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Professor Jacqueline Rowarth

Pioneer Spirit Alive and Well

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The drop in the Global Dairy Trade auction price, and the subsequent decrease in Fonterra’s forecast to farmers, puts the average dairy farmer in the Waikato under the poverty line.

The calculation is on the basis of comparing budgets at $6.30 per kg of milk solid with $5.30. Without adjusting farm working expenses, the hit is taken on the farmer’s income which drops to below 60% of New Zealand’s household median.

Note that the definition of poverty is not to do with the necessities of life, but a comparison with other households.

Comparisons can very easily be misleading but they do make for good election platforms – and the positioning for inequality relief is continuing post-election.

The Roy Morgan Research poll of 966 people in July and August showed that concerns about inequality and other social issues were top of mind in this election. Almost a fifth of New Zealanders consider poverty, the gap between rich and poor or the imbalance of wealth is now “the most important issue facing New Zealand”, up from just 4 per cent in the equivalent poll just before the 2011 election.

While it is true that inequality has increased in New Zealand, the OECD calculates that poverty (defined as 50% of the median equivalised household income) affects 11% of the population. This is a smaller proportion than the OECD average, and in the UK and Canada.

In addition, key findings by Statistics New Zealand for the 2013 Households Incomes Report included a bullet point on the volatility of income inequality due to the Global Financial Crisis (GFC) and the statement that ‘there is no evidence of any general rise or fall in income inequality since 2007’. Another bullet point indicated that whereas for many OECD countries, lower income households tended to lose more or gain less than high-income household since the GFC, for New Zealand there was a small gain for bottom decile households (1-3%) and a net fall for the top decile (approximately 6%).

In New Zealand the rich did not get richer during the recovery.

The NZ Statistics report also states that in New Zealand the top decile earners receive 8.5 times the income of the bottom decile (after tax and transfers); this is average for the OECD and lower than Canada and Australia (8.9). Of note is that in New Zealand the top 1% of income earners received around 8% of all taxable income in 2009 and 2010 (before tax). This is similar to Australia, lower than Canada (12) and considerably lower than the UK (14%) and US (17%).

The OECD report Society at a Glance 2014 released in mid-March addressed ‘the growing demand for quantitative evidence on social well-being and its trends across OECD countries’. The report indicated that social spending has increased by approximately 2.9% in New Zealand since the Global Financial Crisis (GFC), just slightly less than in the UK and USA, but more than in Australia and Canada. New Zealand now spends 22.2% of GDP on social support (the OECD average is 21.9%). We rank second only to Australia in that the bulk of social transfers (support) received by the bottom 30% of the income distribution is approximately 180% of the average payment across all families, whereas the top 30% receive approximately 40% of the average. In the United States the figures are approximately 115 and 70%.

Quite why New Zealanders are focussed on the negatives is mystifying. Migration figures support the fact that people from other countries, including New Zealanders who have been living overseas, think that the country has a lot to offer.

The Social Progress Index (USA) ranked New Zealand number one of 132 countries in March this year. The index has three pillars: basic human needs, foundation of well-being, and opportunity. In October last year, the Legatum Prosperity Index (UK) ranked New Zealand 5th of 142 countries. In this index, basic economic data such as GPD per capita, growth and savings are included with entrepreneurship and opportunity, governance, education, health, safety and security, personal freedom and social capital.

New Zealand rates highly because of history – the pioneer mentality that made settlers battle on through adversity to ‘get ahead’. We pay taxes, and we look after each other through the government systems of taxation and rates, and through social networks and support systems.

New Zealand is rated from overseas as a great place to live. Acknowledging this domestically is important for improving social well-being. The farmers, who typify the pioneer mentality of work hard and get ahead, still want to live in New Zealand despite the drop in milk price. This drop will reduce the tax take for New Zealand, and so the Government’s ability to pay social welfare. Rethinking what constitutes poverty is timely, while we appreciate residing in the Land of the Long White Cloud.