Treasury fudges numbers to hide growing inequality

Treasury is fudging its numbers to hide the real levels of inequality in New Zealand, and in doing so politicising its research and advice to Government.

This week the Treasury published a background note entitled ‘Increasing Equity’ that looks at the drivers of New Zealand’s growth in inequality in comparison to other OECD countries and concludes that inequality in New Zealand is “about average” compared to the OECD.

However the report uses non OECD countries in its analysis to improve the relative ranking of inequality. Parliamentary Library research undertaken for the Green Party shows that when New Zealand is only compared to other OECD countries we drop to 25th out of 34 countries; below average and in the bottom third.

The Treasury is a public department, not a right wing think tank. It owes it to the New Zealanders that fund it to undertake honest and accurate research. They spend a lot of their report downplaying the socially corrosive and economically destructive consequences of inequality. In order to prove that political point they have fudged their numbers.

We need honest information about inequality. The Treasury have got it wrong, rather than being ‘about average’ we are actually in the bottom third of OECD countries. This kind of reporting is dangerous because it attempts to create a case for not taking action to tackle inequality.

This is the not the first time a Government department has caught fudging numbers in order to prove a political point for the National Party. The Treasury manipulated the figures last year to try to prove private power companies charged less than publicly owned ones.

The Reserve Bank Governor Graeme Wheeler also misled Parliament when he said that bank profits were “about average or below” most other OECD economies. However data we obtained under the Official Information Act showed banks’ pre-tax returns on assets from 2009-2011 made them the fifth most profitable banks in the OECD.

Over 270,000 Kiwi kids live in poverty. Those kids need their Treasury to undertake honest research on their situation and stop engaging in political spin.

15 Comments Posted

  1. jc2, I agree with the sentiment. We do need more new housing and less speculation on the rising value of existing property. We also need more investment in new economic activity rather than changes in ownership of existing assets (too often clip the ticket utilities).

    The banks have a lot of money in deposits and the government intends to sell shares in power companies to mop it up and “expand the share market” – but none of the money is being sought for investment in new economic activity. There are no local companies forming (issuing shares to the public) to invest in developing infant milk formula to supply the market in Asia. Instead it is only offshore investors (mainly Chinese) doing this.

    We are becoming dependent on this foreign investment to add value to our primary export sector – so much for the often spoken campaign to add value to our own productuon and not just be commodity suppliers.

  2. ~@SPC re “New Zealand needs to be more welcoming to foreign investment”

    I think there’s a paradox here: being welcoming of foreign investment into mortgages on second-hand houses is causing the problem; it’s not obvious how to be less welcoming of that, while being more welcoming of investment into novel wealth-creating businesses, but not necessarily into second-hand businesses, which is probably what we need to do.

  3. My post at 4.08 should have said Treasury says we are “about average” not that we were just below average and well below the median (using out of date figures c2008) and the gini gap here had worsened here since then.

    Of course the gini gap has also worsened in other countries since 2008 – with rising unemployment and welfare support cut backs. But only here has there been a top rate of income tax cut to widen the gini gap at the upper end (as well as the continued exemption from tax on CG – something exclusive to those who have savings).

  4. Using a CGT to invest in ways to reduce gini is the most direct action against inequality.

    A CGT would also help to improve the quality of our investment.

    From the RB Governor

    “Over the past 25 years net household savings rates, as a percentage of after-tax incomes, have averaged minus 2.25 per cent, the worst in the OECD and 10 percentage points below the OECD median. Instead we have relied on importing the savings of foreigners, resulting in a level of overseas debt which makes the economy vulnerable and results in higher interest rates.

    The quality of investment is also an issue, with much of it going into housing rather than productivity-promoting investment.

    The capital-to-labour ratio within New Zealand businesses is low by international standards.

    Wheeler concludes that New Zealand needs to be more welcoming to foreign investment, and should “re-examine the factors, including tax and regulation, that diminish and distort the incentives to both save and invest”.

