I’m tied up with some other stuff for much of this week, so if there is a post each day it is likely to be a fairly short one.
Today, I wanted to show just a few charts – mostly updates of ones I’ve shown before.
In yesterday’s Sunday Star Times, I read Rod Oram’s column. It was headed Australia’s Delusions Run Deep, on some of the economic challenges Australia undoubtedly faces. It was fine, as far as it went, but it did bring to mind the words
“Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye?
Whatever Australia’s challenges, it remains far richer than New Zealand. We rather take that as given these days, but through most of our modern history there was no such gap. And there is nothing suggesting that yawning gap is about to begin to sustainably close.
Even over the shorter-term the comparisons don’t flatter us. Here is real GDP per hour worked (ie labour productivity) for the two countries since the end of 2007 (ie just prior to the recession).
The big differences aren’t about the recession period (our recession was worse than the Australian (income) recession) but are actually apparent in the last few years. In short, on the official numbers – and always subject to revisions – there has been no productivity growth at all in New Zealand for the last four years. And yet those were the years when, for some reason, people – even Australians – started talking about “rockstar” economies on this side of the Tasman, and our Prime Minister (and his acolytes) having been telling us how well New Zealand has been doing, with any stresses “quality problems” and “signs of success”.
At present New Zealand’s unemployment rate is exactly the same as Australia’s – both at 5.7 per cent. But in the decade leading up to the 08/09 recession, Australia’s unemployment rate had averaged 5.9 per cent, while ours averaged 5.2 per cent. Australia’s unemployment rate is actually a little less bad than average, while ours is worse.
The HLFS has been running for 30 years now. Over that time, Australia’s unemployment rate has usually been above New Zealand’s – and they have a more heavily regulated labour market so that is what one should expect – but not now.
But turning back to the New Zealand national accounts, the media coverage did note that per capita real GDP growth has been very slow. But no one seemed unduly bothered. Of course there is some quarter to quarter variability in the series, and the data are revised over time, but the simple fact is that, on the official data we currently have, and averaging the production and expenditure measures of GDP, there was no real per capita growth at all last quarter. And yet this is supposed to be some sort of success story? Even in the last full year, real per capita GDP growth has been only around 0.6 per cent in total. It remains something of a mystery to me why the Reserve Bank and Treasury expect growth to pick-up from here.
And here is the (rough and ready) breakdown of per capita GDP into its tradable and non-tradable sector components.
Tradables here includes primary production, manufacturing and exports of services. Non-tradables is the rest. So the tradables sector, as captured here, includes the booming (subsidized) export education sector and the booming tourism sector. And yet there has been no overall growth in tradables sector real GDP per capita for more than 15 years.
Successful economies, building on a sustainable footing, do so by selling more and different stuff in competition with the best the rest of the world has to offer. That doesn’t describe New Zealand at all – under this government or its predecessor.
We have
- no productivity growth
- a continuing high unemployment rate
- ruinous house prices, and
- a tradables sector that has achieved no per capita growth for 15 years.
And yet, so our ministers and officials tell us, our immigration policy is a “critical economic enabler”. Frankly, it seems bizarre that, as a matter of policy, we bring more and more people – many of them just not that skilled anyway – to such an underperforming place. It is as if theory trumps experience. New Zealanders pay the price for these political and bureaucratic preconceptions, and for an unwillingness to look out the window and recognize that all is far from well with New Zealand’s economy. Even Australia, for all its challenges, just keeps doing better.
UPDATE: After finishing that post, I noticed this chart in the Westpac consumer confidence report. Respondents aren’t always correct in their expectations, but at present they (potential voters all) don’t seem remotely optimistic about the medium-term outlook for New Zealand.
croaking cassandra 
A few things that seem to be going on in Australia: 1) many people on high paid jobs in the mining sector seem to have found lower paid jobs, either in construction, real estate or low paid service jobs; 2) recently completed mining/extraction projects have been coming on line and starting to export; 3) the worst excesses of the education sector have been curtailed and immigration has fallen by a third; 4) there has been a lot of apartment building in big cities, taking the heat off rents. So, not great but a lot better than many other post-boom commodity exporters.
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the unemployment rate used to be kept above 5% using interest rates, now that the interest rate mechanism has stopped working, immigration is used instead.
just a thought.
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International visitors spend $37.9 billion in Australia with 7.1 million visitors which is $5,338 per visitor compared to NZ where they only spend $10 billion with 3.1 million visitors. which is $3,225 per visitor. This would skew your performance data by productive labour considerably.
