I mostly went looking for the text of Simon Bridges’ “state of the nation” speech yesterday to see if there were any signs, at all, that the Leader of the Opposition was going to confront New Zealand’s appalling productivity growth performance. He had, after all, been Minister of Economic Development only 18 months ago. There weren’t.
I’ll come back to economic performance and economic policy later, but the rest of the speech had some interesting snippets.
There was a long section on law and order. There was plenty of rhetoric but one line in particular caught my eye
I am determined that under the next National Government, New Zealand will become the safest place to live in the world.
Wow, I thought, that sounds like a bold promise. I don’t carry crime data around in my head, so I went looking. Reporting and collection differences muddy cross-country comparisons of the incidence of crime, and for a full comparison you’d want to look at the full gamut of violent crime, theft and so on. But the most comparable data across countries is that for the homicide rate. Here are the homicide rates (per 100000 people) for advanced countries, using UN compilations of data.
Dreadful as any intentional homicide is, New Zealand doesn’t rank too badly, just a bit better than the median of this group of countries. But Simon Bridges says that under the next National government, New Zealand will be the safest country in the world. Say they come to office next year, and are in office for nine years. That means he thinks that within ten years, they can take steps that will lower New Zealand’s intentional homicide rate by just over two-thirds, to match the record in places like Singapore, Japan and Luxembourg.
I ran this chart in a post late last year, using NZ Police data.
Cutting our murder rate by more than two-thirds would involve getting, and keeping, it, down to the very lowest individual years managed in the last 100 years or so. It would be laudable goal…….at least if Mr Bridges had any serious and plausible ideas about how to do it. And the sort of change that really would support, over time, a much lower prison population. Fifteen murders a year would still be fifteen too many, but even that seems like a tall order, even with an ageing population. Mr Bridges promises that National will “continue to put forward the ideas” between now and the election to make his “safest place to live in the world” vision a reality. Count me a bit sceptical, but I’ll watch with interest to see if there is some substance there.
The headline from the Bridges speech was around the promise to index the income thresholds in the tax system. It would be a welcome, but well overdue, reform if someone finally does it. But I wondered about some of the details. This is how Bridges explained what they are proposing.
We will amend the Income Tax Act to make sure income taxes are adjusted every three years in line with the cost of living.
Within a year after every election, Treasury will advise the Government on how much the tax thresholds should be adjusted to account for inflation.
That means income tax thresholds will increase every three years to stay in line with the cost of living.
The first change will be in 2021 and relate to the tax years of 2018, 2019 and 2020.
We will include a veto clause so the Government of the day can withhold the threshold changes in the rare circumstances that there is good reason to do so.
But it will have to explain that decision to New Zealanders.
But why not
(a) adjust the thresholds every year, and
(b) adjust them automatically, with the formula written into the Income Tax Act?
After all, we manage to adjust (for example) NZ Superannuation rates automatically each year.
One of the arguments for indexing the thresholds is to reduce the ability of politicians to use occasional adjustments to present themselves as giving a tax cut. The Bridges model – adjustments only every three years, and only on the basis of the Minister of Finance responding to a Treasury recommendation – still seems to keep too much of that potential intact. Adjusting for inflation will be in ministerial gift, not simply an automatic calculation routinely notified to taxpayers (according to legislative formula) by the Commissioner of Inland Revenue.
I’m also uneasy about this idea that the Minister could reject a specific indexation recommendation. First, if the adjustment were being done annually, the amounts involved are so small there could be no compelling reason not to proceed (with triennial adjustments the amounts get chunkier). And, second, we don’t apply this approach to (say) New Zealand Superannuation payments. What the statutory formula says goes.
If a government thinks there is a persuasive case to raise tax rates – and from time to time that may be necessary or appropriate – they should be willing to come to Parliament and make the case in an open and transparent way. That is, for example, what they have to do if they want to lower (real) NZS payments. Inflation shouldn’t be able to be used to be used as a silent cover, enabling governments to grab more (real) revenue.
And then there was the economy. Simon Bridges devoted a lot of space to it in his speech but there was very little serious content. What it all boiled down to was:
(a) when we were in government our economy was a rockstar (he doesn’t use the word, just ‘one of the best performing in the developed world’)
(b) Labour is raising taxes
(c) Labour is doing wasteful spending (fee-free tertiary education and the the Provincial Growth Fund), and
(d) National would reverse the Auckland fuel levy, and any capital gains taxes, and not increase other taxes in a first term.
(It was notable that despite the talk of wasteful spending – with which I agree with him on the specifics – there were no promises to unwind those measures.)
