The Many Windows on Reality

19th July 2019

Politicians of all hues have a disturbing and dangerous habit of declaring “ there is only one story – you need to believe it and its “mine” and here’s “the” way to fix it”. This is simplistic and quite incorrect but beguiling. Slogans seem to ever beat messy reality. This story – put together by “Stuff”  illustrates the issue well. The economists and similar sources hail from many parts of the political spectrum. The numbers are “indisputable”, but what they mean alters – remarkably – depending on the window you look through. Much as many would wish otherwise, as an old economic saw maintains “it depends”.

It is getting harder to survive... but only for some

As reported in Stuff Susan Edmunds 06:27, Jul 19 2019

Do you feel a bit poorer with every year that goes by?

When Trade Me released recent statistics on job listings on the site, its spokesman said: "The cost of living in New Zealand continues to rise and pay packets aren't reflecting that. Recently we've seen petrol prices, the median weekly rent and property prices peak, but only a small increase in pay which is making it harder and harder for many Kiwis."

But commentators pointed out, that on the face of it at least, that's not true.

Wage inflation is running at 2 per cent, according to Stats NZ, compared to an annual lift of 1.7 per cent in the consumer price index (CPI), which is the measure of general cost increases.

Why then, are New Zealanders reporting increasingly tougher times?

A survey by the Council of Trade Unions this year showed 41 per cent of the more than 1000 respondents said their income was not keeping up.

Turns out, it's not as straightforward a question as it might appear.

FIRST UP... WAGES

In 2009, the median Kiwis were earning each week was $760. Now it's roughly $1000.

But there is a lot of variation within that. 

Bryce Wilkinson, senior fellow at the NZ Initiative, looked at wage growth across various industries over the past decade.

He found that retail staff and electricity, gas, water and waste services had the biggest pay increases over the 10 years, at 1.6 per cent and 1.5 per cent ahead of CPI, respectively. Overall, wages rose at a rate that was 0.9 per cent ahead of CPI increases.

The Fair Pay Agreement Working Group, which released its final recommendations earlier this year, found middle-income earners had the smallest pay increases between 1998 and 2015.

Workers who fell into decile two to six experienced income increases of between 15 per cent and 20 per cent. But the lowest earners, and those at the top of the scale, had a pay jump of 40 per cent.

The boost for the lowest-paid is largely due to the increase in minimum rate. A decade ago, it was $12.50. Now it's $17.70.

CTU research also points out that the increasing rarity of penal rates for overtime and weekend work reduces overall incomes, even if headline pay rates hold their own.

HOUSING

Whether housing has become more expensive over the past ten years depends on your circumstances.

If you own a home with a mortgage, and have done so since 2009, the cost has fallen dramatically. A $500,000 mortgage in 2009 would have, on average, cost $1486 a fortnight to pay off over 25 years. Today it would cost $1203.

But if you don't own a home, housing is an increasing pressure.

The median New Zealand house price is now $585,000 compared to $340,000 in mid-2009.

The median rent is $450 a week nationwide, compared to $300.

This data takes into account existing rental agreements - in many parts of the country, the rate paid for new tenancies has been increasing by double-digit percentages in recent years.

Brad Olsen, an economist at Infometrics, said ownership of property, or lack of it, was the biggest driver of inequality.

"Those with property are in a much better position financially because they own an asset, and with house prices still far above what they were previously, the gap between those with houses and those without is large.

"What that also means is that people who are trying to buy housing are facing greater hurdles to get on to the housing ladder – as a proportion of income, deposits are higher than at other points in New Zealand, meaning that people need a larger chunk of cash to get onto the housing ladder, and to get there, they need to save and forgo other spending."

FOOD

According to the Reserve Bank calculator, $1 of food in 2009 would cost $1.12 now.

Food prices increased 0.5 percent in the year ended June 2019.

Within that, fruit and vegetables were 8.8 per cent cheaper, meat, poultry and fish were 2.8 per cent more expensive, grocery food 1.8 per cent dearer and non-alcoholic beverages 0.8 per cent cheaper.

"While real wages have been growing, which means that wage increases have outpaced overall rises in living costs, there will be substantial differences in peoples' experiences," said New Zealand Initiative chief economist Eric Crampton.

"Statistics New Zealand recently began releasing cost-of-living statistics for different groups to take account of differences in spending patterns. Since they started doing that, they have found that increases in the cost of living have been most sharply felt by the poorest because tobacco excise increases, petrol price increases and housing costs there have the worst effects. And these are areas directly under the government's control. Ceasing punitive tobacco excise increases and fixing the regulatory settings to allow new housing be built would substantially affect living costs for the poorest."

TRANSPORT

In 2009, the price of a litre of 91 petrol hovered around $1.65 a litre. Now it's more than $2.25.

Reserve Bank data show $1 spent on transport in 2009 is worth $2.50 now.

Olsen said increasing fuel prices would not be as much of a hassle to a well-paid person, or someone who lived close to a main centre, because it would be a smaller part of overall spending.

"For a single mum needing to drive to work and get her kids to school, fuel might be a large component of her cost."

Economist Shaumbeel Eaqub predicted more price rises ahead due to minimum wage rises and petrol costs. "Many businesses have been absorbing costs, faced with a competitive market - consumers aren't loyal and will go to where the best prices are. but I expect to see a bit of price increase followed by discounting."

And for wages?

Not good news for wage-earners. Eaqub said the outlook was for them to be "pretty contained" for the near future at least.

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