  5. According to the RB Governor, we had and have greater inequality than most OECD countries – as Russel Norman said, 25th out of 34.

    “In the mid-2000s we had greater income inequality than most OECD economies, and this is unlikely to have changed.

    “The bottom income deciles are populated by those with lesser skills, and those who experience prolonged and recurrent spells of unemployment.

    “Addressing these groups would both promote productivity and reduce inequality.”

    As I noted 25th out of 34 (probably lower since the change of government in 2008) is well below the median. We are also below the average, Treasury spin that back in 2008 we were just below the average both ignores the change downward since then (tax cut for the rich, lower rate of wage increase at the lower levels) and of course also raises the issue of who it was that opposed WFF and the minimum wage increase – from $9 to $12 an hour in 3 years – Treasury. Only these moves reduced the growing gini gap here and Treasury opposed both.

  6. @ Lindsay

    “An example is that single-earner two-child families with income less than around $55,000 from wages pay no net income tax. They receive more from WFF tax credits than they pay in income tax and ACC.”

    Load of bollocks. As one who was very recently in that category we paid tax and it was far in excess of WFF. And did NOT claim on ACC so no gain there, all negative in having to pay levies, which I do NOT object to… it is after all a form of insurance.

  7. The joke is on anyone who believes these numbers in isolation, or thinks they are gathered in a timely fashion. Gini in 2008!? Can we possibly believe that the Global Financial Crisis did nothing to alter our situations? That the end of a long period of Labour, and the subsequent abuse by National has not done us poorly? What was the exchange rate then, what is it now?

    I look at this stuff and I am unsurprised at the “fudging” but I am astonished at the acceptance of such infrequently measured numbers out of context.

  8. Lindsay, while it is true that Labour’s WFF scheme and the increase in the minimum wage made a difference – this fails to take account of other factors.

    In other countries CG is included in the income. Only the rich make this CG, so there is no equal comparison.

    And since 2008 (latest figures in one graph) the top rate of income tax has been cut.

    There is no continuing trend of improvement and even what happened in 1999-2008 needs to be put into the context – we do not include capital gains made as income. Thus we understate the gap between rich and poor.

    Overseas people like Romney and Buffet etc – the “1%” – make their money from CG.

  9. The data used to plot those two graphs are different. For example, look at the relative positions of Spain and New Zealand – Spain is lower than New Zealand in one graph and higher in the other. Which is correct or most recent?

  10. Our “correct” place in the OECD (defined as GDP per capita) is with Spain above us, and Greece below.

    Seems the graphs place us not a million miles away from them.

  11. How about just below the average but well below the median in the OECD.

    But because we do not include CG in our taxable income figures as other nations do – we are actually more highly placed than we would be on an equal comparison.

    We are overranked now and should be placed even further down than we are.

  12. In addition to MacDoctor’s comment, are you aware that between the mid 1990s and late 2000’s NZ’s change in inequality as measured by the Gini coefficient was negative? Trends are at least as important as point-in-time statistics.

    Also, the latest official NZ Household Income data report notes about inequality:

    “On latest OECD figure, NZ is a little above the median – similar to Australia, Japan and Canada…Redistribution through the tax and transfer system reduces inequality very significantly compared with what it would otherwise be. An example is that single-earner two-child families with income less than around $55,000 from wages pay no net income tax. They receive more from WFF tax credits than they pay in income tax and ACC.”

  13. I demand the Police be called in to investigate! Fudging numbers, or whatever you want to call it is nothing short of intentional lying. And remember, technically, the people of New Zealand are their employers. What would happen to a beneficiary if they were caught not declaring income, no matter how little it was? Yeah, hauled off a benefit and likely to be charged.

  14. And yet treasury is correct in saying that we are “about average” as we are just below the OECD average. Their graph also helpfully shows non-OECD countries, but carefully marks them, so you can see at a glance which is which. I rather think you are protesting about nothing at all here.

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