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Inequality in New Zealand How bad? Does it matter? What can we do about it?. Bill Rosenberg Policy Director/Economist N Z Council of Trade Unions. Outline. The situation How did we get here? The effects What can we do? CTU’s Alternative Economic Strategy. Outline. The situation

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Inequality in new zealand how bad does it matter what can we do about it l.jpg

Inequality in New ZealandHow bad? Does it matter? What can we do about it?

Bill Rosenberg

Policy Director/Economist

N Z Council of Trade Unions


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Outline

  • The situation

  • How did we get here?

  • The effects

  • What can we do?

    • CTU’s Alternative Economic Strategy


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Outline

  • The situation

  • How did we get here?

  • The effects

  • What can we do?

    • CTU’s Alternative Economic Strategy


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One of the most unequal countries in the high income world

Gini Coefficient – measure of inequality

0 = everyone equal; 100 = one person has all the income

  • New Zealand had the fastest rising income inequality in the OECD in the 1980s and 1990s

  • Now around 10th highest income inequality out of 34 countries in the OECD

  • Source: OECD (2010) , Treasury


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Source: Household Incomes in New Zealand , Bryan Perry, MSD


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What does this all mean?

The population is divided into 10 “deciles” – each a 10th of the population. The wealthiest are Decile 10 (D10), the poorest (who have negative wealth) D1. But we can divide each decile even further. We have called the wealthiest “Top 1%”. Together with “Next 4%” and “Next 5%” they make up Decile 10 (D10).

Source: Wealth Disparities in New Zealand, Statistics New Zealand (2003/04 data)


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Outline

  • The situation

  • How did we get here?

  • The effects

  • What can we do?

    • CTU’s Alternative Economic Strategy


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Wages and salaries

  • Over half of people over 15 get income from wages and salaries

  • Wages make up over 70% of average household income (for households with at least one member aged 18-64)

  • International Monetary Fund research:

    • Very high inequalities in US led to rich lending to the many lower income people who couldn’t afford it

    • Led to financial crisis when poor couldn’t service loans

    • Remedy: improve bargaining power of employees


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Source: OECD


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From Savings Working Group Report


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From Savings Working Group Report


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From research conducted for Tax Working Group


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Role of government

  • Major responsibility for redistribution

  • But recently less rather than more

  • Tax cuts in 2009, 2010 cost over $5 billion/year

  • Working for Families costs $2.8 billion/year

  • Yet it is being cut

    • affects families living on little as $35,000 per year

    • cuts its value by a third over next seven years

  • Similarly state housing, Welfare Working Group


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Source: Treasury


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Outline

  • The situation

  • How did we get here?

  • The effects

  • What can we do?

    • CTU’s Alternative Economic Strategy


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Source: David Craig: Hollowing out the Kiwi dream


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20-25% of children live in poverty – mainly children of beneficiaries.

Median income for couple with dependent children in 2010: $76,000

Median income for single parent with dependent children in 2010: $30,000

Source: David Craig: Hollowing out the Kiwi dream


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Outline

  • The situation

  • How did we get here?

  • The effects

  • What can we do?

    • CTU’s Alternative Economic Strategy


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What makes a ‘fair society’?

New Zealand’s Church leaders described it in 1993 like this:

Social Justice is:

fairness in our dealings with other people;

fairness in the way responsibilities are shared;

fairness in the distribution of income, wealth and power in our society;

fairness in the social, economic and political structures we have created;

fairness in the operation of those structures so that they enable all citizens to be active and productive participants in the life of society.