And that’s it. There was no suggestion of an economic reform strategy – not even ideas to come – or even a need for one. Things would, it appears, be fine if only we had lower (Auckland) petrol taxes and no capital gains taxes.
So, as an aide memoire for Mr Bridges and his economic team, lets remind ourselves of some key New Zealand data. I ran this table a couple of weeks ago
|GDP per hour worked|
|USD, constant prices, 2010 PPPs|
|Median of six||25.1||44.1||62.8|
|NZ as per cent of median||85.4||64.9||59.2|
When Mr Bridges’ parents were young, New Zealand was still among the very richest and most productive countries on earth. His children are born into a country where average productivity levels are barely 60 per cent of those in the top tier of the OECD.
And what happened under the government in which he was, by the end, a senior minister.
Barely any productivity growth at all in the last five or six years (and allowing for the lags, and the fact that the current government has done little, the most recent year’s data reflects those some policy frameworks and choices). We dropped further behind Australia over the last decade, and various eastern European countries – never previously close to us in the last 150 years – are either snapping at our heels or overtaking us. Well done them. Shame on us (and the succession of governments and oppositions).
Successful economies tend to trade a lot with the rest of the world. Early in their last term, the National Party in government knew this – reflected in the (slightly wrong-headed) targets for much higher exports as a share of GDP). Here is the actual and forecast data (for exports – the import chart isn’t that different) from the most recent Treasury HYEFU.
Foreign trade as a share of GDP has been shrinking this century – under both National and Labour governments – and nothing Treasury can see suggests that underperformance is about to be reversed.
But in two pages of speech text about the economy there was not a mention – not even a hint – of any of this. Of course, none of this is as immediately topical, or offering political mileage, as a possible capital gains tax. But a serious leader might at least be able to point to the need to do so much better on the economic performance – material standard of living – front.
It is only about 19 months until the next election. Sadly, there is no sign from this speech that a future National goverment would be any more serious about reversing our relative economic decline than their predecessors – of whatever stripe – for the last 25 years. Worse still, they seem to have given up believing there even is an issue.
57 thoughts on “Bridges and the State of the Nation”
Increasing productivity to any significant degree requires a complete shift in the type of industries that we currently have. First and foremost would have to be to get rid of all the government subsidies going into Primary Industries. They need to stand on their own.
1. Remove all customs and border control on Fruit.
2. Change legislation to remove the dumb Judge’s, 500 page of rubbish interpretation that determined that the Government has a Duty of Care to farmers on disease control.
3. Remove the billions in subsidies for R&D on new crops and disease control research and eradication in animals and crops
4. Remove roading and irrigation subsidies for farmers
5. Start charging farmers for carbon emmissions and cleanup of waterways
Those same billions can go into funding new businesses like Rocketlab which was lost to US interests for a meagre $200 million. A company now worth in excess of $2 billion. Productivity can only come from future high tech manufacturing with a high level of robot use.
Government has a bad record of picking winners. If they’d done as you said they might have spent the money instead on Xero – also with a great share price, but which hasn’t ever seen a profit IIRC. Or, if they had bought Rocket labs, they’d probably have messed it up. If that weren’t enough, the only reason Rocket Lab is worth $2b is because it is listed on the US stock exchange.
Does not stop the NZ government from listing 49% in the US stock exchange. Air NZ is 51% owned by the NZ government and is highly successful. Took a bit of a knock on its projected $500 million profit forecast but $300 million profit is still pretty good.
Any manufacturing industry pick would be better than picking cows and dumping billions down the drain that benefit only a few farmers and their Filipino workers.
You are welcome to publish your chart of GDP per hour worked again and again and again. I might vote for a party that put it in their electioneering materials.
Feeling ‘Safe’ is an interesting concept and not measured by murder rates. Years ago a UK survey found the fear of random attack by strangers was greatest by women aged 60 to 65 and the least by men aged 20 to 25; however the probability of an attack was the opposite. Murder rates may be unrelated to crime rates. Murder usually committed by family or friend. In the UK murder rates increased related to gang warfare usually related to supplying drugs. Make drugs legal and that crime would drop. Probably not Simon Bridges plan.
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Bridges reported comments weren’t about “feeling” safe but actually being safe. The murder rate is a reasonable proxy for actual safety from physical attack I believe.
Fascinating to study the murder rates and speculate on the possible explanations, especially when you look beyond the OECD figures.
Some real shockers in much of central America/northern S. America (and Jamaica) very high (drug wars? or social and economic collapse – Venezuela?) Africa (corruption,inequality?) Large numbers of disaffected young men also seems to be a common factor.
