“Overcoming poverty is not a task of charity, it is an act of justice.”
― Nelson Mandela
What’s the problem?
The disposable income1 of the richest 10% of Kiwis is now about 10 times that of the 10%
poorest. This is up from around six times in the 1980s.2 Inequality on this scale is a serious
problem. Not only is it unfair; unequal societies are more unstable and less able to
respond to sudden shocks to the economy.3
The Secretary General of the OECD has said that:
 Sustained inequality inhibits economic growth and social cohesion.
 Without a comprehensive strategy for inclusive growth, inequality will continue to rise.
 There is nothing inevitable about high and growing inequalities.
 Our policies have created a system that makes the inequalities grow and it’s time to
change these policies.4
Our own Treasury recognises that concern about income inequality is one of the big longterm global trends.5
Much of the information for this pamphlet has been drawn from Inequality: A New Zealand Crisis
edited by Max Rashbrooke and published by Bridget Williams Books, with the permission of the
publishers. The text does not necessarily represent the views of Max Rashbrooke or Bridget Williams
Books. Inequality: A New Zealand Crisis is available from all good bookshops, and from
www.bwb.co.nz . RRP $39.99 print, $20 e-book.
1
Why should you care?
Poverty hurts children and all of us
The first one thousand days of a child’s life are critical in determining whether or not that
child will be a healthy, mature and productive adult.6
When parents don’t have the resources to adequately nourish
and nurture their children, those children suffer. Children who
grow up in poverty are more likely to raise their own children in
poverty and so a cycle of poverty is perpetuated.
That’s just not right – it’s not right for children and it’s not right
for society as a whole.
Most people can’t influence the circumstances that made them
poor. Responsibility for
poverty lies not with
them, but with all of us.
Greater equality benefits everyone
“Greater equality means more trust, stronger communities and greater social cohesion;
stress, aggravation and disorder are lower for everyone. Everyone’s health is better; all
children get to learn in more focused, less disruptive classrooms; and general quality of life
improves.” - Paul Barber, leader of the NZCCSS programme Closer Together. 7
Throughout world history, excessive inequality has typically led to civil unrest, including
higher rates of crime, riots and, in extreme cases, civil war.
Gap or canyon?
The experience of the poor
As an example from the book Inequality 8, take a home-care worker, providing support
that enables elderly people to continue to live at home. She is paid $14.80 an hour (just
above the minimum wage of $13.75 per hour). Her weekly disposable income is $490.
After buying essentials (accommodation, household, car running and life insurance costs),
she is left with $50 a week for everything else she and her student daughter need (shoes,
clothing, doctors’ visits, etc). It’s a life of second hand clothes, no holidays, and no saving
for future or emergencies. For her, the problem is not budgeting, skills or commitment,
but that her income is just very low and she lacks the options to increase it.
”CEO pay is driven by
the concept that the
By comparison to the home-care worker life is easier for the CEO has to be at least
‘comfortably well-off’, who can take advantage of:
in the top half, and
 discounts (stocking up on specials and buying in bulk),
maybe in the top
 more opportunities for untaxed or low-taxed wealth growth quartile, of pay scales.
So we have the
(e.g. property ownership),
‘ratchet, ratchet, rat better interest rates on loans,
chet’ concept. ... if
 knowing people ‘in the right places’.
everybody is trying to
be in the top half,
everybody is going to
get a hefty increase
every year.”
- Boardroom Briefing 9
The experience of the rich
2
Why is there now so much inequality?
One reason for inequality is the link between wealth and power. Even Adam Smith, the
father of our free market economy, warned that the free market economy gives
employers advantages over workers.10 The International Monetary Fund (IMF) has stated
that top income earners can influence politicians to pass laws that favour their interests
rather than the wider economy’s.11
A senior official who was at the time in the Prime Minister’s office was quoted in a 2011
British Parliament on Political Party Finance report:
“You do not have to spend very long within a government, and in the private
conversations within government, to know how many policy areas are coloured by the
dependence of the party on particular kinds of very wealthy individuals.” 12
In New Zealand, major changes were made during the 1980s to improve economic
performance, but experience is showing it is not working for many people.13
Closing the gap
There are many ways to address inequality.
Help people to help themselves
Given the opportunity to develop better work and living skills such as budgeting and
parenting skills, some people can lift themselves out of poverty. Much valuable support is
already being provided - especially important for those struggling to break out of an
intergenerational cycle of failings. But:
 many people with good work and living skills are still trapped in poverty, especially if
they have particular circumstances such as health issues or family breakup, and
 developing skills is best done while people are still children.