The problem in NZ is that we do not have anything for tourists to spend their money on. A long trek in the middle of nowhere with nothing to spend on just puts a strain on DOC and on housing accommodation. The problem with NZ economists is that they are so caught up with seeing all these 3.2 million tourists they actually imagine that all these woes with housing and on the NZD and therefore on interest rates is attributed to migrants. NZ economists see all these 3.2 million tourists and they think they are all migrants.There is little correlation statistically but somehow 14k migrants end up being the scapegoat. But NZ economists completely ignore the 3.2 million tourists demanding the NZD to spend $10 billion in the economy that keeps the NZD high. I simply cannot imagine that 14k actual migrant arrivals per year (as per Statistics NZ)and 36k poor international students that get their work permits and become permanent residents who have a high churn ie they leave after 3 to 5 years, can affect the NZD to the same degree in ignorance of tourists but somehow NZ economists can make that link magically.
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Click to access IVS_one_pager_March2016_V2.pdf
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3.2m tourists is ~9k coming/going on any given day. They stay in hostels/hotels/campervans, not in houses, so they won’t be impacting the housing market.
I wasn’t sure of your points about the number of tourists and how much they spend. You say tourists aren’t spending as much per person in NZ as in Aus (I agree about not having as much to spend it on), but then say they are spending too much and keeping the dollar high. The same is true of all NZ exporters. I’m not sure what NZ would be like if they stopped exporting everything/buying NZD, but we would have a lower dollar!
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Lindley, thats where you are so wrong which seems to be common amongst NZ economists. There are 700,000 tourist nights a month in NZ of which only 140,000 nights can be accounted for in hotels and motels. Therefore there is an unaccounted number of 560,000 tourist nights every single month. Sure there would be a lot of tents and freedom campers but Air BnB is a significant enabler in terms of making available residential apartments and houses for daily rents.
http://www.interest.co.nz/opinion/81365/benje-patterson-says-pressure-accommodate-surge-tourism-and-unoccupied-private-holiday
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Lindley, Michael has mentioned many times that the high migration levels are keeping interest rates higher than they need to be and their short term pressure on resources due to migrant spending and I am trying to highlight that tourist numbers that have increased exponentially each year would be a more likely culprit of the high NZD due to their daily retail rated NZD requirements to spend up $11 billion in the NZ economy and an increase of 400,000 tourists in a 12 month period that is putting upward pressure on the NZD and short term pressures on NZ resources.
Milk exports prices have tumbled by 50% plus so it is not really other exports putting upward pressure on the NZD. But we are seeing tourism increase year on year therefore the most likely culprit placing upward pressure would be the tourism spend.
But when compared with Australia, our tourism spend is less therefore the spend by tourist skews productivity numbers when you are comparing Australia and NZ productivity performance. In our case we have more DOC staff and volunteer brigades having to run around and cleanup after a whole bunch of tourists, dirtying our waterways and environment that do not spend while running around for free in our National parks. That lowers our productivity significantly when compared with Australia.
Why try and blame 14k migrants and 36k international students for our poor productivity rather than look at a more glaringly obvious 3.2 million tourists running all over the place in NZ as to where the productivity problem resides? This just points clearly to a migrant bias in our many NZ economists poor analysis including our Treasury and the RBNZ.
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In fact this morning on Radio NZ 101.4, “the organisations representing fishing and hunting guides say they’re missing out on business due to unregulated foreign guiding operations. They’re pushing for a licensing system for official guides which would only be available to New Zealand citizens or residents. The Chairman of the New Zealand Game Animal Council is Don Hammond and Kevin Payne is President of the New Zealand Professional Fishing Guides Association.”
It was made clear that local tourist fishing operators were sitting idle while foreign operators came out to NZ on holiday visas and were working. Idle NZ tourist workers equate to low productivity as foreign professionals swoop in and take over the job of guiding tourists.
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201805274/fishing-and-hunting-guides-say-cowboy-foreigners-costing-them
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Getgreatstuff: –
1) Even 700k tourist night/mth is still not much more 20k/nt, and would equate to <10k/nt rooms/houses when you factor in that most people will be a couples/families.
2) Two thirds of NZ tourism is domestic, so potentially a lot of people staying with family. If you believe the number of tourists is the problem, stop domestic tourism, it would have a much bigger effect.
3) I will believe lots of international tourists are staying in private accommodation when I see the evidence. Without that I don't believe it.
4) From the numbers you have given I see only that international tourism, in terms of accommodation, puts less pressure on that market than immigration.
