14 Dec 2018

How can NZ close the gap between rich and poor?

6:28 pm on 14 December 2018

Opinion - Today's release of data on New Zealanders' assets deals another blow to the idea that this is an egalitarian country, writes Max Rashbrooke.

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Photo: 123RF

The Household Net Worth survey by Statistics New Zealand shows the wealthiest one percent have 20 percent of all assets and the wealthiest tenth have 59 percent. The poorest half of adults - 1.8 million New Zealanders - have just 2 percent of all wealth. Māori net wealth is significantly lower than that of Pakeha.

These figures are broadly unchanged since the last such survey in 2015. But that's barely reason to celebrate.

Wealth - in the sense of things that people own, like houses, cars, financial investments and cash in the bank - provides security and stability. It is something people can draw on during tough times, a stake in the community, a base from which to plan for the future.

So it is hugely concerning that so many New Zealanders have so little wealth. And their position is not improving. Statistics New Zealand reports that the poorest 40 percent have seen no increase in their wealth in the last three years.

This is a major imbalance between rich and poor, even by the standards of the English-speaking countries with whom we normally compare ourselves. Our wealthiest individuals have a greater share of total assets than do their counterparts in Australia, Canada and even the UK, traditionally regarded as a country with deep class divisions. In the English-speaking world, only the US, where the wealthiest tenth have 79 percent of all assets, is significantly more unequal.

One of the consequences of such inequality is a precarious life for many. The average New Zealander is worth $340,000, which sounds reasonably good, but most of that is tied up in housing. The typical person has just $8000 in their bank account. That means they have little insurance against major life shocks.

As has often been remarked, one of the puzzles of capitalism is that it produces so few capitalists - so few people with meaningful amounts of capital to invest. And there is clearly something wrong with our economic settings when so many individuals, despite working hard, cannot build up a decent wealth stake. Indeed many of the poorest are deeply in debt.

The counter-argument is that the wealthiest New Zealanders deserve every cent they own. And of course many have worked hard. But much of their increase in wealth has come from rising property values - and sitting on an asset appreciating in value hardly counts as tough labour. To some extent those fortunes will have also been generated through luck, help from family and friends, and the use of collectively funded infrastructure such as schools, roads and broadband.

To that end, these new figures are likely to heighten the calls for some kind of tax on wealth - whether that be a capital gains tax or something else - as a way to maintain that common infrastructure and compensate the unlucky.

One way to do that would be to create a Kids KiwiSaver scheme, as various political parties have proposed. The proceeds from a tax on rising house values could be used to kickstart KiwiSaver accounts for poorer children whose parents would not otherwise be able to help them build up much of an asset stake. On adulthood the children could then assume control of the accounts, using them just like standard KiwiSaver schemes.

Of course we also need to see further action to fix a broken housing market and ensure that those who want to buy a home can do so. But such policies could, if taken together, extend the security and stability of wealth to a much wider range of New Zealanders, and make our egalitarianism more than just a myth.