Wealth inequality – ‘Utterly inexcusable’
The Herald’s Mood of the Boardroom survey reveals heightened concern about wealth inequality in New Zealand among our top business leaders.
Respondents are worried about a rise in crime and even outright anarchy if this is not addressed.
A significant 60 per cent of those surveyed say their concern about wealth inequality is higher relative to the past, whereas 40 per cent say the level of their concern has not changed.
“Asset-rich people have done extraordinarily well during this period,” says Datacom chair Tony Carter.
“I see with concern how crime and other society issues arise in New Zealand, similar to those in other countries that have suffered of wealth inequality problems for much longer,” says
MinterEllisonRuddWatts partner and SkyCity Entertainment Group director Silvana Schenone. “This is a big concern for New Zealand, as it can only drive more problems”.
The best way to reduce inequality in the long term is to invest in the training and education of our population so that everyone can participate in the benefits of a growing economy,” says Beca CEO Greg Lowe. “We need to ‘teach everyone how to fish’ if we want long term social equality.”
One area CEOs have expressed particular concern about is that the most significant inequality comes from those invested in and those excluded from the housing market.
Property values across the country grew 5 per cent in the three months to the end of August, pushing the national average property value to $983,000.
Of the regions, Waikato saw the biggest jump in prices over the quarter, with its average property value up 6.1 per cent from $821,000 to $871,000.
Auckland and Wellington regions remain the most expensive for property, with quarterly growth of around 4.5 per cent pushing their average property value to $1.395m and $1.037m respectively.
“What is so offensive in the current situation is that most of the huge increases in wealth are not the result of hard work, or of inventing something new, or of building a business, but just the result of buying lots of land with borrowed money and waiting,” says ICBC (NZ) chair Don Brash.
Another banker observes that an increase in share values is certainly contributing to that growing wealth inequality,” but the main contributor is the utterly inexcusable escalation in house prices, or more accurately, residential land prices.”
“This needs to be addressed or there will be anarchy in the next 20 years,” says a professional director.
Respondents were also asked what the Government’s role in wealth inequality should be. This question resulted in many suggestions from business leaders — with housing and education a major focus area.
“Freeing up residential land in a meaningful way would quite quickly reduce the wealth of those who have borrowed heavily to invest in residential real estate, while vastly helping those who currently don’t own a home,” suggests a banker. “If this were done, there would be no need for a ‘heightened safety net’.”
Capital gains taxes?
“New Zealanders are rewarded for investing in housing and driving up prices due to under supply vs demand,” says a media boss. “The Government needs to tax capital gains and remove the incentive to invest in housing.”
While this year’s Herald survey did not directly address capital gains taxes, many echoed the call by the media boss. “Get on with some form of capital gains tax… it is simply wrong to get taxed on the likes of shares and not investment properties,” says a food manufacturer.
From another director: “We have to fight this growing wealth divide with a capital gains tax — or whatever it needs to be called politically — or we will see the divisiveness emerge in New Zealand that is already prevalent in many other nations around the world.”
Others suggest that education must remain a key focus of the Government to help close the gap.
“Education for those in poverty to help them come up the curve — the hand up not the hand out,” says one director.
A similar sentiment from a food producer: “Bring the bottom towards the middle, don’t drag the top down.”
“Ensuring excellent and broad opportunities for education and work (which may be coupled with living wage/ sustainable wage system),” says Schenone. “This gives everyone the opportunity and incentive to earn a decent living and see the effect of effort and reward as a truth available to them.”
Another independent director says training more students for STEM (science, technology, engineering and mathematics) capabilities will “get more of our people into higher paid and more relevant roles”.
But others suggest responding to wealth inequality is not the role of the government at all — and some say intervention is aggravating the problem: “Government interference seems to keep making the situation worse,” says Devon Funds Management chair Paul Glass.
“I think that relatively speaking there is less inequality now than there has been in the past 200 years,” says a director. “Welfare is important, but not to the detriment of signalling the importance of being employed.”