Source: New Zealand Treasury:
Extract from paper
Introduction
The distribution of household income in New Zealand is continually changing and is expected to significantly transform in the years ahead due to demographic trends and shifts in the labour market. This raises an important question: how can we ensure that our tax and transfer system can support future generations of New Zealanders, especially as the population ages and work patterns evolve in response to technological advancements and environmental challenges?
This note lays the groundwork for future research by presenting comprehensive data on household income distributions over the past 14 years. It goes beyond headline statistics on incomes, inequality, and poverty by using unit record data from Stats NZ to supplement existing outputs and reports, such as Perry (2019, 2022). Through visual representations, this note presents household income distributions for various types of households from 2007 to 2021, shedding light on trends and patterns. Additionally, the note delves into the impact of an aging population by creating a counterfactual distribution based on 2007 age demographics, allowing for further investigation into this important demographic shift. The detailed data and analyses presented in this note serve as a valuable foundation for future work in understanding household incomes in New Zealand.
Key results
Real household incomes have been steadily increasing between 2007 and 2021. That is, after accounting for inflation, incomes have increased consistently since 2007. Inequality indicators have decreased over the same period if we consider after housing cost incomes but have been level if we consider before housing cost incomes.
The trends for different household types help explain these aggregate trends.
- Superannuitants:
- Increases in superannuitant’s real incomes reflect the indexation of New Zealand Superannuation. In more recent years, there also seems to be an increase in multi-adult, superannuitant households who have income in addition to New Zealand Superannuation. This could be because more people carry on working after they reach 65 or because there is an increase in the number of superannuitants who live with other people.
- The data suggest that there were proportionally more higher-income superannuitant households in 2021 than in 2007. Many have low housing costs (and higher after-housing cost incomes) so this may have contributed to a reduction in population-level after housing cost inequality over the last 14 years.
- Households with children:
- Before housing cost incomes increased in the first half of this period but in recent years they have increased even more rapidly.
- Looking at higher incomes, the results suggest increases in wage rates and/or increases in the total hours worked by couples with children.
- Increases in lower incomes are consistent regardless of beneficiary status, suggesting that they may be partly driven by increases to Working for Families tax credits.
- The increases are muted when considering after housing cost incomes. Low-income households with children (who tend to have higher housing costs) have not seen the same income increases as superannuitants (who have lower housing costs).
- Households without children:
- The real incomes of households without children increased less than other households over this period, but most have higher incomes than other household types.
- There is also evidence of increases to market incomes at the bottom of the distribution.
New Zealand’s aging population is evident in the data, which show that an increasing proportion of New Zealanders are over 65 years old. However, by creating counterfactual distributions based on the 2007 age distribution, this analysis shows that many of these older households have higher incomes than their 2007 counterparts.
