic mix which features some of the countries lowest incomes due to large or lone parent families, unskilled migrants and expensive housing. But I look forward to Collins repeating the exercise when this year's Census figures become available.
Perhaps he won't.