BOOK EXTRACT: Wealth and New Zealand – Where, why and how it is held

Wealth and New Zealand author Max Rashbrooke

© 2015 Max Rashbrooke. Wealth and New Zealand is published by BWB Texts (Bridget Williams Books, Wellington). Reprinted by permission

The most recent NBR Rich List revealed the biggest proportional increase in wealth since the list first appeared in 1986. But what do these figures mean and what else do we know about New Zealand’s fortunes? Drawing on previously unpublished data, the author explores what constitutes wealth in New Zealand – where, how and why it is held.

Breaking down wealth
There is clearly considerable inequality of wealth – or rather inequalities, as there are many different ways of breaking down those headline numbers. When it comes to ethnicity, Pākehā (those identified as ‘New Zealand European’ in the survey) have a disproportionately large share: in 2010 they owned 85% of net wealth, while making up 71% of the population. For the other ethnicities, the figures were as follows. People of Asian ethnicity: 7% of net wealth, 10% of population; Māori: 5% of net wealth, 12% of population; and Pacific peoples: 1% of wealth, 5% of population.

Average (median) wealth for Māori in 2010 was about $18,750, far less than the $125,500 for Pākehā. This reflects the historical alienation of Māori land and assets, as well as other factors. Average wealth for Pacific peoples was lower still, at $8,500.

Wealth even within the latter communities is very unequally divided. This can be calculated by looking at the difference between the median, which is the wealth holding of the person in the middle of the distribution, and the mean, the mathematical average of all wealth holdings, which gets substantially ‘pulled up’ if a few people have very large amounts. For Pākehā, the mean is only 2.2 times larger than the median, but for Māori it is 5.2 times larger, and for Pacific peoples 6.6. Within Māori and Pacific communities, wealth inequality is, on this measure, twice and three times as high (respectively) as it is in Pākehā communities.

When it comes to gender, in 2010 women made up 51% of the population, but had 46% of net wealth. Their mean net worth was around $216,000, significantly less than the $268,000 for men. The median net worth for women was $90,000, for men $100,000. Meanwhile, different family types had strikingly different levels of wealth. An individual in a couple without children had a median net wealth of $202,000. In contrast, an individual in a couple with children had a median net wealth of just $73,000 and single people had $60,000. Solo parents, who are overwhelmingly female, had a median net wealth of just $15,000.

In regional terms, some interesting patterns emerge. Auckland and the Waikato both had low median wealth, around $73,000 and $81,000 respectively, but also the greatest within-region inequalities, with mean wealth figures more than three times higher: $230,000 for Auckland, $274,000 for Waikato. Auckland’s inequality is probably explained by the well-known concentrations of both wealth, in the central and northern suburbs, and poverty, in the south and west. Waikato’s skewed distribution may reflect significant farming wealth.

In contrast, Canterbury, Wellington and the rest of the North Island had higher median wealth, in the $100,000-110,000 bracket, but less skewed distributions, with the mean around twice the median. Finally, the rest of the South Island had both the highest median wealth, at $122,000, and the highest mean wealth, at nearly $280,000, but with a relatively low level of inequality, as in Canterbury.

There is also significant inequality of wealth by age bracket: wealth increases steeply until people reach retirement age, before declining again. People under 35 have a negligible share of net wealth, while the 45-and-over age groups all have large shares of wealth compared with their share of the population. However, this is what one would expect, given the accepted lifecycle process of starting out with limited wealth (and, increasingly, student debt), accumulating wealth through working life (especially once any children have left home), then drawing down savings in retirement.

Since this cycle has operated for many generations, the above figures do not by themselves show that today’s younger generations are being particularly disadvantaged. To prove that, we would need either data showing that the equivalent cohort of young people 30 years ago were in a better position than today’s young people, or modelling showing that today’s young people will end up with lower net worth in later life than the baby-boomers have now.