4) NZ exports are $60b? Every export dollar puts marginal upward pressure on the NZD. If you use comments like "so it is not really other exports putting upward pressure on the NZD" you risk that I may not treat your comments seriously.
5) Tourism is just an export, if you just want the NZD down why not restrict some other export industries?
6) From my understanding I agree that tourism has low productivity and productivity growth, but given the relative value in NZ v Aus, perhaps there is scope to grow the productivity. But it may need further growth before people will invest. 🙂
7) I think Michael suggests high immigration may be related to low productivity growth, not low productivity. Accepted that low productivity growth will lead to low relative productivity over time.
8) I am not yet convinced by Michael's argument that immigration keeps interest rates high. But I also haven't seen anything to the contrary in NZ.
9) There may be a case for DoC to charge more or to tighten rules about foreign tourism operators, but that is separate from the number of tourists.
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26 extra hotels needed
It is estimated a total of 26 additional hotels, above and beyond what is currently planned, will be needed over the next ten years to meet expected tourism demand in our major tourist centres, according to new independent research released today by New Zealand Trade and Enterprise.
The research is a key part of “Project Palace”, a programme to accelerate new private sector investment in New Zealand’s hotel infrastructure led by NZTE and the Government’s Investment Attraction Taskforce.
“This is the first time we’ve had quantified data on the effect that the tourism growth projections will have on hotel occupancy,” Economic Development Minister Steven Joyce says.
“This research will be a great help to private investors considering when and where to invest in New Zealand’s fast-growing tourism accommodation industry.”
NZTE, Tourism New Zealand (TNZ), and the Ministry of Business, Innovation and Employment (MBIE) commissioned the research report to gain a more accurate understanding of the demand and supply for hotel accommodation now and in the future across peak and off-peak seasons.
https://www.beehive.govt.nz/release/26-extra-hotels-needed
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Kiwis opening up their homes to making extra cash from rental website Airbnb, for an average $7000 a year, are being reminded they must pay tax.
Airbnb is a crowdsourced accommodation platform that allows people to put up their places, spaces and spare rooms for other users to stay in.
In June the global company set up its first New Zealand office in Auckland to keep up with demand for the service.
There are now more than 7000 properties in New Zealand listed on Airbnb, up from 6000 just a month ago.
A growing number of travellers are taking advantage of a surge in the number of homeowners offering to rent out a place to sleep.
The company expects New Zealanders will book almost half a million nights on Airbnb in 2015.
http://www.stuff.co.nz/business/71056750/Kiwis-renting-out-homes-with-Airbnb-warned-tax-obligations
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Lindley, the problem you have is that you do not understand what is practical instead your focus is on the the minute detail and then your logic gets lost as to where the real issue lies. Are you a economist by profession because you are not analysing data correctly?
1. The International arrivals totalling 3.2 million coming directly into Auckland is 2.3 million thats an increase of 220k over last year. Over a 365 day year that works out to 603 people a day. May not sound like very many but you forget that we are already full. When you are half full, then 603 addtional people needing accomodation is not many. But when you are dealing with zero vacancy, finding accomodation for an addtional 603 people every single day is just very very hard. This is just arrivals, it does not even count the departures, ie tourists that stay in Auckland before departure.
For example the 700 refugee arrivals recently cannot be accomodated in Auckland. People live in cars because the waiting list for accomodation is just not available.
2. Your comment to bring in domestic tourists is bringing another separate variable that is just not counted in the 3.2 million international arrivals. If you want to bring in domestic tourists into Auckland then we are now dealing with 17 million arrivals and departures
Auckland Airport (IATA: AKL, ICAO: NZAA) is the largest and busiest airport in New Zealand, with 16,487,648 (9,005,612 international and 7,482,036 domestic) passengers in the year ended December 2015.
https://en.wikipedia.org/wiki/Auckland_Airport
3. The difference between economists who twiddle their thumbs in ivory towers and read from other economists that also spend all their time reading other economists and accountants is that we deal with on the ground facts. People come to me regularly asking if they have to pay tax if they host the 80,000 international students at $200 a week per student in their homes or the daily rents that they get from Air BnB into their Ponsonby homes at $150 a room. Whether you believe it or not, I am certainly fielding more and more queries when individuals file their tax returns.
4. So you believe that 14k migrants a year will spend more than the $11 billion a year that tourists a year spends? So migrants actually spend up $12 billion a year???? Lindley I think you need your maths examined eh.
