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Income gap widens faster in New Zealand
Published: 12:08PM Tuesday December 06, 2011 Source: Fairfax

The gap between New Zealand's rich and poor has widened more than in any other developed country during the past 20 years, according to an OECD report.

Figures from the "Divided We Stand" think-tank show the income of the richest 10% of Kiwis is now more than 10 times that of the poorest 10%.

This is up from a ratio of around six-to-one in the 1980s and higher than the average income gap in developed nations of nine-to-one.

Using an inequality index called the Gini coefficient, where zero means everybody has the same income and 1 means the richest person has all the income, New Zealand rated 0.33.

That was up six percentage points from 1985, when it measured 0.27. The only other OECD country to make such a jump was Sweden, up to a much lower 0.26.

However, the report, using data from the late 2000s, showed that even in "fairer" countries such as Sweden, Germany and Denmark, the pay gap was expanding, jumping from a five-to-one ratio to six-to-one.

In the rising powers of Brazil, Russia, India and China, the ratio was an alarming 50-to-one.

The OECD says the main driver behind rising income gaps has been greater inequality in wages and salaries, as the high-skilled have benefited more from technological progress than the low-skilled.

It warned about the rise of the high earners in rich societies and the falling share of income going to those at the bottom, saying governments must move quickly to tackle inequality.

"The social contract is starting to unravel in many countries," said OECD Secretary-General Angel Gurría in launching the report.

"This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise."

Gurria acknowledged reforms to boost competition and to make labour markets more adaptable, for example by promoting part-time work or more flexible hours, had promoted productivity and brought more people into work, especially women and low-paid workers.

But the rise in part-time and low-paid work also extended the wage gap, the report said.

Tax and benefit systems played a major role in reducing market-driven inequality, but had become less effective at redistributing income since the mid-1990s.

The main reason lay on the benefits side: benefits levels fell in nearly all OECD countries, eligibility rules were tightened to contain spending on social protection, and transfers to the poorest failed to keep pace with earnings growth.

As a result, the benefit system in most countries had become less effective in reducing inequalities over the past 15 years.

Another factor had been a cut in top tax rates for high-earners.

"There is nothing inevitable about high and growing inequalities," Gurría said.

"Our report clearly indicates that upskilling of the workforce is by far the most powerful instrument to counter rising income inequality. The

investment in people must begin in early childhood and be followed through into formal education and work."

The OECD underlined the need for governments to review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden.

This could be achieved by raising marginal tax rates on the rich but also improving tax compliance, eliminating tax deductions, and reassessing the role of taxes in all forms of property and wealth, the report said.

Source - http://tvnz.co.nz/national-news/income-gap-widens-faster-in-new-zealand-4599042