“Productivity” missing in action

There was going to be a post yesterday, on the Reserve Bank’s newly-published estimates of the natural rate of unemployment, the NAIRU etc.   But then, walking down the stairs at home, I went over on my right foot and, so it turns out, broke a bone.   And so now I sit encased in plaster for a couple of weeks, not able to do much of what stay-at-home parents do.  But I can still type and the NAIRU post might appear later in the day.

In the meantime, this morning the Tax Working Group released its Submissions Background Paper.  I’m sure there is plenty of interesting material in it, and in due course I’ll read it, and probably write about it (especially the capital gains tax sections).  But, out of curiousity, I electronically searched the document.   First, I searched for “productivity”    There were two footnotes referring to Productivity Commission documents, and one quote from the terms of reference for the Tax Working Group; one of the government’s objectives for the tax system is

·             A system that promotes the long-term sustainability and productivity of the economy

And that was it.

So I tried “productive”.  That produced four results, but

  • one was in the appendix reproducing the Terms of Reference,
  • one was in an appendix of questions for submittters”,
  • one was a question posed at the start of a chapter, and
  • the final one simply described the question the government had asked them to think about.

In other words, no analysis, no description at all.   The (short) Terms of Reference were weak on this score –  the clear focus was “fairness” –  but the TWG’s own much-longer document was even worse.    And just in case some serious analysis or discussion was lurking under terms like “the tradables sector” or a concern about growing “exports” I searched under various forms of those words, and there were no references at all.  Not one.

The yawning productivity gap isn’t the only problem or issue New Zealand faces, and it shouldn’t be the only consideration in the design of the tax system.   But when it is totally absent from the discussion document framing the Tax Working Group’s work, it simply further reinforces that perception (which I’ve writtten about here and here) that there is little reason to think the government is serious about grappling with the decades of relative decline.  I doubt that anything in the tax system is overly important in explaining that relative decline –  although a heavy tax burden on returns to business investment (especially FDI) won’t be helping –  but it seems extraordinary that the issue isn’t even touched on in the working group’s background document.