How the Wealth Gap Affects New Zealand More Than Anywhere Else
We asked Dr Tim Hazledine, author of 'Inequality: A New Zealand Crisis,' how NZ came first in a list of 21 countries crippled by inequality.
New Zealand was colonised under the premise of beating the class system. Our image of ourselves as a laid-back egalitarian utopia is ingrained in our vernacular: "Kiwi ingenuity," or "She'll be right." But this reputation appears to be misleading.
Last month The Washington Post published a report from the Organisation for Economic Co-operation and Development (OECD), which found income inequality affects New Zealand's economy more than any other in the developed world. Specifically, the report claimed that a lack of education among low income earners has marred the country's economic growth by 15.5 percent.
As a result of this gap between rich and poor, NZ beat 21 other developed nations (including Mexico and UK) for having had the least amount of economic growth in the past 20 years. To find out where we went wrong, we spoke to Dr. Tim Hazledine, who is a professor of economics at the University of Auckland. He was a contributing author on Inequality: A New Zealand Crisis.
VICE: Hi Tim, could anyone have predicted such a dramatic transition over the past two decades?
Tim Hazledine: I mean, which part? We were a very equal society and really prided ourselves on the living wage, or social wage, and then we hit the 1980s and went the other way. As inequality increased economists began to recommend trade-offs. The thinking was that you can reduce inequality by raising taxes. Many argued that would in turn reduce economic growth, because we would be taxing our big industries.
But that's not what happened right? Instead big earners revolted and taxes were lowered?
That's right. Cutting the tax rate was supposed to encourage really smart, energetic people to work hard. But these people basically said thank you very much, played some more golf and then went on more holidays, which didn't help at all. What the OECD study and a few others have revealed is that no, it's not even a trade-off. Not taxing to sustain economic growth is not bad for good—it's bad for bad. The countries that have higher inequality are doing poorer.
What was the outcome?
They wiped out a third of manufacturing sector over about five years. That's not good for anything as manufacturing is the core of the modern economy. It pays good wages to good working people and produces good stuff. Next we did very little about skills or trade training for people becoming unemployed. These are all reasons why tax cuts and subsequently inequality, severely impacted growth.
How much an impact do political decisions like tax cuts have on the way our mentality has evolved as a nation over time?
I think the increased inequality is deliberate and the people that are criticising are supposedly paying the top tax rate, which they're not actually paying. If you're rich you're also going to pay people to minimise your tax obligations. These people can't point to productivity as evidence because it just isn't true.
Is there something current or future governments can do for us to recover?
Well that's the question. First of all they've got to believe something can be done and want to do it. I don't think putting up tax will win an election in New Zealand, but getting everyone to pay tax could be more popular. I also think we're overeducated, but under-trained in skill and trade training. Rebuilding the unions would contribute significantly.
How badly does a lack of growth reflect on New Zealand's economy as a whole, internationally? Do overseas nations look at us and think uh-oh?
I think they are doing that a bit, especially if we're making international publications. It's hard to put things, as The Post has, mechanistically in terms of percentages of lost growth. I worry about inequality, not numbers. However it does show how other nations are looking at New Zealand. There are certainly many people who have issues with the steadily burgeoning gap between rich and poor but it's been slow and we've become accustomed to it.
Do you think this indicates an irrevocably changed New Zealand economy and our approach?
Well New Zealand is a fun place to be if you've got a little money in your pocket and credit on your credit card, which of course is the problem for a lot of poor people. I think we should be ashamed of the increase in inequality. It's shocking. We need to think about targets, decreasing the number of children in poverty, creating jobs that adhere to a good living wage. It's time to start figuring out how we might get there.
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