Government makes inroads on poverty but what's left in its toolkit?

12:10 pm on 15 March 2022

Opinion - The stratospheric rise of poverty and inequality during the Covid-19 pandemic can be seen everywhere - except in the statistics.

Economic inequality, which is essentially a question of whether income and wealth is distributed fairly across the population, has many facets, Max Rashbrooke writes. Photo:

It has become something like received wisdom that in the last couple of years, the economic damage wreaked by the coronavirus, combined with an inadequate government response, must have sharply widened disparities.

But a few weeks ago, Statistics New Zealand released data showing child poverty declined on two out of the three key measures between July 2020 and June 2021, as well as the year before - that is, through the first stages of the pandemic. The number of children in families unable to afford necessities like proper clothes and heating fell by 6000.

That data was followed by another release showing income inequality had reduced in the 12 months to June 2021, and in the previous three years. Finally, last week, new wealth inequality data revealed no overall change between 2018 and 2021. The share of assets held by the wealthiest 1 percent even declined fractionally, from 20.1 percent to 20 percent.

How can this be, some may ask, if foodbank use is soaring while supermarket owners rake in record profits?

Volunteers with donation box with foodstuffs on grey background - food bank, foodbank

Photo: 123rf

The answer is that economic inequality, which is essentially a question of whether income and wealth is distributed fairly across the whole population, has many facets.

Foodbank use is a stain on our society, and a sign of the desperation some families feel. It is also part of a wider story that wraps in hundreds of thousands of families under or around the poverty line.

Many of those families have been helped by the government's benefit increases, which have lifted Jobseeker Support by $90 a week, not to mention more generous Working for Families payments, the food in schools programme and other poverty-reduction policies.

The Covid-19 wage subsidies, and the consequent prevention of mass unemployment, have been a boon to middle- and lower-income households. In the bigger picture, minimum wage rises and pay equity settlements have helped, too. These are real increases in income that make it easier for families to buy food and clothing, heat their homes and give their children a good start in life.

At the wealthier end, the government's 39 percent tax rate on income over $180,000 is bringing in at least $600 million a year and gently correcting high-salary excesses. The removal of some tax privileges for landlords - who tend to be among the better-off - will continue this trend.

In short, commentators who take hold of just one or two readily available figures, and on that basis proclaim that inequality is soaring, are liable to be wrong.

This does not imply, though, that everything is fine. Poverty rates remain stubbornly high for Māori, people with disabilities, and others.

Even though over 20,000 children have been lifted above the poverty line since 2018, another 150,000 are still left below it, on one measure. Having over one-fifth of all assets owned by just 40,000 New Zealanders is an extraordinary concentration of wealth in a supposedly egalitarian country, and leaves very little to go around for everyone else.

Progress is also slowing. In the first years of the Labour-led government, the $1 billion-a-year Families Package, which boosted benefits and tax credits, made big inroads into the poverty figures. Since then the reductions have slowed to a crawl. They may even, in the last nine months, have gone into reverse, as the Auckland lockdown and rising living costs have hit household budgets.

Downtown Auckland at the beginning of the Level 4 lockdown in August.

Auckland during lockdown last August. Photo: RNZ / Nik Dirga

Families Package every few years?

The prime minister's officials have told her that, if she wants to meet her ambitious target to halve child poverty in a decade, she needs another Families Package every few years. Most experts think billions more dollars must be added to baseline spending - something the government has apparently little appetite for, and would struggle to do anyway, since it refuses to raise the requisite tax revenue.

The high-level wealth inequality figures also conceal some disturbing trends. The wealthiest 1 percent's share has been unaffected by rampant house price inflation because housing is not, relatively speaking, very important to people who own such valuable businesses, shares and other financial investments.

What that inflation has done is lift the (apparent) wealth of the next set down, the property-owning middle classes - and thus widen the already alarming gulf between them and the property-less families immediately below. This is, of course, due partly to the government's 'easy money' policy of making borrowing incredibly cheap during the pandemic.

If the building boom continues, and predicted price falls finally eventuate, the housing gulf might slowly close. But other forces, especially the cost of living crisis, will only widen disparities.

If this government wants to be remembered as having decisively attacked poverty, it cannot rely on its early wins, but must rather take even more significant measures. The question it faces, then, is simply this: what do you have left in the toolkit?

* Max Rashbrooke is a senior associate of the Institute for Governance and Policy Studies at Victoria University Wellington, and the author of Too Much Money (November 2021).

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