Extremely harsh punishment might explain some of the low figures (Islamic countries, China) or low inequality, social cohesion and common identity (Japan, Norway). No indication of what Bridges envisions as a solution?
Bob, Michael’s time is better spent identifying the sort of industries that the government can help grow successfully that can contribute significantly to productivity. Historically, our NZ economists have wrongly told the government it is having 10 million cows that are not counted as part of the productivity denominator as they are not working hours. So unfortunately on dumb advise from economists, the government put in all their taxpayer funded subsidies into 10 million cows.
Murder is a poor proxy for safety from physical attack. The latest stats I could find were 2014 and that year the NZ police recorded 41 murders and 39,447 acts intended to cause injury. In the UK you are twice as likely to die playing soccer as you are to be murdered. Steven Pinker discusses the decline in violence in his book ‘Better Angels of our nature’ – it is a long and complex discussion.
I have a fit Maori friend in his forties – when he walks to the shops in North Shore he notices ladies tighten their hold on their handbags when he walks by which bothers him – he doesn’t get that reaction when he returns to his home in Australia. Those ladies are not expecting to be murdered by a dark handsome stranger but clearly they are worried that they may be assaulted.
The figures for burglary, theft and property damage are all large but difficult to compare since many minor crimes are not reported when the crime rate is high. So the more the police succeed in making NZ safe the more likely a crime is to be reported.
I did find the intentional homicide figures by country interesting; I was expecting social cohesion to be a significant factor but the low figures were for Singapore and Luxembourg which have high immigrant populations and I couldn’t fathom the high figures for the baltic states.
Bob. You took the time to state the ethnicity of your fit friend. Being the North Shore, it would be more interesting to know the ethnicity of the “ladies” in question
He never told me. I have not made up my mind whether it is the fact that he looks fit or that he looks Maori that causes concern. I am taller but have never looked as if I could steal anything. When a gang of kids pass me when I’m walking I tend to feel nervous although I’ve never been attacked (lived in London, New York, Port Moresby & Auckland). Maybe it is TV and newspapers that teach us to be cautious. It is not innate – today I was showing my grandson how to chain his bike to a post.
That’s if you could ever believe the number from many of these countries.
We have what seemed a reasonable system for getting immigration stats right. Well that’s down the tubes and who is surprised?
What got me was this:
. He means lots of immigration. Pro-immigration people are on a different planet.
I am curious why David Farrar is “[as you know I’m] very pro-immigration”,.Those people seem to have filters on which accentuate the positive and eliminate the negative,
Lianne Dalziel can “imagine a thriving Christchurch of 2 million people”. I can imagine being a low miserable rat in that situation competing for low paid jobs with Chinese and Indians. No doubt the cream will float to the top but we have long periods of suffering while we look at a mirage on the horizon called “a brighter future” Not only that though people do not want to be invaded.people being some people. People like being us “we Hobbits”; “we Dwarfs” Donald Trumps mainspring of support was nativism according to Ipsos. When you look at this great Utopian diversity vision imposed on the population and you ask yourself how we will function as a society you have to look at breaking down walls a talking establishing common values etc. If we achieve that we will be an ethnic nation and no longer “diverse” – what was the point of it all again?
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They do have a ‘we people’ – it is a ‘we elite’; the rare times they think about the people who clean their toilets and take their garbage to the dump it is to think of them as a an inferior species. It is H.G. Wells Eloi and Morlocks.
Michael does it matter if we don’t keep up with GDP per capita if we had just kept a low population with it’s lifestyle advantages? Since distance works against us could we ever have kept up?
Not achievable when we have an aging population that require care. The health and care sector is the fastest growing industry in NZ. Old people can’t care for themselves. Time to face reality chaps.
I was watching a comedy a couple of days ago of 4 old guys sitting at a bar chatting with the bar tender and the waitress. A young chap sat down with them and started talking about his problems at work. The oldest chap piped up and said he can recall his difficult times at work to the young chap. The young chap replied that he did not believe that this old chap had ever worked. Old chap replied that he retired 40 years ago and have been sitting at the bar since.
40 years having to be served at the bar by a young waiter and waitress. What about the rest of his day? shopping? doctors and nurses? using the toilets? All of which need retailers, cleaners, groomers, nurses, doctors, bus drivers etc.
If you are talking about caregivers you may be right but if you are talking about workers to pay for super you are wrong as migrants age.
Yes I can look after myself. So do all the people I meet at the senior activity class at the liesure centre and at U3A.
In the past it was 15 years as a kid, 45 years as a worker, a year dying and needing care; now it is 22 years as a kid, 45 years as a worker, 15 years retired and maybe working, 18 months dying and needing care.
