4  Results

4.1  Introduction

This study estimates the average final incomes of households in different deciles, measured in 1987/88 and in 1997/98.[14] A household’s final income is composed of its market income, plus the government benefits it receives either in cash or in kind, and minus the tax it pays. The following sections therefore look in turn at:

• changes in the market incomes of households in different deciles (Section 4.2);
• changes in the government social benefits received by households in different deciles (Section 4.3), where these are broken down into changes in cash benefits, education benefits and health benefits;
• changes in the tax paid by households in different deciles (Section 4.4), where this is broken down into changes in income tax and consumption tax payments; and
• changes in the final incomes of households in different deciles (Section 4.5).

Some comment is made on possible reasons for these changes, but a full decomposition or explanation of trends in household income is beyond the scope of this paper.

Section 4.6 looks specifically at the redistribution of income from households in higher deciles to households in lower deciles, and how this has changed between 1987/88 and 1997/98. Finally, Section 4.7 looks at whether the distribution of final income has become more or less unequal from 1987/88 to 1997/98. Appendix 2 contains the data for the figures presented in the following sections and also contains analyses of income, benefit and tax changes by household type.

4.2  Market incomes

Households report a wide range of market income in the HES, from negative incomes (reflecting losses by sole traders and partnerships) through the very low market incomes of beneficiaries to household incomes of well over $200,000 per year. The lowest deciles of household income are characterised by a relatively high number of beneficiaries and superannuitants, and relatively few wage and salary earners. Most of the households in the bottom two deciles are either retired people, especially those living alone, or sole parents and their children. In addition, a significant proportion of people in decile 1 are self-employed, a few of whom have large negative incomes. Younger couples with children tend to be in the middle deciles. Older couples with children, as well as working-age couples without children, tend to be in the higher income deciles. These patterns are shown in Appendix Tables 6 and 7.

Between 1987/88 and 1997/98, average market incomes rose in the higher deciles and fell in the lower deciles, with the exception of decile 1, where the average market income was negative in 1987/88 (Figure 5, I). Notably, average market incomes in decile 10 rose by 29% between 1987/88 and 1997/98, while average market incomes in decile 2 fell by 38%.

Households in decile 10 took a larger share of total market income in 1997/98 than they did a decade earlier: in 1997/98 a third of the total market income in New Zealand was earned by the top 10% of earners (Figure 5, II). No other deciles increased their share of total market income, with the exception of decile 1. Results for decile 1 should be interpreted with care, since the people in this decile are a heterogeneous group including self-employed people reporting business losses (but who may not be suffering hardship) and people receiving benefits and Superannuation who have no, or very little, other income.

Figure 5 – Market income by income decile, 1987/88 and 1997/98

I. Average market income ($)

II.  Share of total market income (%)

Explaining changes in market income is not easy since a wide range of social, demographic and economic trends can affect the composition of the deciles. These include, for example, changes in population characteristics such as the age structure of the population, proportions of different household types in the population (eg, the proportion headed by a single parent), and the proportion of people with educational qualifications. Incomes will also be affected by changes in the labour market returns to these population characteristics, such as the wage rate associated with having a university degree or having School Certificate. O'Dea (2000) discusses these and other drivers of change in income and income dispersion in New Zealand.