Admittedly, it does seem highly likely that both those things were or will come to be true, given the much lower rates of home ownership among today’s young people and their much higher student debt, among other factors. But that judgment cannot be made based on these numbers. And there are other possible interpretations – for instance, that today’s young people will be wealthier than their parents on average, but only some of them will benefit from that trend. New Zealand economist Simon Chapple argues that Thomas Piketty’s work predicts that

“average wealth grows faster than average income over time. We know that average income has grown significantly between generations boomer and Y, and will likely continue to do so. So Piketty’s model predicts that the average wealth of the generations must be rising even faster. The coming generation will, on average, be much wealthier than the previous generation, but, partly via growing unequal inheritance, it will be more unequal in wealth.”

In addition, recent research from the Dunedin longitudinal study shows wealth inequality among late-30-somethings is just as great as in the wider population: the wealthiest 10% of 30-somethings have over half of all the wealth of that group, while the poorest 50% of their counterparts have just 5%. This finding has led Chapple, one of the study’s researchers, to conclude that the most significant wealth inequality is not ‘between generations or over the lifecycle’ but within each generation. This does not imply that inequality between generations is unimportant, far from it – but it is a reminder that wealth inequality is present everywhere, including within age cohorts.

Trusts: An important way to hold wealth
The widespread use of family trusts as a vehicle for holding wealth is often contested. Even Martin Hawes, the author of the bestselling guide to setting up trusts, says they were originally used by Roman senators ‘to circumvent laws they found inconvenient. In some ways the reasons for forming a family trust are still much the same.’ By transferring ownership of an asset – such as a house – to designated trustees, for the eventual use of others (often family members), an individual may continue to benefit from an asset – for example by living in the house – without actually owning it.

This means creditors cannot demand the asset be sold to pay them, if the individual’s business fails, nor can the government deny the individual means-tested benefits, even if they are still enjoying the use of an asset. Assets in trusts may be placed out of the reach of an individual’s spouse, in case of a divorce.

Individuals can also divert income into trusts so that when it is paid out to the beneficiaries, they may pay a relatively low rate of tax, whereas the individual might have had to pay the top rate of tax if they had declared it directly. Trusts are believed to be one of the ways by which more than half of New Zealand’s wealthiest individuals avoid paying the top rate of income tax. In recent years, Inland Revenue has estimated that it loses $300 million in revenue because of incomes being channelled through trusts, although some of the opportunities for this may since have been closed.

Attitudes to these uses of trusts vary. Hawes argues that while the public may disapprove of some uses, many are ‘legitimate.’ People who have worked hard all their lives and acquired assets should not be penalised by having means-tested benefits withheld from them, and a trust allows them to avoid that situation. Trusts also operate as an extension of limited liability rules for companies, ensuring that people do not have to lose everything if an entrepreneurial business decision does not work out.

More generally, Hawes argues, it is natural that ‘people will always try to avoid laws that they perceive to be unfair.' Others, such as the former Labour leader David Cunliffe, argue that such uses show that ‘the most privileged sector of society use their position to avoid paying a fair share of tax … That is morally wrong and should be illegal.’

Either way, a lot of New Zealand’s household wealth is held in trusts. There are, according to one recent estimate, anywhere between 300,000 and 500,000 trusts, though not all are the family trusts used to hold typical household assets. In 2001, the Household Savings Survey found that assets held in trusts were worth $93 billion, equal to about a quarter of households’ total assets at the time, and 3% of single people and 12% of couples reported having assets in a trust.

The typical amount of wealth in these trusts ranged from $180,000 for single people aged 64-75, to $730,000 for couples aged 45-54. Since wealth held in trusts is often hard to estimate, and many people in the survey could not give it an accurate value, the above figures should, however, be treated with caution.

Women and wealth
The New Zealand data showing that women typically have less wealth than men are in line with the international pattern. Both American and German studies have found significant gender wealth gaps. This can have many explanations, including biases in reporting: in surveys, women may claim a smaller share of jointly owned assets than their male partners. But international research suggests that the biggest driver is simply women’s lower earnings.

