The Dim-Post

July 9, 2014

NZ Household incomes

Filed under: economics — danylmc @ 10:10 am

I’ve been reading Capital in the Twenty-First Century (11% of the way through!) and the recent publication of the 2014 Household Incomes Report makes me wonder if the core hypothesis holds in contemporary New Zealand. Via the Herald:

Growing income inequality is largely a myth, according to the latest household income figures, though the pockets of the poor are hit the hardest by rising housing costs.

Income inequality is a major political issue this election, as the Labour and Green Parties have tried to paint a picture of a widening gap between the haves and the have-nots under the National-led Government.

The 2014 Household Incomes Report, released yesterday, showed income inequality had mostly remained the same since the mid-1990s, and is slightly higher than the OECD average.

Household incomes had rebounded by 4 per cent from 2011 to 2013, making up lost ground after the Global Financial Crisis and the Canterbury earthquakes. The report showed:

Lower earners were hit hardest by the recession, but riches from the recovery were more evenly spread. Overall from 2009 to 2013, average incomes were stagnant for the bottom half of earners, but grew by 5 per cent for the top half.

28 Comments »

  1. Well, duh.

    The political rhetoric coming from the government/associated mouthpieces is very careful, and talks exclusively about income inequality in this respect, except of course when Key et al. “slip” and wilfully misrepresent the full picture, including not discussing capital wealth inequality.

    Which, I’m sure in Key/DPF’s cases in particular, are just genuine mistakes given what smart men they are, and not some sort of ploy to deceive the low-information voter type.

    Comment by Patrick — July 9, 2014 @ 11:39 am

  2. Incomes increased by 4% from 2011 to 2013. But economic growth during that period was a lot higher than 4%. The sum of GDP growth/quarter from the start of 2011 to the end of 2013 is 8.9%.

    You’re comparing apples and oranges. Or, more accurately, you’re comparing two years worth of apples with three years worth of apples and discovering, shockingly, that they’re different numbers.

    The correct comparator for GDP is 5.8% (or 4.8%, depending on which of the two standard measures of GDP you want to use). Either way, it still puts the rest of your post on shaky ground.

    Comment by Phil — July 9, 2014 @ 12:08 pm

  3. A compounding factor in the analysis may be that NZ may be at the behest of an offshore rentier class. If – for instance – the Australian banks make out like … well, bankers … and repatriate many billions of dollars in dividends back to head office, then the results won’t show up in the household income numbers.

    Because of the openness of the NZ economy, it may well be that income inequality is growing a la Piketty, but that the prime recipients of this growth are largely offshore, as they’re the ones who own the banks and the telecommunications companies and the power companies. Onshore, irrespective of whether you’re in the top or bottom percentile, you’re being equally pillaged by the foreigners.

    Comment by The Economic Illiteracy Support Group — July 9, 2014 @ 1:05 pm

  4. According to Brian Easton:

    “Today New Zealand is a more unequal society than it was three decades ago. However most of the increase in inequality occurred in the period between the mid-1980s and the mid-1990s.”

    http://www.eastonbh.ac.nz/2013/12/economic-inequality-in-new-zealand-a-users-guide-summary/

    Comment by Ross — July 9, 2014 @ 1:07 pm

  5. To add to my earlier comment, I am not sure the public really cares about changes to inequality. For those at the bottom of the heap, they realise that others are better off and hope that politicians will improve their lot. Given that the accommodation supplement has not increased for several years, and given that rents in some areas have increased sharply, that might be one area that the next government might like to review.

    Comment by Ross — July 9, 2014 @ 1:46 pm

  6. Agreed Ross. Eliminating the Accommodation Supplement would remove a massive market distortion that shifts wealth to investors (and thence, to banks.)
    At least, that’s what I am hoping you are suggesting….

    Comment by Gregor W — July 9, 2014 @ 1:58 pm

  7. “About half of wealth created by growth is going to income earners”\
    Surely that has something to do with growth resulting in more jobs? And the impact of going from unemployment benefit to a wage (or perhaps more often: a single income to a dual income) is quite substantial I should imagine.
    Growth will also result in increased profits for firms. Where a firm is a company and doesn’t pass that profit to shareholders, but (after perhaps a year or two or more of losses) into overdraft repayment, then household incomes will not see the full effect. Wait a year or two, once companies have rebuilt their balance sheets, you may see more profit returned to shareholders (households). Or are some profits already hiding in super funds? Does the survey count increases in super fund value (or your company’s bank abalance) as “income”? My gut would say not.