Developing skills is not sufficient on its own.
Reduce unemployment
Paid employment is a key goal. However, unemployment, especially amongst the young, is
an increasing problem. Cheaper overseas labour and the loss of low skill jobs to
mechanisation contribute to high rates of unemployment. Further, there is a trend away
from stable full-time jobs to short-term “as needed” roles which many regard as a
precarious existence.
The book Inequality identifies some good progress in the
education sector to give people education and training to match
the changing job market, but there is much more to be done.15
Providing job skills can offer three benefits: movement of
people off benefits into employment; higher wages from more
skilled jobs; and increased low-end wage rates as the supply of
job-seekers diminishes.
Unemployment represents perhaps the largest
waste of resource in
New
Zealand
–
estimated by BERL Chief
Economist Ganesh Nana
as well over $10 billion
per year.14
3
Build the economy
Building the economy is often regarded Just 1.3% of every top decile income would
as a key to addressing unemployment represent the amount required to give a 10%
and poverty: a growing economy can increase to everyone in the lowest paid decile.
create
jobs
and
can
provide At that rate the "everything else” money of the
in “Experience of
opportunities for those at the bottom of home-care worker mentioned
16
the poor” would double.
the inequality gap. But it is clearly not
enough on its own to significantly reduce income inequality. Further, while economic
growth has the potential to improve people’s quality of life it may also impede sustainable
living.
Redistribute some of the wealth
Some more direct options for closing the gap include:
 Increase the Minimum Wage, and index it to the cost of living or median income.
 Promote the Living Wage - an initiative to provide families sufficient income for the
necessities of life without resorting to legislation.
 Restructure the tax/benefit system,
Tax evasion in New Zealand costs about $7
which might include a more
about $22
progressive income tax (i.e. higher tax billion per year, compared with
17
million per year for benefit fraud.
rates on higher incomes) and
addressing gaps in income tax coverage (e.g. for capital gains). Compliance (e.g. tax
fraud) is also an issue being worked on.
 Introduce a tax on all financial transactons, thereby targetting those with financial
resources (a ‘Robin Hood’ tax)
Re-balance the power between the rich and poor
As an example, the British Political Party Finance report (mentioned earlier) identified, and
proposed responses to, the political influence wielded by significant political party donors
such as large companies and Unions. In New Zealand, as in Britain, there are already party
funding controls in place. Do they need to be improved?
Why it’s good economics to address inequality
There are many options that provide benefits on a pure financial basis.
In New Zealand child poverty accounts
for at least $6 billion annually in
additional health and education costs, as
well as reduced productivity,19 offering
scope for savings (see box).
A United States study has shown that providing
18 months of free preschool education, costing
US$9,000 in 2011, leads to at least US$90,000 in
benefits per child, mainly through increased
earnings and tax revenue, and reduced criminal
behaviour, and mental health costs and other
Another example is the home insulation
measures. Social and financial benefits to the
programme, in which savings have children and their parents are additional.18
outweighed costs by almost five to one.20
4
Some options cost money but are justifiable on the basis that they help to redress
unfairness and lift people out of a miserable existence. Decisions need to take account of
longer term benefits, and non-financial benefits.
So what should be done?
It’s complicated, and there is no single or simple answer. But initiatives by government,
businesses and individuals should aim to:
 ensure the basic necessities of life be available to everyone, “Stop blaming the poor
so they can live with dignity and participate as active citizens for their poverty and
accept the high costs of
in society.
inequality
before
 reduce excessive income inequality, while retaining
deciding what to do
sufficient incentives to encourage people to improve their about it.”
situations and contribute more fully,
- Robert Wade. 21
 seek fair remuneration levels, to address undervaluing of
some roles (e.g. care-givers) and overvaluing of other roles (e.g. in the financial
sector),
 help people to improve their life skills – especially, skills required for employment,
home and relationship management, and participating constructively in society,
 ensure that children develop in a supportive environment – nurtured, housed, loved
and encouraged,
 restrain excessive remuneration levels that create the large inequalities,
 ensure that reasonable steps are taken to reduce tax inconsistencies and loopholes,
 ensure a fair balance of power – so that governing boards, monopolies, government
policy makers etc work within a framework that constrains unreasonable use of
wealth, position, etc.
 implement actions that yield benefits that significantly outweigh costs.
 establish goals and measures to monitor progress and review as necessary.