In New Zealand, over the second half of the 20th century, the average income for all women (including those not in paid work) as a percentage of men’s rose from about 20% in 1951 to 60% in 1991 – but has remained at that level ever since. Even just comparing men and women in work, the gap in average hourly earnings is now about 13%. 

Women are often employed in industries, such as aged care, that pay less on average than those dominated by men. Caring for children and other family responsibilities can take women – more often than men – out of the paid workforce for long periods. The constraints of childcare and interruptions to their career also force some women to accept part-time, low-paid or low-status work. In short, New Zealand research suggests that much of the gender pay gap is shaped by ‘discriminatory or gender-biased elements.'

This lifetime of lower earnings translates into much lower savings and wealth accumulation. In the words of American researchers Erin Ruel and Robert Hauser, ‘We can attribute a good portion of the gender wealth gap … to a lifetime of living with a gender income gap.’ This is seen most obviously in retirement: modelling by ANZ Bank indicates that New Zealand women are likely to retire with $60,000 less than their male counterparts – despite typically spending 20 years in retirement, as opposed to 14 years for men. In ANZ’s KiwiSaver accounts, the average balance for women, $8918, is almost 28% lower than the $11,396 for men.

The past five years – inequality on the rise again?
We do not have detailed data on wealth inequality since 2010, but we can make some informed guesses based on the information we do have. The NBR Rich List has increased sharply in the past five years, hinting at a growing concentration of wealth. Trends in the housing market point in the same direction. Reserve Bank data show that, of the $170 billion increase in household wealth between June 2011 and June 2014, two-thirds, or $133 billion, was in housing.45 In that time, investment in new houses was just $32 billion, so $100 billion of our increased wealth was due simply to rises in the value of existing houses.

As Salvation Army Social Policy and Parliamentary Unit analyst Alan Johnson points out:
“The bonanza of increasing house values is, of course, not evenly shared – neither in terms of geography nor income. To be the beneficiary of this bonanza clearly you had to have been able to afford to buy a house or to have owned housing in regions where there was this value appreciation. This has only been a small proportion of the population.”

Johnson argues that Auckland has accounted for roughly half the increase in the value of the housing market over the last decade, but Auckland property owners represent no more than one-fifth of the population. In addition, the number of people who own their own home is lower, and falling faster, in Auckland than anywhere else in the country.

This implies that ‘nearly half the benefits of this house price appreciation have gone to just a small proportion of New Zealanders, whom it seems likely were already amongst the wealthiest 25% of New Zealanders.' Overall, Johnson argues, ‘The house price boom has benefited a minority of New Zealanders and it would appear that this minority is becoming smaller by the month.’

This analysis points to widening wealth inequality in recent years. On top of that, the value of shares, which are much more often held by the wealthy, has risen sharply since 2010 as the stock market recovers from its GFC-induced fall. There has also been a strong increase in cash assets – deposits and interest-bearing investments – in recent years. This does not seem to be driven by a large shift in wealth from other kinds of assets, where investment has remained steady. Instead, Johnson argues, the increased saving seems to be coming out of surplus income for certain groups.

© 2015 Max Rashbrooke. Wealth and New Zealand is published by BWB Texts (Bridget Williams Books, Wellington). Reprinted by permission


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31 Comments & Questions

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Growing inequality is largely driven by current tax policy.

Its high time for wealth tax, that would ensure investment is in productive assets, rather than housing.

Governments seem to be ignorant to the fact economies are driven by affordable consumption, rather than debt. Until they have policies that focus on looking after the masses, expect more borrow and hope mentality from them.

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Members of Parliament from all of the political parties have investment properties. (Those who don't a probably a small minority.) Therefore, as a body, Parliament has little appetite for introducing any kind of tax (such as a CGT) to discourage this type of unproductive investment since they would be taxing themselves. Outside of Parliament, many New Zealanders with additional capital follow their MP's example so there seems little prospect that this fundamental problem of unproductive investment and untaxed wealth will be addressed in the immediate future.

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actually, this information is all readily available - national by far and away have the most assets in house external to their own homes. Labour and greens have relatively few. http://www.interest.co.nz/property/59685/who-owns-all-homes-mps-own-all-...

theres a decent list somewhere i have seen.