    Of course, all this talk about what’s happening in the various percentiles is irrelevant without also looking at mobility between percentiles. My parents retired a couple of years back. Their income fell substantially (from good salaries, NatSuper and investment income, to simply NatSuper and investment income). So they move down the percentiles. My cousin the student went from part time work to full time work, so moved up a percentile or two. Pikeetys failure to adjust for mobility is what destroys much of the value of his analysis.

    Comment by Clunking Fist — July 9, 2014 @ 2:58 pm

  8. “Lower earners were hit hardest by the recession, but riches from the recovery were more evenly spread. Overall from 2009 to 2013, average incomes were stagnant for the bottom half of earners, but grew by 5 per cent for the top half.” You’d think even Herald writers would get the occasional clang of cognitive dissonance. Apparently ‘the bottom half’ (that’s half of all Kiwis who are employed!) were stagnant, while the top half’s pay grew by 5%. That’s VERY F-ING CLEARLY an increase in income inequality. It might equate to ‘riches from the recovery being MORE evenly spread’ if there was, in the time (of relatively strong employment, and fairly good wage growth, IIRC) a far larger gap between income growth in the bottom and top halves. But surely it’s still ridiculous to say “Growing income inequality is largely a myth, according to the latest household income figures” AND THEN QUOTE FIGURES THAT SAY THE EXACT OPPOSITE.
    Not shouting now. Just quietly banging head on desk, and hoping I’ve completely mis-read this.

    Comment by Robinson Stowell — July 9, 2014 @ 3:08 pm

  9. ‘that should have read “… in the time preceding …” Madness and proof-reading don’t go well together.

    Comment by Robinson Stowell — July 9, 2014 @ 3:09 pm

  10. The Economic Illiteracy Support Group – economically illiterate by name and economically illiterate by nature. That offshore rentier class of which you speak is mostly made up of superannuation funds providing post work retirement incomes for a very wide range of Australians and New Zealanders.I suspect very few top hatted baby eating capitalists own shares in banks. They do very well in other types of investments, especially the kind of direct investment propositions available to high earners.

    Comment by Tinakori — July 9, 2014 @ 3:46 pm

  11. .I suspect very few top hatted baby eating capitalists own shares in banks.

    I suspect you’d be completely fucking wrong there Tinakori, as said baby wearing hat-eaters are no doubt socking away their lucre into various hedge funds returning stellar profits from vastly overvalued FIRE sector stocks.

    Comment by Gregor W — July 9, 2014 @ 5:01 pm

  12. Plenty of top hatted baby eating capitalists run hedge funds (as they do most other investment vehicles) but those on whose behalf they invest are not THBEC.

    Comment by Tinakori — July 9, 2014 @ 5:11 pm

  13. Getting 11% of the way through is quite an achievement. The Financial Times pointed out so many errors in his numbers it kinda seemed a bit pointless to finish all 600 pages, all the highlighted text from Amazon are from the first 10% of the book which seems to be where most people give up.

    Comment by David — July 9, 2014 @ 7:19 pm

  14. The data refers to incomes not wages, so I am not sure how much can be gleaned relative to Pickettys model. household income includes capital income.

    Comment by Swan — July 9, 2014 @ 7:38 pm

  15. The capital owners are in the HES, as domestic capital owners are also “households” in econ lingo – the key thing is that different measures of income give very different results. Practically the national accounts figures, tax data, and household surveys don’t match up a lot of the time – and given the type of data available distributional work was more appropriate with household surveys and analysis of aggregates was more usefully done with national accounts data.

    The cool thing with Piketty is he has put a lot of work trying to create data that gives a representation of the functional/macro distribution of income (based on classes, eg capitalists, labour). And while this is great, it doesn’t bear a relation to household survey data – as people in those surveys are “part labour” and “part capitalist” (as well as reporting differences in time period, accuracy, etc – big thing is that a lot of the “long tail”, esp with capital income, is believed to be underreported in HES). So I don’t think we can make the claims you’ve put down here – as the HES data doesn’t measure the same things as the Piketty story.

    Thinking about how Piketty’s analysis fits into NZ is important though, I heard that there is work being done on that around the place at the moment – will be interesting to see what that tells us. A key thing I’d keep in mind is that, if we look in income share in the national accounts, profit share hasn’t been rising – furthermore, if we look at the top 1% data there hasn’t been much movement there. New Zealand doesn’t have the same inequality issues or productivity increases that we’ve seen from the accumulation of capital overseas – I wouldn’t be surprised if there was a link between the two! Something I was hinting at with this: http://www.tvhe.co.nz/2014/02/05/ict-factor-shares-employment-and-inequality/

    Comment by Matt Nolan — July 9, 2014 @ 8:22 pm

  16. Tinakori – See, you’re the reason The Economic Illiteracy Support Group exists; to help people like you escape from the gravitational pull of NumptyNomics™, the blathering of pseudo-economics by numpties. Just to state the blindingly obvious, Goldman Sachs is not a charity run by a bunch of altruistic merchant bankers to benefit New Zealand and Australian superannuation funds – in the immortal words of the great Matt Taibbi, it’s “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” And also a Telecom NZ shareholder. So the dividend payments that go from NZ to Goldman Sachs – wait, here comes the difficult bit – don’t come back.

