…from all appearances, our leaders (political especially, but also bureaucratic) have largely given up, perhaps idly hoping that something will turn up. And occasionally inserting “higher productivity” into a speech isn’t evidence of serious intent – if anything, it seems more like a substitute.
Judging by the inaction of our leaders in tackling the persistent productivity failure it seems that when it comes to crunch ours (regardless of party) care much less about the kids – of this generation and the next – than the cheap rhetoric of election campaigns might suggest. Giving up on productivity – in practice, and whatever the rhetoric – is a betrayal of our kids (and their kids). And most especially it betrays the children towards the bottom of the socioeconomic scales, those who typically end up paying the most severe price of economic and social failure.
I’d written that a few days ago, but if anything events of the last few days just confirm my concern.
I gave the speech the first time over breakfast on Thursday morning. I’d just read Amy Adams’ pre-Budget op-ed on Stuff. There was nothing in that at all about productivity (word or idea), only self-satisfied comments about the allegedly wonderful economy National had bequeathed labour. That, you’ll recall, was the one with 1.5 per cent productivity growth in total over the past five years.
I didn’t listen to her boss’s speech in Parliament, but I get Simon Bridges’ emails and this was his post-Budget line
This Government was gifted an incredible legacy by hard working New Zealanders and by National. They inherited a strong, growing economy improving the lives of New Zealand families. They inherited a much more prosperous and outward looking country.
Yet today they’ve delivered a Budget that is strewn with broken promises. No universal cheaper doctor’s visits, 1800 extra cops that aren’t coming anytime soon, no money to build Dunedin Hospital, not to mention a raft of new taxes from a Government that promised ‘no new taxes’ in its first term.
Again, nothing at all about productivity, or the possibilities that it can offer all of us. This was, after all, the man of whose first economics speech as leader, I noted
500 initiatives [something he’d boasted of in the speech] and we still had barely any productivity growth in the last five years. And, as I recall, one of the BGA goals was a big increase in the export (and, presumably, import) share of GDP: those shares have actually been shrinking. Productivity levels languish miles behind the better advanced economies, and the gaps showed no sign of closing.
But what of the current government?
Sure enough, there were quite a few references to productivity, and lifting it, in the Minister’s material. Eight (to “productive” or “productivity”) in the speech alone. In the Minister’s Fiscal Strategy Report (with the subheading “Foundations for the future”) there were 17 references to productivity (quite a few of them mentions of the Productivity Commission) and another fifteeen uses of “productive” (often prefaced by the aspiration “more”).
Which is fine and good as far as it goes. But what backed it up? Not much.
On the very first page of the Fiscal Strategy Report, the government’s priorities are described
The Government’s priorities were set out in the Budget Policy Statement in December 2017. They are:
• Building quality public services for all New Zealanders and improving access to core services, such as health and education.
• Taking action on child poverty and homelessness.
• Supporting families to get ahead and sharing the wealth generated by our economy with a wide range of New Zealanders.
• Sustainable economic development and supporting the regions.
• Managing our natural resources and taking action against environmental challenges, such as climate change.
That document outlined the Government’s ambitious plan to reduce child poverty, protect the environment, create decent jobs, and build more affordable houses.
And not a word, not even an allusion, to beginning to close those productivity gaps. The Budget material as a whole looks as if referring quite often to lifting productivity was a substitute for actually doing anything serious about it creating a better climate for it.
If I recall correctly, there were a couple of references to things that might help. For example, there was mention of tax reform flowing out of the Tax Working Group’s recommendation. We all assume a limited capital gains tax will emerge at the end of the process, and not much more (land taxes, for example, became infeasible once the land under the family home was ruled out). There might be a decent case for a limited capital gains tax, at least on grounds of (apparent) equity, but no one thinks a CGT is going to make any material difference to New Zealand’s productivity performance. If the Minister really did, he’d be making the case, documenting the evidence etc.
There was also mention of the new R&D tax credit. I guess reasonable people can differ on how much impact that will have – my doubts are here and here – but I don’t know anyone who thinks it is a big part of changing the overall picture of productivity performance in New Zealand.
And then, of course, there is the Provincial Growth Fund. I guess the Minister’s party is in a coalition with New Zealand First, so he has to talk up the benefits of spending all that money. Everyone else recognises that it is no part of a serious growth (in productivity) strategy.
And, on the other hand, there is not a mention of the (real) exchange rate, one of the more pressing imbalances in the New Zealand economy.
But don’t just take it from me. The Treasury does the economic forecasts. They do expect a bit more productivity growth in the next few years than in the last few years, but (a) mostly that looks like an assumption that things just get back to less-bad “normal”, and (b) the assumed rates of productivity growth aren’t going to make any inroads at all on the huge gaps to the rest of the advanced world. And although an increasingly open economy – trading more with the rest of the world – is usually part of any successful catch-up strategy, as I showed yesterday the Treasury forecasts suggest no reversal in the decline in the export/GDP share that took place over the last few years.
Treasury does its forecasts on the basis on government policy, but that doesn’t take account of things that are still just political promises (even if quite likely to be), like the capital gains tax.
So perhaps the Minister of Finance – like his colleague the Minister of Housing – thinks The Treasury has it all wrong, and is far too pessimistic. Perhaps he’s really convinced that his government will successfully turn round our productivity performance, and get us on the track for catching the OECD top-tier. As I noted in my speech, with the sorts of productivity growth rates various catch-up OECD economies have managed over the last 15 years (crisis, recession, and all) we could halve that gap in fifteen years, and close it altogether by 2050.
US economist Bryan Caplan encourages people who really believe an argument to express it in the form of a wager (typically for reasonably modest amounts, of around $100). Doing so forces the parties to identify clearly what they do and don’t believe, and think carefully about the probabilities. In that spirit, I’d be happy to offer a wager to the Minister of Finance (and/or his colleagues, the Prime Minister, or the Minister for Trade and Export Growth).
Conditional on them remaining in government, I’d expect that, if they are really serious about productivity – lifting the possibilities for our kids – and believe they have the strategy to do it (even if not all the bits are yet on the statute books), they would be willing to wager that New Zealand will average annual labour productivity growth over the next six years of at least 2 per cent. I’d be only too happy to take the other side of such a bet, because I see no sign in government policy of anything that will substantially turn around our productivity performance. No doubt, there will be the odd good year – some of which might just be measurement – but I’d be very surprised if we manage total labour productivity growth of anything close to even 5 per cent in the next five years. Of itself, that wouldn’t be disastrous – it would be quite a bit better than the last five years – but, once again, it would mean no progress in closing those gaps. (Of course, if I were to lose such a bet, I’d mostly be delighted – better prospects for all of us and our kids.)
In fact, I’m sure the Minister of Finance knows his strategy won’t make any material difference to New Zealand’s dismal productivity performance. If so, the words are just a substitute for action, and the betrayal of our kids stretches on through yet another government.