New Statistics NZ research shows household livings costs rose twice as fast for beneficiaries and poor than for the rich and faster than CPI; lower interest costs help homeowners; high rents hurt poor

By Bernard Hickey

New Statistics New Zealand research into the cost of living of various groups of income earners and spenders has found that costs for the poorest groups and superannuitants have risen twice as fast as for richer households since 2008.

It showed living costs for beneficiaries and the poorest 20% also rose faster than the broad Consumer Price Index that the Reserve Bank uses as a guiding light for monetary policy and the Government uses for indexing benefits other than New Zealand Superannuation.

Non-Superannuation beneficiaries also would not have seen their real incomes fall 5% over that period if benefits had been indexed to their living costs, rather than to the CPI generally. Superannuitant beneficiaries have seen their real incomes rise 9 8% over that period because their payments are indexed to average wages and rose 27%, while their costs rose 18 19%.

The figures raise questions about which measures of household living costs should be used for indexing benefit rates and whether the CPI is the right measure for setting monetary policy. If monetary policy had targeted the living costs of the poor, then interest rates would not have fallen as much and house prices and rents may not have have risen as much.

A big driver of the difference was higher housing costs for renters and lower interest costs for homeowners, while very fast rates inflation and big increases in tobacco excise has also hurt those on the lowest incomes, who tended to smoke at a higher rate and spend more of their income on cigarettes.

Statistics New Zealand's new Household Living-costs Price Indexes showed that living costs for the bottom 20% of spenders rose 18% between June 2008 when the series started and the September quarter of this year. That's faster than the 13% rise in the Consumer Price Index over that period and twice as fast as the living costs of the top 20% of spenders.

"Differences in home-ownership rates account for much of this difference – 83 percent of households in the highest-expenditure group own compared with 55 percent in the lowest-expenditure group," Statistics NZ said.

"Rent has risen at a faster rate than inflation overall, and interest payments declined sharply in 2008–09," it said.

"Household energy and property rates have also risen at a faster rate than inflation overall, which has had more of an impact on lower-expenditure households than on higher-expenditure households. The highest-expenditure group spent more on audio-visual items, which have had significant price falls over the last eight years."

The group with the highest cost inflation were recipients of New Zealand Superannuation, who saw their living costs rise 19% between June 2008 and September 2016, but their benefit rates rose 27% because they are index-lined to the average wage.

Benefits for other beneficiaries are linked to CPI inflation broadly, rather than to average wages or the household costs of beneficiaries.

Political reaction

Green Co-Leader James Shaw said the figures showed the Government had created a two-track economy where some people were worse off than others and are faring worse over time.

"I think it is a really good report because it shows what is behind all the headline numbers the Government's been crowing about," Shaw said.

"We've been seeing for some time now that the people at the bottom of the pyramid are actually getting worse off, so every time the Government comes out and says 'things are great because the median wage is rising' that actually gives a really false picture about what's going on," he told reporters in Parliament.

"When you get behind that and you break it down into the details and you really look at what's going on, people in the bottom third in particular have actually gone backwards under National rather than forward."

Prime Minister John Key was asked about the higher costs for superannuitants. 

"If you look at the increase in New Zealand Super over the period of time we have been in office, it's been quite dramatic relative to the overall inflation rate. So obviously you can always pick out one specific item, but overall New Zealand Super is up dramatically over that time and inflation is low."

Finance Minister Bill English said the difference in costs for different groups was largely about housing costs.

"So over recent years you have had increases in rent and beneficiaries have a much lower proportion of home ownership - and amongst superannuitants it's likely to be rates and insurance, so it's the cost of owning housing in their case," English said.

"And that's why we have about $2 billion of accommodation subsidies to support people in paying the costs of their housing," he said.

"People on low fixed incomes really notice it when just one or two components of their spend are pushed up, and that's certainly been the case with rent. And it highlights the absolute requirement for us and councils - Government working with councils - to get our housing market working better because while house prices going up has been a benefit to a lot of people, this is one of the costs of it and we need to have council plans that allow for more supply of lower cost housing."

English said this year's NZ$25 increase in benefits for families with children from April 1 was partly in recognition of housing costs rising faster than inflation generally.

(Updated to correct real income growth for NZ Superannuitants)