Could increasing house prices decrease inequality. Photo / Hayden Woodward
Could increasing house prices decrease inequality. Photo / Hayden Woodward
The Treasury thinks inequality is a political consideration - and something for the Government to deal with, rather than something it should explicitly advise on.
It made the remarks as it released a paper suggesting rising house prices could actually reduce inequality.
Officials appeared before politicians at Parliament's Finance andExpenditure Committee this morning to face scrutiny on He Tirohanga Mokopuna, the Treasury's long-term set of scenarios for risks over the long term.
The report found Government debt was sustainable now, but long-term trends like the rising cost of superannuation and healthcare would make debt unsustainable in the future.
National's shadow Treasurer Andrew Bayly said this was troubling, and he was particularly concerned that the Government seemed to be disregarding New Zealand's legislative requirement for surpluses over the long term.
Treasury pushed back, arguing there was some wriggle room in the legislation for when the Government needed to return to surplus.
He Tirohanga Mokopuna found that inequality has deepened in the last two decades - with total wealth increasing over that time, but older people getting far more of that wealth than the young.
The Green Party's member on the committee, Chlöe Swarbrick, asked Treasury macroeconomist Bryan Chapple whether Treasury had a view that there was something "inherently wrong" with deepening wealth inequality
"Do you think there is an inherent concern about what we're seeing with regards to the trend of wealth distribution in this country - is there something inherently wrong with that?" Swarbrick said.
Chapple batted the question away, saying it was one for the Beehive.
"I think that's mostly a value judgement about society and for politicians as our representatives to make," he said.
But Swarbrick returned to the question, asking if Treasury had analysed deepening inequality with its wellbeing lens.
Chapple said the report made no such judgement - instead, Treasury was concerned with painting different scenarios for the future.
"What we've tried to do here is point out the implications on different groups and people in different circumstances of different choices that might be made at a high level but it's not for us to say what might be preferable," he said.
Later in the day, Treasury released a paper on how skyrocketing house prices had increased inequality in New Zealand.
Though released by Treasury, the organisation says it was the view of the author, not Treasury as a whole.
It came to the conclusion that increasing house prices actually decrease wealth inequality "slightly".
The reason for this is that "housing wealth is the largest and most widely held type of wealth" in New Zealand, and rising house prices help the middle classes who own housing catch up with even wealthier New Zealanders, reducing the inequality between those two groups.
The story for people who don't own houses is far less rosy. The author found there was "an increase in wealth inequality between those already on the wealth ladder and those who have not reached the first rung [home ownership]".
"We also find that households who have not made it onto the wealth ladder are more likely to be living in material hardship or to have high housing costs," Treasury said.
Treasury estimated that a 10 per cent increase in house prices would cause a 0.7 per cent drop in household wealth Gini coefficient - a common measurement of wealth inequality.
The paper admitted it seemed "strange that growing the wealth of housing owners, but not the wealth of non-owners, leads to a decrease in relative wealth inequality,"
But it laid out its methodology. It split New Zealanders into two groups: those who own homes, and those who don't.
Looking into the largest of those two groups - the group of homeowners, which accounts for 64 per cent of households - the model used in the paper estimated that the very wealthiest people had wealth mainly in non-housing assets like companies and shares.
Its model set the value of those things as constant, and did not increase.
The wealth of less well-off homeowners is mainly in their homes. They might have a Kiwisaver, or some shares, but their biggest asset is likely to be the house they own.
Green Party MP Chlöe Swarbrick quizzed Treasury in inequality. Photo /Dean Purcell.
Because the value of that house is increasing so quickly, the relative wealth of the middle class who have more of their wealth in property increases faster than the wealth of the people at the top who have more wealth in other assets.
And because this group is the largest group, it means wealth inequality is, overall, decreasing.
Of course, that does not help people who do not own houses - for them the gap increases.
Treasury thinks a 10 per cent increase in house prices causes a 0.3 percentage point increase in the increase between owners and non-owners, whose wealth does not increase with house price increases..
"This widens the relative wealth gap between owners and non-owners," Treasury said.
The authors said there would be further work done when more data becomes available next year.