When my grandparents were bedbound their care-givers (my parents, uncles and aunts) did not have the labour saving devices they have now. You are exaggerating the problem which can be solved by more preventative medicine, more children per family, adults working longer, retirement villages for everyone not just the rich, more technology. If the only solution is low wage immigrants then the next generation of New Zealanders is doomed.
15 years retired and maybe working? It is more like 15 years retired and hanging around the watercooler chatting (whilst being paid) with the young secretaries or to make it sound better, mentoring?
My mum and dad are 87, retired since they turned 65. That is already 22 years each in retirement which is more than the 15 years you have suggested.
GGS: NZ life expectancy is 81.61 years
Judging by the ages of my parents friends, I would say that age expectancy would have to increasing each year. More than likely headed towards 90 soon.
World wide so we have the problem along with most other countries.
We can keep up and outperform in business’s where distance doesn’t matter. The are many opportunities now in our modern world where this is the case. Artificial intelligence and automation applied to horticulture and agriculture for example can produce large productivity gains.This is being applied in NZ.
The government role in my opinion is to clearly recognise these types opportunities that best suit NZ and then enable. The problem is our dull politicians don’t seem to wan’t to do much other than seek popularity. As I understand it, the billion tree program isn’t really going anywhere and KiwiBuild is the same.
Perhaps we could have an immigration program specifically aimed at granting immediate citizenship to high powered politicians. Now that would never happen.
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I think we could have kept up, playing to our strengths (real but limited natural resources). Whether it matters if we didn’t keep up is an empirical question I guess, but I’d argue that most NZers would still wanted something material more – evidence for that suggestion is that huge outflow of NZers to Aus once we fell behind them (and this in the 70s and 80s when there wasn’t much inward migration of non-NZers.
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When you talk about exports, what do you think we’re doing wrong, and how can we fix this?
We have a basically capped amount of primary industry and a majority of our exports come from that. It’s not clear how well our economy can do with value-added products – moving up that skills chain. So if our exports are basically constant, and increasing the population doesn’t increase our exports, our export share continues to decline and thus productivity and GDP.
Is that essentially how you see this?
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Tourism and international students is our largest export product at $17 billion out of $60 billion in total exports. It is a services industry. The best service is always more workers not less.
Talking about productivity through higher wages is just stupid nonsense by Comrade Ians Galloway our communist minister of immigration.
The best service is always more workers not less.
I would have thought income per worker? How is a low paid workforce going to provide super to it’s older people or don’t you think in a diverse manner?
Super is only around $200 a week. Cheap. Anyway a lot of old folk do have other investment income and will continue to pay taxes into retirement. But it is services old folk need. Grateful and cheerful cheap labour from Thailand and Phillipines preferred. Ungrateful and expensive kiwis that do not want to clean and groom not wanted.
GGS: International students may have been a $5 billion business but at one end are post graduate students of engineering at Auckland University and at the other end blatant exploitation. See this link
which contains “” government eventually realised it had to leash a monster created “”
and “” India became rife for exploitation. For most of the international students from India, the ultimate dream is gaining permanent residency here. There’s a lot of status attached to returning to India with residency in a western country. For that expectation, they are willing to invest an awful lot “”
and “” A vast number of visitors pay for a qualification so they can qualify for work rights and then gain residency. It’s a system designed to make money for the country. It’s not ‘back door’ to residency – people have been walking in through the front door. “”
We do not want our govt making money by immoral actions. I’d rather we were poorer than exploit naive foreigners.
Some commentators have blamed Fonterra for selling bulk milk powder to Nestle for $6/kg instead of producing infant formula worth $30/kg. I think they have a point. We’ve got addicted to exporting commodities instead of adding value. I sit here looking over Wellington Port with huge piles of logs waiting for export. I’d rather it was huge piles of cross-laminated beams for export, which are worth ~10 x a log by weight
Bottom line is the real exchange rate, which has stayed up (even moved higher) even as productivity diverged further below other advanced countries.
While we do have limited natural resources, there could be more capital intensive investment in those sectors (think of the Dutch agriculture/horticulture sector, admittedly with big location advantages) and that sort of investment would be more viable with a lower exch rate (and lower real interest rates).
Of course, the contentious issue is how the real exchange rate might be sustainably lowered. In a country with a low savings rate my argument has been that much slower population growth (resulting from lower non-citizen migration) would make that sort of difference.
