New Zealand's astounding wealth gap challenges our 'fair go' identity
The extent of wealth inequality in supposedly egalitarian New Zealand has been laid bare by figures showing the wealthiest individuals have over NZ$140bn (US$93bn) stashed away in trusts – and overall have nearly 70 times more assets than the typical Kiwi.
The new data, drawn from the 2017-18 Household Economic Survey, are likely to underestimate true inequality, as the ultra-wealthy are generally reluctant to take part in such surveys.
The data show that New Zealand’s wealthiest 1% of adults – around 38,000 people – have $141bn in trusts. Another 150,000 or so people, rounding out the rest of the wealthiest 5%, have trusts worth a further $122bn.
Trusts are vehicles through which individuals can notionally give their assets to trustees to hold on behalf of named beneficiaries. In practice, the “givers” often retain control of the assets while having superficially ceded ownership. In the past this has allowed wealthy individuals to avoid taxes, hide assets from spouses and creditors, and receive care subsidies to which they are not entitled.
Although some of these practices have been curbed, the figures will raise renewed questions about the need to overhaul trust law. IRD research has re
vealed extensive use of trusts among wealthy individuals who pay relatively little tax.
The wealth inequality data, developed in conjunction with Statistics New Zealand researchers, also show that the 1% have an average (mean) of $3.6m held in trusts, $1.6m in shares and $470,000 in cash. Their debts are on average just $80,000.
The typical (median) person in the 1% is worth $6.2m. In contrast, the typical New Zealander is worth only $92,000 – 68 times less.
Among those in the poorest half of the country, meanwhile, the average person owns assets worth just $46,000 and has debts of $33,000, leaving them with a net worth of $12,000. They have negligible wealth in trusts and on average just $4,000 in the bank, leaving them vulnerable to sudden financial shocks.
When it comes to the middle classes – the 40% of the country who are above the mid-point but below the wealthiest 10% – have a higher net worth, on average $352,000, most of it tied up in housing.
Overall, the wealthiest 10% have 59% of all the country’s assets, and the middle classes around 39%. That leaves the poorest half of the country with just 2%.
These inequalities may well be embedded. The 2017-18 figures represent the status quo inherited by Jacinda Ardern’s government, whose record to date will be revealed by the 2020-21 net worth survey, now underway.
Not much change should be expected, however. On becoming Labour leader in August 2017, Ardern resuscitated the idea of a capital gains tax, 80% of which would have been paid by the wealthiest 20%. But after vociferous opposition from property investors and the National party, she eventually ruled it out under her leadership. She has also been distinctly lukewarm about the Green party proposal for a tax on wealth over $1m.
When it comes to the most unequally distributed forms of wealth, such as trusts, shares, bonds and direct ownership of companies, Ardern’s Labourled government has shown little appetite for redistribution. In housing, a substantial and accelerating state housebuilding programme cannot make up for the failures of Kiwibuild and other initiatives.
Some commentators would argue that New Zealand remains the land of the “fair go”, a country where all have opportunities to get ahead. Its wealth inequality is only slightly worse than the developed country average. But it is difficult to see how it can be fair for any individual, however meritorious, to be “worth” nearly 70 times the typical New Zealander.
There are also good reasons to think that opportunities are far from equal. Wealthier parents are able to provide their children with many opportunities unavailable to poorer kids, as well as access to exclusive schools and networks.
Analysis of the NBR Rich List shows a strong dynastic trend: over one-third of businesses on the list are actively being run by descendants of the fortune’s originator, with the number of family members passively receiving the proceeds of that wealth undoubtedly higher still.
While some rich listers are entrepreneurs, developing useful new products, fortunes made in finance, insurance and real estate are predominant. Conversely, the country’s essential workers – including health staff on the front line of the coronavirus pandemic
– earn so little that they are often unable to save for a house deposit.
IRD research, meanwhile, shows that more than half the country’s ultra-wealthy individuals – those with over $50m – declare incomes of less than $70,000, an implausibly low figure. They avoid tax, the IRD argues, by taking their income as untaxed capital gains, undervaluing the services they provide to their own companies, and transferring wealth to charities which they control but which make “little or no charitable donations”.
Such findings are challenging to New Zealand’s self-identity. The country’s egalitarian image was once memorably described by the historian Melanie Nolan as “a rich amalgam of truth and myth”. These new wealth figures suggest that the latter increasingly predominates.
When it comes to the most unequally distributed forms of wealth ... Ardern’s government has shown little appetite for redistribution