“Productivity” missing in action

Michael Reddell Productivity, Taxation

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.

 

20 thoughts on ““Productivity” missing in action”

  1. There are synonyms for productivity: “advantageous, beneficial, constructive, dynamic, effective, energetic, fertile, gratifying, profitable, prolific, rewarding, useful, valuable, vigorous, worthwhile, generative”. But I get your point.

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    • I suspect the Labour government especially Grant Robertson does not know what economic productivity actually means. I am rather surprised that Dr Michael Cullen has this same knowledge deficiency. I suspect that in order to keep his high paying consultancy with this new Labour Finance Minister who simply has got zero idea of what finances or economic productivity actually means.he has lowered his standards to match the hand that feeds.

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      • But in saying that, NZ economists are rather blinded by economic productivity because measures like GDP per hours worked mean that primary production industries like milking cows can be incorrectly considered as a high productive enterprise. This focus on agriculture and primary production industries has been incorrectly driven by this statistical measure. What is missing from economic productivity is that primary production has a huge amount of waste which is not factored into the definition of economic productivity.

        It takes 10 million cows to produce $15 billion of export GDP. We spend billions of taxpayer dollars subsidising roading so that Fonterra can drive its milk trucks around the rural countryside to collect the milk for its factories. We subsidise billions of dollars in taxpayer dollars in irrigation so that farms have water for agriculture production and grass to feed dairy cows. Each cow will eat and produce wastes to the equivalent of 20 people. NZ is feeding and handling the waste production of the equivalent of 200 million people with 10 million cows. The cost of cleaning up dirty waterways, contaminated ground water, algae bloom in coastal waters, decimation of fish stocks from nitrate leaching. The cost burden from climate change agreements of pollutants like methane gas that destroy the ozone and create carbon dioxide all subsidised by the NZ taxpayer.

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      • It takes only 1.5 million people in Auckland to produce $75 billion in GDP and for a company like Samsung, only 350k people to produce $350 billion in Sales equivalent GDP compared to the 10 million cows that produce a meagre and abysmal $15 billion in GDP.

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  2. Given Grant Robertson’s harping on about productivity while in opposition, I’m surprised by this. Still, public submissions give the opportunity to note this deficiency. I note Dr Cullen is on the record that they’ll look at how taxes can increase efficiency.

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    • Just call it like it is, an Envy Tax, a Wealth transfer tax or perhaps even a Robin Hood tax would be more appropriate. It is incredible the taxes that Grant Robertson is trying to dream up as an alternative to Capital Gains Tax. His new one being Property Value Capture tax by putting a rail into a neigbourhood. As far as I know property values drop in areas next to rail tracks.

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      • Why not extend GST to all house sales? Then when the lynch mobs come out, suggest a capital gains tax, including on the family home. There are worse things than a CGT.
        I lost a lot of respect for Ms Ardern when she did a John Key on the retirement age, then even more when she ruled out even the prospect of a CGT on the family home. When you’re talking about a fair and balanced tax system, you shouldn’t tie one hand behind the back of the group doing the work.

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      • Minsk, you can decide not to take up the age 65 pension by donating the payments to charity. You also have the option to pay CGT on your own home and donate that to charity. I would respect your opinion more if you did that. My challenge to Gareth Morgan and any TOP party member to donate any such proceeds and announce that they have done so. That would make your opinion honest and and reflects your integrity.

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  3. So if productivity can be defined as GDP per hour worked, for example, then if there is a fall in prices/cost because of technology change or ‘disruption’ then how does that get reflected in the data?

    Say I used to spend $20 on a taxi fare, but now only have to spend $10 for the same ride,,, I am $10 better off so there is an increase in welfare (assuming no changes elsewhere)… but then GDP is potentially $10 lower… I might spend the $10 elsewhere, but I might also save it… which does not really add to GDP per se…

    So here we have Solow’s productivity paradox… how does the data solve for technology innovation where value increases but prices fall?? Not only do I get more bang for my buck but I need fewer bucks…

    Any explanations?

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    • A lowering of prices usually equate to an increase in volume allowing more people to buy. To increase productivity you need to keep to either work your staff harder ie faster and longer hours if you are measuring GDP per capita or you automate and do not add more labour hours and that is GDP per hours worked.

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  4. Remember that the relevant metric is real GDP per hour worked – ie something like a volume measure.

    Simple drops in selling prices don’t immediately flow into an increase in productivity. In the Uber case, they may initially be largely a transfer from taxi drivers (less purchasing power) to you (more). But cheaper taxi rides are likely to result in more taxi rides occurring. Or more services that weren’t previously there – Uber Eats.

    All else equal, if nothing else, lower inflation will result in lower interest rates and more demand/activity thru that channel.

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    • Not sure how you would volume metric measure milk which is measured by litre, milk powder which is by kg, or oil which is by barrel and compare that with items that tourists buy and services provided.

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  6. Sorry to hear about your accident. Please ensure that you notify ACC accordingly. If you have trouble being cleaned due to your immobile condition, make sure you let the migrant call centre personnel at ACC know. They will assign a migrant case manager to assess your needs. 2 migrant part time groomers and cleaners can be assigned to you contracted by an Australian company. As they are part timers, you may get perhaps 8 different migrant groomers during a week and al least 2 are required to move you for health and safety reasons. Be nice to them as they have a choice as to whether they will care for you or not. But you have a choice to reject the groomers as well. Stay away from the Indian cleaners as they are rather lazy. The Chinese cleaners are the smartest and most dedicated cleaners. The Polynesian cleaners need to be instructed but they do work hard and are very strong which makes moving you around much easier.

    A local kiwi self employed physiotherapist who earns around $150k a year will also be provided for home visits together with an international student assistant to get you properly mobile again.

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    • Note that ACC operates on the principle of, “Look after those clients who scream the loudest. Ignore those who don’t.”

      Therefore if you need any specialised equipment to aid in your care and recovery, please ask and requests may need to be in writing and may need several reminders.

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    • I forget to also mention that is a kiwi local qualified nurse that visits once a week to check on your nutritional and bowel movement needs. I will need to check if she is self employed or from the DHB. You can then receive parcels of high fibre breakfast liquids to supplement your food and you can request for hypoallegenic wetwipes and mansized nappies.

      And also a local kiwi born Occupational Therapist earning between $250k and $400k per annum(I have seen the books of a self employed Occupational therapist) will come in to access accessibility, mobility and comfort in your surrounds. An architect will be appointed to re-design the home for wheel chair accessibility together with exterior decking ramps built and staircases removed if the Physiotherapist determines that your mobility is restricted to a wheelchair permanently or of a long duration,.

      A top of the range electronic hospital grade bed with headrest and leg rest remote control motion, with a waterproof spring mattress and electric battery operated lifting equipment if you require it can also be provided.

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      • I guess you can take comfort that if you had broken both legs or ended up with a spinal injury, rest assured the health system does mobilise rather quickly once ACC assigns you with a case manager.The hard part is first to get past the call centre staff and then to get onside with the case manager. Once the case manager says ok. An entire regiment of self employed extremely highly paid professionals activate to suck blood from ACC.

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