Brian Fallow: Beware politicians wielding salary statistics

The Government is keen to make the case that people are better off since the last election. Photo / Mark Mitchell

As the general election approaches we can expect to have politicians brandishing statistics at us, carefully selected to suit their respective causes.

The Government is keen to make the case that people are better off than they were when it took office, at least when their incomes are adjusted for inflation and tax changes.

Does this stack up?

Statistics New Zealand's quarterly employment survey - a survey of employers' payroll data - shows that average weekly earnings in December 2010 were $991 a week, $62 a week higher than in December 2008.

But when adjusted for two years of inflation, including the GST increase, the real increase over the two years is a less impressive $10 a week.

Ah, says the Government, that overlooks our income tax cuts.

Someone on the average wage at the end of 2008 would have taken home $735 a week after tax, but that had risen to $827 a week two years later.

When you adjust the underlying increase in pre-tax pay for both income tax cuts and inflation, the real after-tax pay of someone on the average wage has risen 6 per cent over the two years.

But there is another way of looking at it. It goes like this:

Averages are all well and good. If John Key walks into a room the average net worth of the people in the room shoots up, but the rest of them don't suddenly get any richer.

It's the median income that counts - that's the point where as many people earn more than that as less than that.

Statistics New Zealand says that according to its annual income survey - a more comprehensive set of data than the quarterly employment survey - 63 per cent of wage and salary earners have hourly earnings lower than the overall average for wage and salary earners.

In statistician speak, "the distribution of earnings is asymmetrical, with a bulge at the low end and a tail at the high end".

It can also be argued that what matters for living standards is household incomes, not individual incomes, and that people get income from a range of sources other than wages and salaries - superannuation and benefits, investment and rental income, their own businesses and so on.

If you look at the annual income survey, the median household income from all sources in June 2008 was $1271 a week, but had fallen to $1236 a week by June last year.

The fall was even larger when adjusted for inflation. In real terms the median household income was $80 a week or 6 per cent lower.

That is before tax. It is not possible to adjust household incomes for tax. There are too many variables and the tax system levies individuals, not households.

So depending on your point of view and which data you select, you can claim that people are 6 per cent better off or 6 per cent worse off.