FAQs
Use these questions and answers to address your own concerns, and to answer the
concerns of others:
Question 1: Isn’t the problem the fault of the parents, not poverty – the way they waste
their money, their drinking and drugs, their laziness, their lack of parenting
skills? If you give them more money they’ll just misuse it and we’ll encourage
more bludging and dependency.
Answer:
Many people living in poverty can manage their budgets and lives as well as
anyone else in society, but don’t receive a sufficient income. Nevertheless,
teaching parents skills such as financial literacy, home-keeping and relationship
management – skills which many people who grew up in a strong, caring,
environment take for granted - is an important part of the solution. Lack of life
skills is also a form of poverty. Attributing fault is not a solution.
5
Question 2: Why are we not focusing overseas, where there is real poverty? So-called
poverty in New Zealand is not nearly as bad.
Answer:
If we address the issue in New Zealand, we will have a more cohesive society
better able to help others. This is not an “either/or” situation.
Question 3: Why can’t we rely on growing the economy and the trickle-down effect?
Answer:
Trickle-down has not worked. When the economy grew over the period 1984
- 2010, the income of the top 10% grew 78%, while the income of the bottom
10% grew only 13%.22
Question 4: How can we afford to increase the lowest wages with ideas like the Living
Wage? Surely it will push up all wages to maintain relativity, adding to
inflation, and unemployment.
Answer:
US and London studies have shown that cost savings are made as higher
wages lower turnover rates and motivate greater worker productivity. See
http://www.livingwagenz.org.nz/faq.php for details.
Question 5: I’ve earned my high salary. I’ve spend years studying/gaining valuable
experience/working hard/taking big responsibilities. The company I work for
gets top value from me.
Answer:
Have you been well supported through your schooling and career path?
Many who don’t succeed have not grown up with positive role models and
support – have not had books read to them or received encouragement in
their learning or mind opening experiences. While it’s certainly possible to
rise above these challenges, it is more difficult to do so.
Question 6: Inequality doesn’t affect me so why should I do anything? It’s not my
problem; Government needs to fix it.
Answer:
Inequality is everyone’s problem because it affects the whole of society (see
“Why should you care?” above). It’s the Government’s role to act in the
interests of everyone, and Government needs to know that many people are
very concerned about inequality.
What next?
To achieve change, we first need widespread acceptance that the current large income
inequality is unjust and needs to be addressed, not only for the sake of those suffering the
injustice but also for the wellbeing of our society as a whole. So we are asking you to:
 Tell others: share the thinking in this brochure with family, neighbours and
colleagues,
helping
others
to
understand
the
message.
See
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www.slw.org.nz/inequality for further information, to seek clarification or challenge
any of the brochure content, or to download the latest version of the brochure.
 Make a statement: visit www.givealittle.co.nz/cause/Income_Inequality and donate a
symbolic $1 to show your support of the following statement:
The large gap between the rich and poor in New Zealand is unjust for too many people.
This damages our country as a whole. We support initiatives to deal with excessive
income inequality, because their long term benefits far outweigh any short term costs.
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References
Note: There are many references to the book Inequality – A New Zealand Crisis, edited by Max
Rashbrooke, Bridget Williams Books, 2013. These references are identified in the footnotes by the
letter p and the page number, e.g. p28 = page 28 of the print edition.
Web content was accessed Sept 2013.
1
Disposable income is the “take-home” income received after payment of taxes and receipt of benefits.
Based on average single person households – p28 figure 2.5.
3
p11. Based on IMF paper Inequality and Unsustainable Growth: Two Sides of the Same Coin? – see note 11 below.
4
Remarks by Angel Gurría, OECD Secretary-General, delivered during the press conference to launch the report
Divided we Stand: Why Inequality Keeps Rising - OECD, Paris , 5 December 2011
http://www.oecd.org/social/dividedwestandwhyinequalitykeepsrisingspeech.htm
5
The view from the Treasury, by Brian Fallow
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10910090
6
1000 days to get it right for every child, A report prepared by Infometrics Ltd, page iii
http://www.everychildcounts.org.nz/_w/wpcontent/uploads/2011/08/ECCInfometricsInvestmentinchildrenAug11.pdf
7
p170. Paul Barber encapsulates the view of several researchers, groups and individuals.
8
p87. See Tamara’s story.