From “On a level playing field”


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Alternative Economic StrategyAn economy that works for everyone


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Principles to stand by

  • Fairness

    • Greater equality, equity and valuing diversity

  • Participation

    • Te Tiriti, and greater voice in workplaces and society

  • Security

    • Security of employment and income, role of the state

  • Improving living standards

    • Wages, social wage, leisure, our environment

  • Sustainability

    • Economic, social, cultural, environmental

  • Sovereignty

    • Power to set our own rules and priorities, fair international rules


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A framework for change

  • Sustainable economic development

    • A strong economy which takes account of its side effects on the environment, society and cultures

  • Decent work and a good life

    • Good and fair wages, rewarding jobs, effective unions, secure employment, social protections , low inequality, social equity

  • Voice: real participation in workplace, economic and community decision-making


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Where we want to go

Large number of policy proposals

Highlight some under ten headings:


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Employment and income

  • Lift wages through industry bargaining, higher productivity and a boost to the minimum wage.

  • Flexicurity

    • 90% income replacement on job loss

    • Active labour market policies

    • Support for up-skilling

    • Tripartite design and governance

  • Increase minimum wage to 66% of average wage ($17.22)

  • Right to Pay and Employment Equity workplace assessments

  • Review benefits with view to tying them to percentage of average wage


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Housing

  • Low interest funding for new housing through Reserve Bank

  • Assessment of housing need to create a National Housing Strategy

  • More low cost housing

    • Expand NZ’s housing stock by 20%

    • Local council/developers to meet quota of affordable housing

    • Increase tenant security by reforming tenancy laws

    • Sponsor designs of low cost, green, healthy housing

  • Increase affordability by

    • Subsidised lending for low income/disadvantaged groups

    • Expand shared equity and Kiwisaver house purchase schemes


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Retirement

  • Enhanced Kiwisaver scheme: consider

    • 6% compulsory employer contributions (phased in over 4 years)

    • 2% compulsory employee contribution

    • 2% government top-up

  • Inquiry into equity issues for those on low pay rates, women, long-term beneficiaries


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Economic Development

  • Government support of firms, with conditions

    i.e. employment creation / export or import substitution potential / industry standard employment agreements / commitment to skills development / fair remuneration / progress to pay equity

  • Begin to buy back the electricity system

  • Support Māori economic development

  • Encourage worker cooperatives and other alternative investment


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International Economic Relationships

Support better international financial regulation and supervision

Support a cross-border financial transactions (Tobin) tax

Manage international capital movements to and from NZ

New internationalism: need for cooperation rather than market approach (e.g. trade agreements)

Controls on foreign direct investment


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Financial and Monetary Policy

  • Closer oversight over financial institutions

  • Stabilise exchange rate

    • Management of international capital flows / currency controls / cooperation with other nations

  • Reserve Bank to:

    • Take action on exchange rate and international capital flows

    • Have broader monetary policy including employment, living standards, etc.

  • Finance for investment in NZ (Kiwi bonds, NZ Super Fund)


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Taxation

Personal taxes

A tax-free band and/or rebate for people on less than $35,000

Tax rate 38% on income over $100,000, 45% over $150,000

Reduce GST to 12.5%, progressively replace with other taxes

Resources and the environment

Tax pollution emissions; greenhouse gas emitters pay cost

Ensure lower income people don’t pay unfair share of costs (“Just Transition”)

Company taxes

Restore company taxes to 30%

Change trust and company tax rules to cut tax dodging

Capital gains tax or assets tax, exempting primary home

International Financial Transactions Tax (“Tobin Tax”)


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Environment

  • Green New Deal

    • Tax breaks for investment in environmentally beneficial technology or services

  • Investment in skills for a low carbon economy

  • Just transition for workers and communities affected by climate change policies

  • Alternatives to gross domestic product (GDP) to measure progress


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Participation

  • Improve worker participation through:

    • Representative structures in workplaces

    • Industry sector councils (productivity/ skills/ industry development / firm networking)

    • Mechanisms for workers voice

  • Enterprises (20+ workers) to provide access for community organisations /local govt to consult workers

  • Increase depth and diversity of NZ media

    • Trust-owned ‘public service’ newspapers and other media

    • Funding for investigative print journalism


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Productivity

  • Establish Productivity Commission which includes support for workplace initiatives

  • Address poor returns to workers from productivity gains

    • Living Standards Review Authority with tripartite involvement


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Thank youDiscussion?


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