    For the slow on the uptake, that means that while NZ has a 1%, the 0.1% as defined by the ownership of capital is probably offshore … which means it’s completely invisible to the household income surveys, making inequality in NZ seem lower than it really is. The test of this is whether NZ is an exporter of capital in the form of dividends and repatriated profits, and … whaddya know! It is! If your hypothesis was right – that these massive capital outflows are merely savings that are exported for those altruistic Goldman Sachs bankers to hide under their mattresses before returning as superannuation payments to Kiwi mums and dads – then you would expect the flows to be reversing as the baby boomers age. There’s no evidence of this, of course, which would indicate that whoever the beneficiaries are of the exported dividend payments and profits are, it sure as shit isn’t New Zealand.

    But as ever, it’s a pleasure and a delight to explain these basic concepts to you. Although in our quieter moments, we at The Economic Illiteracy Support Group do despair of trying to continually explain the blindingly obvious to National Party hacks who aren’t even smart enough to live on the sunny side of town.

    Comment by Economic Illiteracy Support Group — July 9, 2014 @ 9:22 pm

  17. “making inequality in NZ seem lower than it really is. ”

    Not really, though, if they’re not in NZ. Of course if we want to go down the track of thinking in terms of global inequality, then that changes things quite dramatically.

    Comment by Swan — July 9, 2014 @ 9:56 pm

  18. Why don’t you guys all go out and do something useful. Like fixing pot hoes on the roads.

    Comment by Adolf Fiinkensein — July 9, 2014 @ 10:01 pm

  19. Getting 11% of the way through is quite an achievement. The Financial Times pointed out so many errors in his numbers it kinda seemed a bit pointless to finish all 600 pages, all the highlighted text from Amazon are from the first 10% of the book which seems to be where most people give up.

    The Financial Times critique was widely mocked. It claimed to dispute Pikkety by showing that his numbers were all wrong, but then published numbers that were slightly different to Pikkety’s, but still supported his conclusions.

    Comment by danylmc — July 10, 2014 @ 6:16 am

  20. Economic Illiteracy Support Group – Nope, fail (again). The shower of spittle always gets in the way of what you are trying to say, but as what you are trying to say is usually stupid and wrong I guess we have to see it as necessary camouflage. As Matt Nolan points out Households commonly have both income and capital. It ain’t just the .1%. And quoting Matt Tabibi is like quoting Bomber Bradbury – unlikely too assist your argument.

    Comment by Tinakori — July 10, 2014 @ 9:54 am

  21. Economic Illiteracy Support Group: one of the problems with the official statistics is that they are often wrong due to misreporting. For example, my understanding is that if you add up global capital flows, the world runs a deficit with itself. Otherwise known as people declaring money leaving NZ (so they don’t have to pay tax on it) and then not declaring it when it arrives wherever it’s going. To put it another way, the measurement of a capital deficit in relation to NZ doesn’t mean we have a real capital deficit, as a simple example a bunch of that money may be going into the Swiss bank accounts of wealthy NZers and not being declared if and when it eventually returns to NZ.

    @Others, on the general topic of Piketty, I think there are a wide range of critiques of his work with a range of levels of credibility. Certainly one that I find reasonably convincing is the consideration of scarcity – in short, if the total stock of capital keeps increasing then logically the returns to capital will decrease, and if the stock of labour starts to shrink as our working age population decreases, then logically the returns to labour will increase. I am also quite interested in the mobility arguments, and the point that many of the people in the bottom income quintiles will at some point in their lives be in the top income quintiles (and vice versa), which dramatically decreases the implications of his analysis.

    Having said that, I think an interesting and important part of the insight that Piketty offers is that our progressive taxation system is built on the concept that those with more wealth should pay a greater share of the tax burden. (And here, I’m ignoring whether individual people agree with that construct, but noting that it’s what we do or try to do in NZ and in most western countries). Unfortunately, as Piketty found out in attempting to write his book, we have very poor measures of wealth. What we can easily measure is income, and so we apply progressive taxation to income. The problem with this is that people with lots of income (as measured for taxation purposes) are not necessarily the same group as people with lots of wealth. This to me often comes down to lifestages – often people with a lot of income are young families with children – they also have a lot of expenses, and they aren’t really amassing wealth. Conversely, older people without children often have a lot of wealth (and sometimes not so much taxable income), and they often have relatively low expenses as well – logically to me they’re a better target of our progressive taxation system than those with young families.

