Monday, October 20, 2008

What is rich?

I was astonished a few years ago when visiting part of my family in the provincial south and discovering that it was generally thought among them all that NZ$60k per annum was high income. Given that at the time, even though I was still living in New Zealand, I was comfortably above that income, I was slightly embarrassed, for fear that said relatives (who I love dearly) would think I was living the high life, when I most certainly was not.

I never considered that paying the mortgage on a three bedroom house in Northland, Wellington, an annual overseas trip, regular domestic trips, occasionally buying new appliances and clothes to be an extravagance. Indeed, at the time I eagerly gathered airpoints so my overseas trips could be upgraded, and was remarkably frugal.

Of course the UK offers much more, although it is dangerous to do the simple NZ$-£ conversion and think one is wealthy. If I do that it seems crazy, but Purchasing Power Parity is far different between London and Wellington.

So that's why Cactus Kate's post on the pathetic SST piece on how to earn NZ$100k a year is apt. NZ$100k is not good money, it is £36k - which is only slightly more than a good teacher would earn in the UK.

New Zealand has a currency that has a poor value. This, of course, is seen as wonderful by exporters simply because it makes it easier to compete with others. This, strangely, wasn't a concern in the 1970s when the NZ$ and A$ were on a par, and when the £ and NZ$ were at a 2:1 ratio, instead of 2.5-3:1. However, the quid pro quo of a low dollar is that, in reality, your buying power is low. Buying capital goods is more difficult, travel is more difficult. The result is the quality of life is reduced because less can be bought, which is why (until the recession), tourism from the UK boomed. British tourists saw a bargain paying as little as £750 to fly to NZ (less than flying premium economy to the USA) and everything being relatively "cheap". Some were more than willing to pay double that or more to fly premium economy for what was to them the most epic flight they would ever do - which is why Air NZ has expanded premium economy on its long haul jets three times.

Which brings me back to NZ. Salaries are lower because the cost of living is lower, competition for positions is lower, and expectations are lower. I have seen an enormous difference in standards among some people I have worked with the UK compared to NZ, but I have also seen the UK have (in government in particular) absolute fools who seem to comprise an extended make work scheme. Yes, bureaucracy in the UK is occupied by many people who are less competent, intelligent and experienced than their NZ counterparts. Hardly surprising really, as outside high echelons of major departments, the public sector pays NZ levels of salary.

The Labour Party, Greens and other parties who drink yard glasses of envy whenever they meet, like to berate the "rich", painting to those, like my South Island relatives, that those who are even moderately successful should have their wages pillaged to pay for the lumpen proletariat to have schools, superannuation and health care that frankly, they can't afford in the 21st century.

UK exporters can sell goods at a high price because they are perceived to be high quality - selling them in pounds sterling. It is about time New Zealanders stop aspiring to be selling lots of what is cheap to the world, and started selling what isn't. Most of the developed world doesn't worry about their higher exchange rates, if you aim high you can earn them too!


john-ston said...

You would be correct in your post here. If you look at it over the long-term, most changes in currency stem from the differences in the inflation rates of various nations (there was a study on this a few years back), with only 1% of the variation not explained by this.

In short, we are still paying the price for our relatively higher rates of inflation from the 1970s and 1980s. IMO, we need to tighten up on inflation and go back to the 0-2% target that we had for most of the 1990s.

Madeleine said...

When we lived in the provincial south as a family of 6 living on a student scholarship (note NOT student allowance) we dreamed of having a family income of $60k.

Problem is that now we do earn a fair amount over $60k but we are only slightly better off in terms of our lifestyle. We factor two reasons for this; first, we now live in Auckland so petrol, the need to run two cars, the cost of living, etc. is higher and secondly, we are in the high envy-tax bracket which makes our income sound a lot higher than it is.