Opinion: A rough 30 years for the young, with more to come

New Zealanders born since 1985 have largely missed out on the explosive gains in wealth and higher incomes seen since then. Now they are being set up to pay for baby-boomers' retirement and health care costs without a substantial enough NZ Super Fund to help them, or enough affordable housing to build their own families. It's just not fair and little is being done to fix it, writes Bernard Hickey.

New Zealand has changed an awful lot over the last 30 years, and mostly for the good, but not for everyone.

Anyone born since 1985 has seen their incomes grow much slower than their elders over the last decade, and have missed out on the massive capital gains that landed on anyone owning property over that period. They grew up during New Zealand's worst recession since the Depression (1990-1992) and graduated into the recession in and around the Global Financial Crisis. The percentage of children living in poverty has almost doubled from 15% in 1984 to 29% in 2014, according to the Child Poverty Monitor run by the Children's Commissioner and Otago University.

Meanwhile, those who owned or bought property, particularly since 2000, have done extraordinarily well, and their incomes have risen much faster than those that followed. Household assets rose by over NZ$800 billion to over NZ$1.1 trillion over that period, driven largely by a NZ$700 billion rise in the value of houses, but the vast bulk of it went to those aged over 35.

Statistics New Zealand reports the median net worth of people between the age of 25 to 34 was NZ$26,000 in the year to June 30, 2015, and this cohort of 576,000 people had a total net worth of NZ$55.1 billion. By contrast those over the age of 35 had a net worth of NZ$993.4 billion at the end of June 2015. Statistics NZ doesn't have figures for the last year, but house prices have risen 15% and the stock market has risen 20% over the last year, suggesting that group is now worth well over NZ$1.1 trillion. That means the over 35s, the generations born before the 1980s, are worth more than 20 times that of the youth of today.

That's the wealth story. The income story isn't quite as unequal, but those over the age of 35 have also fared much better than the young, particularly over the last 10 years. Statistics New Zealand figures show real median hourly earnings from wages and salaries rose an average of 3.7% per year over the 10 years to 2014 for those over the age of 35, while those under 35 saw their wages rise by 2.1% over the same period. That means wages for those over 35 rose 76% faster than those under 35, and that growth has accumulated. Average weekly incomes for those over 35 rose by between a third and 55% over the last 10 years, while those under 35 saw their incomes rise by less than a third.

Some of the faster growth for older incomes and the massive rise in wealth for the over 35s was accidental. The over 35s grew up in the relatively prosperous 1960s, 1970s and early 1980s when unemployment was low and there were much stronger social safety nets from which to start their lives and families. They were well established in their jobs when the recessions hit so were less likely to lose their jobs. The new entrants to the workforce had it much tougher over the last 10 years than those already locked in with career paths and well-stocked Linked In profiles. Those owning property were also the accidental beneficiaries of a doubling in house prices because of high net migration, falling interest rates and restrictions on land supply for housing -- none of which could be blamed on policy-makers at the time.

But there have been some deliberate policy choices that are blowing apart the gaps in income and wealth between the generations, starting with New Zealand Superannuation. In many ways it is a fantastic system. It is simple, fair for those over 65 and encourages many to keep working, unlike those of many other countries. But it does have a couple of in-built expanders of inequality between the generations. The payment is adjusted in line with average wage growth, which is much faster than inflation and faster than wage growth for younger New Zealanders. It's also much, much faster than those on other benefits. Average weekly incomes for those over 65 rose 55% over the last 10 years because of that adjustment and because more are working beyond 65, while those aged 20-29 saw their incomes rise 30% because they are more likely to be unemployed or working on the minimum wage.

Then there's the issue of who will pay the New Zealand Superannuation bill for the baby-boomers. Over 500,000 people will turn 65 and start receiving the state-funded pension over the next 20 years. Those payments will come from taxes paid by people working over the next 20 years, which will predominantly be those aged under 35 now. Sir Michael Cullen knew this and so set up both Kiwisaver and the New Zealand Superannuation Fund to help 'pre-fund' the retirement burden so that when big payments started being made there was some money to help today's young pay that bill.

Unfortunately, the Government decided progressively over the last 7 years to reduce the incentives for KiwiSaver and to stop making contributions to the New Zealand Super Fund. The fund has quietly reported that had the Government kept making contributions since 2009 the fund would now be worth NZ$50.6 billion, which is NZ$20.5 billion larger than it is now. The Government chose not to borrow NZ$14.7 billion over those seven years and hand it on to the fund to reinvest. That meant today's under 35s are missing out on at least NZ$5 billion of money that would have earned over and above the debt incurred if the Government had continued borrowing to invest. That loss will compound in the years to come, further increasing the burden of New Zealand Superannuation.

The Government has also chosen not to tax the gains on the hundreds of billions of housing wealth that fell into the laps of those aged over the age of 35, which is helping to fuel a further widening of that gap between the generations.

Those aged under 35 face a future of very expensive housing, mostly likely as renters, much lower net wealth as they approach retirement and having potentially to pay higher taxes to keep paying the pensions of those retiring with well over NZ$1 trillion in assets.

It's not fair and no one is doing anything much about it.