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And where isn't there in a free society

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The exceptionally high inequality within Maori and PI populations could provide some good role models. What are the differentiating characteristics of those at the top end of the relevant wealth spectrum? What key decisions have they made and not made?

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Quite simply we have chosen to invest wisely. Embraced delayed gratification by investing before spending. Lived a healthy lifestyle & had less children. My Business helps to ensure the gap in earnings is reduced.

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In a capitalist society wealth is concentrated disproportionately between the top 10% and rest of the population.

Why? Because the top 10% got there because they were excellent at capital allocation, and thus have seen their overall wealth grow where as the majority of consumers live above their means, get into debt over non-productive, non-income generation, depreciating assets such as tv's, iphones, flashy cars.

The truth of the matter is some people are smarter than others when it comes to money, capital allocation and how the system works. Some choose to forgo current consumption for long term benefit's for for it they are, rightly so, handsomely rewarded.

Different folks different strokes ;)

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Have I got this right? Mr Rashbrooke is saying, "those who work hard, live frugally, save, and invest responsibly should not be allowed to pull ahead of, and be richer than, the dead beats and dope heads in society as it causes a considerable inequality of wealth, and it is all the Governments fault."
Please correct me if I've got it wrong!

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You have it wrong - as usual. Approximately three decades of regressive taxation, policies favouring unproductive investment and corporate welfare have reduced the country to levels of inequality not seen since the Victorian era before Richard John Seddons' Liberals came to power. In the US, this type of extreme inequality immediately preceded the 1929 stock market crash and the Great Depression. Seems likely that we are headed in the same direction.

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So based on the above there should be strenuous efforts made to redistribute wealth from the South Island to the poor in South and West Auckland, all in the name of fairness and reducing inequality then?

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All interesting "facts" (the author admittedly makes some assumptions) but why this is a problem is not described. Simply put, someone in the bottom 10% of wealth in NZ has a higher quality of life than someone in the top 10% 100 years ago: better access to healthcare, education, entertainment, heating, food. The fact many of them could read this on their smartphone is case in point.

In my particular situation, my wife and I are both 34. We don't own a house (have in the past but didn't make windfall profits), have two children, work hard, have no debt and don't splash out on flash cars or trinkets. We were fortunate through our births to have married parents who instilled certain values. We both studied hard and found good jobs that value our skills. We have a financial plan, one that ensures will never be a burden to others. I personally struggle to see why this is a problem and why others, those that made different choices, are entitled to a claim on the fruits of our efforts.

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It is nice to pose it all as wealth is the result of hard work, frugal lifestyles, careful smart decisions etc
But the simple reality is that wealth and increases in it is usually based on already having wealth. So there is an inherent basis for an increasing gap.

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I am 35 and my partner and I have worked hard to save our money. We have put off our wedding to save money and invest in small scale residential property development. We now have around $1m in equity and 25% of another trading business which is growing rapidly.

I find it ludicrous that people can believe it is just hard work that gets people to the top 1%. In our cases, we were both fortunate enough to have parents that read books to us every single day from year 1, that put our goals and development above their own and that made huge sacrifices to lift us on their shoulders. We were instilled with an incredible amount of financial literacy and university was the only option.

Compare this with a child who doesn't learn to read until they attend school and I'm stunned anyone truly believe it's a level playing field out there. If you can't read well and nobody teaches you otherwise, how on earth can they expect to get ahead? http://literacy.rice.edu/thirty-million-word-gap

Our baby boy eats freshly cooked meat and veges every day (which are not cheap) - his brain and body are being built from quality ingredients.

We have to do something to alter the very predictable future for the children from families where education and nutrition aren't prioritised.

I don't believe it's right that an accident of birth dictates such a huge part of your life path when a country like NZ has the resources to help those without the advantages I've enjoyed. Those with the winning ticket should be a little more self aware of what it truly took to get them where they are and act with a little more compassion.

