The Equalizer

My column in last week's National Business Review ($) went through a new StatsNZ series on government spending on health and education by income quintile. 

A snippet:

Statistics New Zealand’s latest figures show that while households in the highest income quintile spend about $150 (or about 38%) more on education services than households in the poorest quintile, government spending on education services is about $1100 higher for households in the poorest quintile. Central government education spending in 2015-16 averaged just under $1500 for households in the highest income quintile and just over $2600 for households in the poorest quintile – despite tertiary education spending that skews toward richer households.

A more thorough analysis would and should adjust for age differences across households in different income quintiles; that work is impossible from the data released.

Government service effects

We can look, though, at the effect of government spending on in-kind transfers like health and education on one measure of inequality: the ratio between the highest and lowest quartile, or the Q5:Q1 Ratio. That ratio has a lot of problems as well, not least of which being that it takes annual snapshots of household incomes and misses how household income moves over an individual’s life cycle. But it does let us get a handle on the effects of government services.

Gross disposable income, which includes taxes and cash transfers, is about six times higher in the top 20% of households than in the bottom 20% of households. Adjusted disposable income adds in government spending on in-kind transfers like health and education. Once we adjust for those in-kind services, the ratio drops by a third.