It's not inequality, stupid

Child poverty strikes a chord across the political spectrum, but the left will struggle to make inequality a major election issue because most New Zealanders are just getting on with it

What is the election going to be about? The froth and bubble of donations? Not very likely. The competence of the main players will undoubtedly feature. Or perhaps Bill Clinton's 1992 classic slogan "it's the economy stupid" will again prove true.

The past few months there has been a clamour on one aspect of the economy, at least on the left, and that is inequality in New Zealand. The debate relates to both the spread of income and the spread of wealth. The response of National is that inequality has not significantly changed over the last two decades. And if there is a problem to be fixed, it is best done by growing the economy and getting people into employment, not by increasing benefit levels.

But why has inequality become an issue of concern, when for the decade past it was barely on the political radar? There seem to be several reasons. There is substantial evidence that the inequality gap has become larger in many western countries over the last two decades. The GFC highlighted the extreme levels of remuneration in the global banking sector, seemingly far beyond any actual contribution to the economy. And that has flowed over to executive pay generally. As a result, at least for the left, the spread of wealth is seen as a pressing concern that will ultimately threaten the stability of society. Will citizens of 50 years hence see us as living in an ancien regime, heedless of the poverty around us?

Oxfam has stated that the top 10% of New Zealanders have 57% of all wealth. Perhaps this is not surprising, given that more than 30% of New Zealanders own very little, other than their clothes, some furniture and an old car. Since so much wealth is tied up in housing, for the 35% who do not own a house, they are unlikely to have much wealth.

The debate on inequality has also resulted in a number of books on the issue by left-wing authors, such as Pickett and Wilkinson, The Spirit Level, and Piketty, Capital in the 21st Century. Interestingly while these books have an avid readership on the left, most of my more conservative friends are blissfully unaware of them. They have a pragmatic view of the world and are not concerned with immersing themselves in academic arguments. They are getting on with their families and building their businesses.  

In New Zealand, the argument is focussed on the number of children living in poverty, said to be 250,000 or in other words a quarter of all children. And solving this real world problem is discussed right across the political spectrum.

The great majority of these children are living in benefit dependent families. If family poverty is defined as less than 60% of average family income, then inevitably all beneficiary families are defined as living in poverty. This kind of statistical analysis takes no account for instance of whether a family is living in a Housing New Zealand house, where rents are typically one third of market rents. And benefit-dependent families are at the top of the queue for Housing New Zealand houses.

I suspect that most voters are well aware that many poorer families receive the bulk of their income from benefits, and that many will be in Housing New Zealand houses. Voters will make their own judgement as to whether this constitutes a poverty crisis that can only be solved by increasing benefits.

So when the Children’s Commissioner argues that benefits be increased 50%, inevitably there will be some scepticism that this is the best thing to do. The gap between low income jobs and benefits would disappear, even at “living wage” levels of pay.

There may be more appealing solutions, such as extending free doctor’s visits, breakfasts and lunches at school, and ensuring better housing conditions, and of course encouraging people into paid employment.

A deeper reason why the inequality issue does not appear to have gained much traction is people’s own experience of the last decade or so. Does it seem that a large wealth gap has actually opened up on New Zealand over this time?

Certainly for those old enough to remember, there is a bigger gap now than 30 years ago, before the freeing up of the New Zealand economy.  Much of the shift occurred in the years between 1984 and 1992, with the end of many state monopolies, the end of compulsory unionism, the reduction in top tax rates from 66% to 33% (or 39% if Labour is in power). Telecom, New Zealand Rail, and the Ministry of Works, which were so dominant in 1984, no longer employ 75,000 people.

But how many New Zealanders would want a modern version of the pre-1984 world? Well, obviously some, or else the inequality debate would not exist. But is there enough concern for inequality to be the defining issue of the 2014 election? Or will be on the broader issues of economic growth, jobs and competence in managing the nation’s economy.

The next three months of electioneering will tell, but I suspect it would be a bold punter who would put money on inequality and benefit levels being the defining issues this election.