9
Reproduced with permission from The Myths of Executive Compensation - We can do something about excessive
compensation., Edgar S. Woolard, Jr., Boardroom Briefing, Vol. 2, No. 4, Winter 2005
http://www.directorsandboards.com/BoardroomBriefing5Final.pdf
10
An Inquiry into the Nature and Causes of The Wealth of Nations, Adam Smith, 1776. See also
www.goodreads.com/author/quotes/14424.Adam_Smith
11
p11. Andrew G. Berg and Jonathan D. Ostry, Inequality and Unsustainable Growth: Two Sides of the Same Coin?,
IMF staff discussion note, 8 April 2011, pp. 9– 10.
12
UK Committee on Standards in Public Life 2011, Political party financing: ending the Big Donor culture, Nov 2011,
Section 1.19,
13
p55. In chapter 4, Ganesh Nana of BERL explores the role of economics in income inequality.
14
p64. BERL = Business and Economic Research Ltd
15
p184. In ch 12, Paul Dalziel, Professor of Economics at Lincoln University, overviews education issues and progress.
16
Based on Bryon Perry, Household incomes in New Zealand: Trends in indicators of inequality Hardship 1982 to
2012, 2013, Fig B.4: decile1 = 3.2% of total income, decile 10 (same number of people) = 24.3%. So for everyone in
the bottom decile, 10% of 3.2% = the same amount of money as 1.3% of 24.3% for everyone in the top decile.
17
Dr Lisa Marriott, Courts more lenient on white collar criminals www.victoria.ac.nz/research/expertise/business-commerce/fraud-sentencing
18
Preschool benefits last into adulthood - study. See:
http://www.3news.co.nz/Preschool-benefits-last-into-adulthood---study/tabid/1160/article ID/214539/Default.aspx
19
Preschool benefits last into adulthood - study. See:
HYPERLINK "http://www.3news.co.nz/Preschool-benefits-last-into-adulthood--study/tabid/1160/article%20ID/214539/Default.aspx
20
p117 – taken from: A. Grimes, T. Denne, P. Howden-Chapman, R. Arnold, L. Telfar-Barnard, N. Nicholas Preval and
C. Young, Cost Benefit Analysis of the Warm Up New Zealand: Heat Smart Programme, Report for Ministry of
Economic Development, Motu Economic and Public Policy Research, Wellington, 2011.
21
Quote from Robert Wade, Professor of Political Economy, London School of Economics – quoted in Do Justice Aug13, Auckland Diocesan Social Justice Council on Social Justice Issue.
22
p28 Figure 2.5:. Figures are the average disposable income of a single person household. Adapted from Perry,
Household Incomes in New Zealand, p. 218, and figures in the World Top Incomes Database, for New Zealand, 1921–
2009, http://www.topincomes.gmond.parisschoolofeconomics.eu/ (accessed 14 March 2013).
23
Note two websites: www.slw.org.nz/inequality has further information on this brochure and the purpose of the
donation, www.givealittle.co.nz/cause/Income_Inequality is where donations can be made.
2
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What else can you do?
 Give time or money to organisations that help people living Until the fence at the
in poverty.
top of the cliff is
 Support organisations that are lobbying for policy and finished, we have to
structural change that helps prevent poverty.
keep on looking after
 Become informed about some of the solutions, and lobby people who fall off.
government to make changes that will help transform the
lives of families and communities living in poverty – for example: campaign for a
living wage and the Children’s Commissioner Solutions to Child Poverty in NZ.
 Explore some of the deep changes to the economic system that could create a fairer
system and end poverty. See www.slw.org.nz/inequality for links to other useful sites.
More information
For a version of this brochure with hyperlinks to references, and for additional detail on
how to support the Statement, visit www.slw.org.nz/inequality.
If you want to explore the issues in this brochure more deeply, we encourage you to
read Inequality - A New Zealand Crisis, edited by Max Rashbrooke, 2013, published by
Bridget Williams Publishing Trust http://www.bwb.co.nz/books/inequality. Also, visit
www.inequality.org.nz, a website that provides backup for the book.
Scan the following codes to link directly to the websites related to:
this brochure:
the donation:
www.slw.org.nz/inequality
www.givealittle.co.nz/cause/income_inequality
Do we have the vision to offer all
a future with hope?
This brochure has been prepared by a group from the local churches and wider community around St Luke’s
Anglican Church, Wadestown, Wellington under the support of St Luke’s. Refer www.slw.org.nz/inequality.
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