The return of the 1%

The World Top Incomes Database has just updated its figures for New Zealand’s richest inhabitants.

While the update only takes us up to 2011, the figures are still revealing. In 1986, the average person in the top 1% got around $159,000 (adjusted for inflation); in 2011, they got $337,000 – more than double.

During that same time, incomes for the poorest New Zealanders have increased just 13%. That’s increased inequality in a nutshell.

It’s true that $337,000 isn’t really any higher than the average 1%er earned in the early 2000s, or the late 1990s for that matter. So you could argue that we’re in a holding pattern. But I still think a trend of rising inequality, post-GFC, is starting to take shape.

Between 2008 and 2010, in the wake of the GFC, the average 1%er income fell from about $340,000 to $300,000. So there was quite a bounce back up to that 2011 figure.

That rise could be temporary, but I suspect it’s not. The general pattern of crises is that the richest people take a temporary hit, and then recover quicker than anyone else. That’s been the pattern in countries which have data beyond 2011, such as the US and the UK.

New Zealand could be different, but the anecdotal evidence I see – the NBR Rich List, and news stories about conspicuous consumption in Auckland – make me think we’re just the same.

Only time will tell, but my hunch is that this is another sign of rising inequality once again.

And it’s worth remembering that these figures, which are based on IRD tax returns, don’t include capital gains (not taxed, let alone recorded). A rising stockmarket and soaring housing market will have seen those gains increase sharply – mostly to the benefit of the 1% – and so these figures will understate the true increase in inequality.

One final thought. In 1998, just before Labour’s 39% tax rate hit, the 1% declared a staggering $500,000 each in income, which shows just how much they can shift their money around to avoid tax. It’s a further reason to think that all these figures are only grasping at the shadows of true wealth in New Zealand.