Wide gap opening in the wealth race
A reset of KiwiBuild should include more generous subsidies for first-home buyers, commentators say. Susan Edmunds reports.
It can be hard to get a clear idea of how your household compares to others. A reminder this week that a significant portion of households are not net taxpayers – they receive more from the Government than they pay in tax – has many people wondering what counts as well-off in New Zealand in 2019.
We’ve crunched the numbers on who’s making the money, who’s spending it and who’s feeling rich today.
But behind that figure, there’s a lot of variation.
The median household income for a two-adult, two-children household is $85,300. For a single parent with one child, it’s just over $43,000.
The top 10 per cent of New Zealand earners receive just over a quarter of all the income earned in this country and the top 30 per cent get more than half.
Infometrics economist Gareth Kiernan said wealth was accumulating ‘‘at the top end’’. People who had more money found it easier to earn more and make more, he said, and it was also less likely to be as heavily taxed.
Between 1998 and 2015, the lowest earners and the highest earners had the biggest increase in
hourly wage. Their pay lifted almost 40 per cent. By comparison, those in decile two to six only experienced increases of 20 per cent or less.
What are you spending?
Inflation might be at historic lows, but that doesn’t mean all of our costs are stable.
Statistics NZ data shows that food and housing costs increased by the greatest margin of all spending types between 2008 and 2017.
A middle-income household was typically spending about $250 a week in 2017 compared to just over $150 a week in 2008.
Economist Cameron Bagrie said New Zealand was an ‘‘expensive country to live in’’.
He said the Commerce Commission, which is looking at the retail fuel industry in New Zealand, should expand its view to consider areas such as credit card interest rates or the merchant fees paid by retailers. ‘‘That would help keep more money in people’s pockets.’’
Housing
One of the biggest cost increases has been in housing.
While a single parent with two children has a median income of $42,000, according to the Ministry of Social Development (MSD), that drops to $26,700 after housing costs.
A two-parent, two-child household loses a median $18,800 a year in housing costs.
Bagrie said about 40 per cent of new borrowers were taking out home loans that were more than five times their annual incomes.
The Reserve Bank says that across all households, borrowers have loans that are about twice their annual incomes. But when you limit the calculation only to households with a mortgage, it increases to three times.
If you owned a house with a mortgage 10 years ago, you are comparably much better off.
The median New Zealand house price has risen from $320,000 at the beginning of 2009 to $585,000. At the same time, interest rates dropped, making your home loan cheaper to service.
MSD said a couple aged 65 plus would lose only about $5000 a year in housing costs.
‘‘If you’ve been on the property ladder, you’ve made a lot of money,’’ Bagrie said.
Eric Crampton, chief economist at the New Zealand Initiative, said both before-housing cost and afterhousing cost incomes had risen in recent years but the after-housing cost growth had been more muted.
‘‘Growth in housing costs as a fraction of household income has been greatest among New Zealand’s poorest households: the average household in the country’s poorest fifth of households is spending about 45 per cent of its income on housing costs. Fixing the country’s regulatory frameworks around housing can enable more construction, help develop a construction sector that can respond to changes in demand, and bring the affordable housing that will help foster security.’’
A renting household in central Auckland in 1998 would have paid about $300 a week. Now, it’s just under $550.
How do you feel about your money?
People in every income bracket report feeling the pressure.
Almost 21 per cent of households earning $150,001 or more in the year to March 2019 said they had only just enough, or not enough, money to live on.
About a third of households in the $100,001 to $150,000 bracket felt the same.
By comparison, a third of those earning $30,000 or less said they had enough money.
‘‘Growth in housing costs as a fraction of household income has been greatest among New Zealand’s poorest households.’’
Eric Crampton, chief economist at the New Zealand Initiative
Tax
About 40 per cent of New Zealand households receive more in transfers from the Government than they pay in tax.
You are more likely to end up in this group if you have children and are receiving Working for Families transfers.
Single-earner families with two children can earn up to $60,000 a year before they pay any net tax.
About half of households with children receive more in welfare benefits and tax credits than they pay in income tax.
The same applies for retirees – the vast majority are in households where the income tax they pay is less than the superannuation they receive.
Government transfers can apply even to those on relatively high incomes – the top three income deciles receive 17 per cent of all transfers.
People without kids, though, might have more cause to complain. Working households without dependent kids pay more in tax than they receive in benefits and support, whatever their income.
This calculation does not include GST. Lower-income households tend to spend more of their income, on which GST is then applied, but higher earners spend more overall.