5. Lindley, our exports are $260 billion a year but it is not trading exports that push up the NZD as exporters sell in USD. It is only when they repatriate funds back into NZ that the demand for NZD is created but these exporters use professional traders that trade at close to bank wholesale rates. So they buy at the best available rates. Tourists demand the NZD at the retail rate and pay the top end rate. Of course the rest is speculators on the laptops trading on the NZD volatility which amount to $500 million a day one of the top 10 traded currencies in the world.
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Correction; our exports are $60 billion a year. GDP is $260 billion a year but you should look at the incremental drivers and year on year tourism has had exponential growth. Migrants arrivals have been relatively static around 14k per year for the last 10 years. International students getting their permanent residence is hardly an impact on the NZD because they would have arrived 3 to 4 years ago.
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Another excellent post Michael – can you please talk to someone at the NBR?
Their editorial line often seems to be there is no issue with New Zealand’s economic performance and if there are any issues its a “sign of success”.
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“immigration policy is a “critical economic enabler”. Frankly, it seems bizarre that, as a matter of policy, we bring more and more people – many of them just not that skilled anyway – to such an underperforming place. It is as if theory trumps experience. New Zealanders pay the price for these political and bureaucratic preconceptions,” – if this is correct then NZ is being led by politicians who are clueless (or delusional) for the most part.
I’m always suspicious of GDP measurements but I understand those are probably the best indicators you can use. The other possibility is that that ‘success has many fathers’ and the art of politics is in claiming every win but ignoring any data that goes against you.
How do we make the country a better place to live and work?
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I suspect there is something in both those comments. A weak public sector doesn’t help either – neither Treasury, nor MBIE, nor the Productivity Commission are really able to provide politicians or the public with a robust framework for thinking about how to transform our decades of underperformance.
On the way forward, see my comment to phdavis2014. Lower taxes on business profits (and perhaps capital income more generally) would be my other big specific.
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And, on top of all this, there is a continuing trade deficit. As well as this description of our dire economic circumstances, it would help to have some suggestions as to what might be done to help the shaky isles!
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Plenty of those in other posts. My honest and sober assessment is that cutting our immigration target (currently 45-50K per annum residence approvals) to around 10-15K per annum (similar to the level in the US in per capita terms) would make a great deal of difference. I outlined some of channels through which this would work in a post a couple of weeks ago
https://croakingcassandra.com/2016/06/07/thinking-about-changing-immigration-policy/
There are plenty of other sensible reforms that could play a part – my list is probably a fairly conventional centre-right economist’s list – but most of them individually, and even collectively – are probably of second order significance to facing up to the limitations of our location, which look as though they mean we should give up using policy to try to drive our population numbers up, and focus on generating really good standards of living for the people we already have.
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[…] In a recent piece on how poorly our economy is doing: […]
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[…] You might have thought – rightly – that New Zealand’s productivity performance over recent years had been pretty poor. But here is what happens if we add the United Kingdom to the chart of real GDP per hour worked (labour productivity) that I ran the other day. […]
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[…] 4. Pathetic export performance – One of the big reasons for that woeful productivity record is our inability to grow the export part of the economy, thanks I would argue to our obsession with tax-free capital gains on property. […]
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Very interesting, even more interesting that this kind of thing never makes our mainstream media, we get the likes of Hosking peddling lies about how good the nats are doing.
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You are only telling half the truth re employment! It’s all very well saying that NZ/Aussie unemployment is similar, but you fail to record the Household Employment Rate in which NZ is way above Australia and has been consistently so. In other words there are many many more Aussies who have given up looking for work because jobs just aren’t available and therefore are not even counted as unemployed. This compares with NZ where jobs are much more accessible. Truth and balance would be a good thing?
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Yes, the employment/participation rate in NZ is higher than in Australia, but I don’t interpret it the way you do (which is why I didn’t see it as particularly relevant, except possibly in strengthening my argument). To me, the test of a well-functioning labour market is whether people who want to work, and are looking for work, can get work. As I’ve said before, NZ’s labour market regulation is generally looser than Australia’s and so typically our unemployment rate has been below theirs – altho that isn’t currently the case (in my view, because of NZ mon pol mistakes). What drives overall participation rates in a complex question. But one factor is the need for income. In a richer country, there is less pressing need for people to be in the workforce for as long. Or to take my own position, I am enthusiastically not in the labour force, which is a luxury I’m fortunate my family can afford. I wish more people had the option.
Still, it might be worth a separate post. We have a variety of policies that discourage participation less than policies in the same area in Australia do. The best example is probably our superannuation policy, which does not penalize continuing in the workforce beyond 65.
But the bottom line to me is that with materially less labour force participation (ie fewer labour inputs) Australia generates much more income per capita (as well as having higher output per unit of labour input).
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