    So to me it does make some sense, given the increases in our ability to collect information, to directly tax wealth, rather than our proxy for wealth – income. This would mean more use of land tax, perhaps an inheritance tax. Sure, it’s hard to directly tax capital, but just because something is hard is not necessarily a reason not to do it – if we didn’t have an income tax today it would sure look hard to enact one. My view would be that this wouldn’t be instead of the income tax (since a wealth tax would have loopholes), but be an adjunct to the income tax so that those with a lot of wealth but little taxable income would still pay some proportion. So despite my concerns with Piketty’s overall method and the reliability of some of his assertions, I do think his overall recommendation of a wealth tax may be a good one.

    Comment by PaulL — July 10, 2014 @ 2:54 pm

  22. one of the problems with the official statistics is that they are often wrong due to misreporting. For example, my understanding is that if you add up global capital flows, the world runs a deficit with itself.

    The commonly cited example is global merchandise trade. If you add up all the official export and import results for every country, the world is a net-importer of merchandise.
    The reason is not particularly exciting and has little to do with money laundering or boats-under-cover-of-darkness. It’s quite mundane: nations have an incentive to know exactly what’s coming into their country so that the correct value of import duty is charged, and all the pests are identified and eradicated before they escape into our environment. On the other hand, our exports are somebody elses imports and their problem to tax or fumigate, so we’re less inclined to count them up accurately.

    Comment by Phil — July 10, 2014 @ 4:09 pm

  23. In other news Len Brown is cutting services and raising taxes on households, so he can subsidise the central Auckland property owners club.

    Comment by unaha-closp — July 10, 2014 @ 4:18 pm

  24. “built on the concept that those with more wealth should pay a greater share of the tax burden.”

    I’m not sure that is right. Wealth is just saved income, after all. The income has already been taxed and so the wealth is taxed “at birth”.

    If we were to tax wealth rather than income, we are just saying we will tax savers rather than spenders. Which I don’t think is either wise or favoured by society.

    Not to say a bit of wealth tax wouldn’t hurt* but I don’t see wholesale moving from income to wealth to be desirable.

    *Notes we have rates already which is a pretty good wealth tax albeit only on property.

    Comment by Swan — July 10, 2014 @ 10:35 pm

  25. “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

    He’s referring to left wing politicians with their hands on the levers of power and the taxpayers’ wallet there, right? Lol.

    Wealth taxes, eh? Why have folk here read Pikkety but not (cat killing) Morgan?
    Big Kahuna? Anyone? Anyone? Which is a book in which Morgan advocates a tax on…? Anyone? Anyone?

    Comment by Clunking Fist — July 11, 2014 @ 4:10 am

  26. Of course, if we implement a wealth tax, we would lower income taxes and GST right? to ensure revenue neutrality, right?

    Because the object of the exercise is not to soak the rich, right? Right…

    Comment by Clunking Fist — July 11, 2014 @ 4:14 am

  27. @Swan, yes, rates are a form of wealth tax, but they aren’t administered as a wealth tax really – they are more a local govt cost recovery. And of course they don’t apply to non-property wealth, and rural property owners pay less of the, than urban, which isn’t what you’d do if you wanted a wealth tax.

    @Clunking Fist: if I was dictator, then yes, we’d reduce other taxes. In reality it’s impossible to introduce new taxes in a revenue neutral way, the govt will always make a grab for more. Even if a right wing govt brought it in revenue neutral, the next time a left wing govt was in they’d push up income taxes because “our headline rates are lower than Australia”. So whilst philosophically I’d agree with a wealth tax, the caveats that I’d want with it wouldn’t be workable. Which is unfortunate, because I do feel that upper middle salary earners get a raw deal – they pay more tax than those below them on the wealth ladder, and more tax than those above them on the wealth ladder. I guess they have the option of stopping being a salary earner though.

    Comment by PaulL — July 11, 2014 @ 11:38 am

  28. Indeed. Whatever scheme is put in place it’s “unfair” to someone. so rather than completely reinvent the wheel, a simplified Kahuna of a flat (income) tax plus a citizen salary to help alleviate welfare trap and the regressive effects of GST.

    Comment by Clunking Fist — July 12, 2014 @ 10:26 am


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