Recession hits New Zealand families unevenly - economist

Families are likely to be suffering most from the recession in four rural regions and Auckland, an analysis has found.

Infometrics economist David Grimmond told the "summit" on children and the recession in Mangere yesterday that the recession was hitting New Zealand unevenly, cutting output from peak to trough by more than 4 per cent in Hawkes Bay and Southland but by 1 per cent or less in Northland, Wellington and Marlborough.

These differences were magnified by variations in social "risk factors" such as sole parenting, multi-family homes, low home ownership, low education levels and concentrations of workers in the "elementary occupations" of labourers, machine operators and shop assistants.

The combination of output drops and social risk factors produced the "highest risk of suffering during the recession" in Hawkes Bay, Gisborne, Manawatu-Wanganui, Southland and Auckland.

Mr Grimmond, who lives in Wellington, said Wellington-based decision-makers were "insulated" from the recession because the capital had below-average numbers of sole parents and multi-family households, more educated and skilled workers, and had seen output drop by only 1 per cent.

"If there are large sectors that are insulated, then they don't have the empathy to think about people that are really suffering," he said.

A Social Development Ministry study found that 49 per cent of sole-parent families were in poverty last year, earning less than 60 per cent of the median income per person after housing costs. By the same measure, only 12 per cent of two-parent families with children were in poverty.

Sole-parent rates were above-average in every region north of Wellington, peaking at 27 per cent of all households in Gisborne.

Unemployment in June this year was much higher for people with no qualifications (8.8 per cent) or just school qualifications (7.4 per cent) than for those with post-school qualifications (3.9 per cent).

Numbers with no qualifications were above-average in all regions outside Auckland, Wellington and Otago, peaking at 32 per cent in the West Coast and Southland.

But some regions at high risk based on sole parenthood and education levels, such as Northland, have avoided the worst impact of the recession because sectors such as tourism have held up better than others. Mr Grimmond said the local tourist industry had gained from anti-recessionary cash handouts to families in Australia.

Although there were signs that overall output had now stopped falling, he warned that unemployment would keep rising from 6 per cent to peak at 7 per cent late next year.

"What has happened this time is that firms have been able to reduce hours, give people holidays or force them to take holidays, reduce shifts, so that they can hang on to their workforce," he said.

"Unfortunately the ability of firms to do that is reaching an end. Just recently we are starting to see some real pickup in unemployment and drops in employment."

Moreover, the recovery was not sustainable because it was driven by "over-valued" house prices, not exports.

"Inaction by the Government on some of the more serious imbalances in the economy means there is potential for further problems, say five years out. That second crisis could be the one that we've avoided today," he said.

"What we've still got in New Zealand is an economy that has gone from being a producer of things to being a seller of land. We used to have land, produce something on it and sell it. Now what drives our economy is immigrants coming into New Zealand and buying the land."

Mr Grimmond said rebalancing could be achieved by taxing capital gains and the rental value of owner-occupied houses, and privatising costly public enterprises in electricity, ports, local government and the railways.

"New Zealand had huge benefits when Telecom was privatised," he said. "It lowered the costs for other businesses remarkably."