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Right, well how about you giving a couple of hundred grand to charity over the next couple of years to make up for that unequal playing field you talk about and all the advantages you've had. After all you've got plenty, and apparently it's got nothing to do with your hard work and smart choices.

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You absolutely and completely missed the entire point of the posters comment.

Ever heard the parable, "Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime"? You are saying "Give them fish!"

OP, this sounds a lot like my life story. Keep up the good work, and share that knowledge around :)

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"You absolutely and completely missed the entire point of the posters comment."

No I didn't.

And if that is how he really feels he should put his money where his mouth is and lead by example, shouldn't he? For example, he can buy the fishing rods, to use your silly analogy.

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Finally a bit of humanity on NBR! Nice antidote to all the nasty "blame the poor" stuff.

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Some of us practice humanity in our daily lives, then there are those that choose just to preach or write about it.

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I'm perplexed at the apparent personal criticism. What exactly is your point - that one is not allowed to state a personal view? That I don't practise (note the correct spelling, John) humanity? Why do you appear to take the view that I don't do this in my daily life?

It would demean this forum to take part in an "I give more to charity than you" argument but please feel free to boast!

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Whoops! sorry about the practise, and I meant to also add, "some use their names and some will choose not to! Such is life!

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I come from a rather poor household (parents were both teachers).

But we were rich in this sense: Our parents valued education highly, fed us very well (a *lot* of home cooking), never divorced, and were pretty engaged in our lives from birth until we left home. Mom stayed home to look after us in the early years. This is an advantage of culture,.

If I have to compare outcomes with school mates who were not as fortunate to come from stable households, it's pretty stark.

Over our lifetime, I can't see how this won't add up to incredible advantages for my children, even if they are pretty average in ability.

I think there is a limit to how much the government can make up for this lack of a good home environment.

Even if you are not hungry, and all other material needs are met, you're still going home to parents who don't care and get exposed to poor life choices day in, day out. It will still be only outliers who make it out of such situations.

I'm not saying this to say we should do nothing, because it's all just too hard.

I'm saying that it needs more than just the basics, though that would be a good start.

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Having established the facts on wealth inequality, Mr Rashbrooke should now turn his attention to the much greater problem of inequality in rugby-playing ability.

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Yes, more compassion, early education etc are well justified and frequently encouraged. Alongside the fair and reasonable exhortations about greater generosity, how about correspondingly greater emphasis on responsibility? Eg drive home the principle,"If you can't feed them, don't breed them!"

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Agreed 100%. But sadly for many, the act of breeding (or the fun first part anyway) doesn't involve much conscious decision making!

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The lack of conscious decision-making is a very good reason to offer long term contraception to at risk young people to give them breathing space to make better educational, career and lifestyle decisions, unconstrained by an unplanned, unaffordable and ultimately unwanted pregnancy.

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Fraught with ethical and practical issues but a good idea potentially. The problem is that we already have free consults for contraception for all under 21s and very few seem to make the conscious choice to take advantage of this.

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Good god people! The underlying tone of this is that we should only breed financially literate business people. Thank god there are others who recognise the value of diversity in society and that most of the populatipn will never have the skills to be at the top. Just as most won't have the skills to be All Blacks or Olympic athletes. And fortunately I think most reject any concepts of elitism and the arrogance associated with them.

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Diversity is to be applauded Sara, but taking no actions to prevent already socioeconomicailly disadvantaged young people locking themselves into a long term future of deeper disadvantage through an unwanted pregnancy is just plain stupid. This has nothing to do with elitism - it is all about breaking the cycle of disadvantage by giving young people breathing space at a critical time of their lives to make better educational, career and lifestyle decisions - unconstrained by an unplanned, unaffordable and ultimately unwanted pregnancy. Every child has the right to be wanted, loved and well-nurtured.

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So what exactly do you mean by "long term contraception"?

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For discussion on a case by case basis. Including discussions about educational and training options. The time-frame of these could be a guide.

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can we please see a breakdown of how much tax is paid by each person on the rich list.
they do not mind being in the spotlight to show off their wealth- needs balancing.

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