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Treasury shows New Zealand’s 1 per cent is richer than we think

A quarter of all household wealth in New Zealand is concentrated in the hands of the richest 1 per cent, according to two new, experimental estimates produced by the Treasury at the Government’s behest.

The new estimates suggest that the top percentile of the population holds significantly more wealth than official statistics show, meaning that wealth disparity between the richest New Zealanders and the rest of the population is likely to be much greater than previously thought.

The Treasury’s new estimates of the country’s unequal wealth distribution were produced last August at the request of Associate Minister of Finance David Parker. Just weeks later, Labour ministers ruled out the introduction of an asset tax on the country’s most wealthy, a policy on which the Green Party campaigned in last spring’s election.

However, the Treasury report suggests that Labour remains interested in wealth distribution for the development of tax policy. The report notes: “Officials will report back on next steps as part of development of the next tax policy work programme.”

A spokesman for Parker said: “We need a better understanding of wealth distribution to figure out if the tax system is fair.” He added: “The Prime Minister and other ministers made it clear during the election campaign that a wealth tax is off the table.”

The novel methods for measuring wealth deployed by the Treasury indicate that a quarter of the net worth of the country’s richest households has been missed by the conventional Stats NZ tally. According to the Treasury, 25-26 per cent of household wealth sits in the hands of the top percentile, while conventional statistics put the concentration at just 20 per cent.

In addition, Treasury’s work shows that 63-70 per cent of the country’s wealth is held by the richest 10 per cent. By contrast, Stats NZ finds that 59 per cent of assets are owned by the top decile.

Conventional picture of wealth distribution flawed

The picture of New Zealand’s wealth distribution conventionally relies on data from the net worth survey, conducted triennially as part of Stats NZ’s Household Economic Survey (HES), last published in 2018. However, it is widely believed that the survey underestimates the net worth of the country’s wealthiest households.

Very wealthy households constitute only a tiny sample in the HES and are likely to under-report their wealth.

New Zealand is in the minority of OECD countries that do not actively oversample wealthy households to try to correct for this. Stats NZ recently redesigned the HES, however, the agency said it does not have the funds to oversample the wealthy.

Wealth and expenditure stats manager Emily Shrosbree said other methods for better understanding wealthy households are under consideration.

“The information needed to better measure the top end of the wealth distribution, ie the very wealthy, has been clearly identified via our stakeholder engagement, and we are working closely with Treasury on this. We are exploring ways to meet this information need, including statistical modelling and use of administrative taxation data which is likely to be more effective than oversampling of the very wealthy,” Shrosbree said.

Treasury's novel methods

Both calculation methods deployed by the Treasury continue to use HES information, however it is augmented with data from unconventional sources.

The first method incorporates wealth figures drawn from the NBR’s Rich List. This system found 26 per cent of wealth is held by the top percentile and 63 per cent is held by the top decile (the rich list only adds observations for the top 1 per cent and may leave the top decile’s wealth share underestimated).

The use of media rich-list data has become increasingly common internationally as a way of correcting for very small survey samples of the world’s wealthiest people.

In January, think tank the Resolution Foundation in the UK released wealth distribution research that included data from the Sunday Times Rich List. The study found that 23 per cent of UK wealth is held by the country’s richest 1 per cent, significantly more than the 18 per cent of assets reported in official statistics.

The second Treasury method incorporates data from Inland Revenue and infers asset distribution from taxable income. This system found that 25 per cent of household net worth is held by the country’s top percentile, while 70 per cent is held by the top decile.

Treasury noted its unconventional methods should be “approached with caution” for a variety of reasons, including that the data sources relied on were not designed for the purpose of understanding wealth distribution. The estimates, the report said, should be considered “directional rather than precise”.

International context

Over the past century, wealth disparity has fallen significantly in most liberal democracies. However, in recent decades, and especially since the Global Financial Crisis, wealth and income concentration among the so-called 1 per cent appears to have increased, a phenomenon highlighted in the work of French economist Thomas Piketty.

That change in trend has attracted significant attention from activists and politicians interested in greater equality.

Phillip Vermeulen is a senior lecturer and economist at AUT and consulted on the Treasury work. He described wealth distribution as “one measure” for understanding equality but said that “it may have overshot its usefulness” in informing public policy. Vermeulen cited income inequality, equality of opportunity and equality of consumption as other pertinent measures.

Vermeulen also pointed out that it is useful to understand wealth distribution in the context of age, since wealth accumulation is typically tied to life cycle, whereby wealth is often accumulated in mid-life when incomes are highest, and spent down in retirement when income is low.

None of the data considered by Treasury took in the effects of the Covid-19 pandemic. New HES wealth data will be published early next year.

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