Here is one telling of my story
Click to access large-scale-non-citizen-immigration-to-new-zealand-is-making-us-poorer-mana-u3a-sept-2017.pdf
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Given that the NZD trades at 0.67 against the USD and 0.57 to the Euro, it is no wonder that the US and the EU does not allow our produce into their markets. Our NZD is already a massive discount and gives us an unfair currency advantage in those markets. It is incredible the propaganda lies our economists tell. Having recently been on holiday having to use those currencies our NZD currency is way too low.
Take out or ability to earn from mining and Oil & Gas and we are going to struggle. Comparison with Aussie, Norway and so on all of whom export oil & gas and minerals.
Wine and cheese, apples and kiwifruit, fish and meat. always subject to the weather, disease, trade barriers, and can be produced, like tulips, more places than Holland.
Rocket Lab was an oppourtunity for the super fund and many others but its easier to have one shareholder.Particularly one who can help the company to run faster.
I struggle all the time with the productivity thing. Basically I think that its measured all wrong and that is made worse by using GDP.
what we actually need is a measure of wealth creation per capita. It is after all the citizens nett wealth that matters, not how much we all spend.
Does Bridges’ definition of “New Zealanders” include foreign residents with voting rights [i.e. not “New Zealanders”]?
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Yep unfortunately residency foreigners also vote and pay NZ taxes. Kiwis that don’t pay NZ taxes also do vote. Wonder why kiwis overseas are able to vote when they pay no nz taxes? But can determine how taxes should be spent?
Because it is about the money it is about identity (nationhood/belonging).
You mean like non property owners get to vote in the local body elections. Screwing the ratepayers for their nice to haves. Lowers productivity.
This paper shows that the level of deforestation in Indonesia is positively related to the degree of ethnic fractionalization. To identify a causal relation, we exploit the exogenous timing of variation in the level of ethnic heterogeneity due to the creation of new jurisdictions. We provide evidence consistent with a lower control of politicians, through electoral punishment, in more ethnically fragmented districts. Our results are consistent with the literature on (under)provision of public goods in ethnically diverse societies
So if there was only one race there would not be any deforestation?
It would be different if muslim Javanese had not colonised Christian Melanesian Papua. Colony encouraged by USA’s anti-imperialism policies after WW2.
Apolgies for not keeping the case the same for ‘Muslim’ and ‘Christian’ – just a typo.
I’m no history buff but curious: has there been a NZ election campaign based around the theme of productivity growth? Seems odd if not but I guess there are political constraints to the message “we can make you work smarter not harder”?
Rather hard to win an election telling workers that they would be replaced by high productivity robots? Easier to bribe workers by paying them more at the expense of business and telling workers to spend up big to justify a higher GDP from higher spending. It is not about working smarter but of spending more on a higher income. Then they raise petrol taxes. There goes the productivity gains from higher wages.
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I doubt there has been one with that very specific theme, but the idea of reversing our relative decline used to feature quite a bit (even if “productivity” as a word was never uttered). It was part of the story of the 1984 election – esp Bob Jones talking about the NZ economy as a Polish shipyard. Even more recently, the idea pops up from time to time- mostly from Opposition parties of course – and even in 2017 Robertson and Ardern did give some mention to our productivity failures.
I guess one has to campaign mostly on positive themes, and in that sense fixing productivity is a means to the better, more upbeat, ends.
Anyone standing around waiting for the Govt to ‘act’ on productivity will be waiting a v long time… its a drum that has been banging in the political wilderness for many, many years… Politicians only act in the face of a crisis (not always for the best) and its hard to see productivity becoming a ‘crisis’ anytime soon…
Frankly it’s a hard sell to middle NZ who have no clue about what ‘productivity’ really means.
I’m more concerned about the RBNZ’s bonkers bank capital proposals… that’s going to drive up the cost of capital and reduce the availability of finance… try being a property developer in the current market building for KiwiBuild… the banks aren’t lending… private foreign money is coming in to finance developers but this is expensive cash, as you would expect…
Pity also the poor manufacturer or exporter looking for some working capital… cost of $$ just went up, not because of the economy, but because of the Reserve Bank’s proposals…
Kiwibank just fired off a 3.99% 2 year fixed. Getting some competition finally from the smaller players.
certainly agree with your view on the capital proposals – more posts on that coming next week
To improve productivity, cease all immigration
Exports as a percent of GDP have gone down since the year 2000 when the tidal wave began in ’98
Migration is not the boon that was predicted by the elites
It has brought into NZ a toxic business culture
Every week there is a case reported in the NZ Herald of an import who has rorted the system, not paid taxes, exploited employees, been pinged by the IRD and fined by MBIE $500,000 and they go bankrupt having not contributed a red cent to the economy. There is never a follow up as to whether they ever pay their fines. Unlikely. Dreamtime.
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Its not just the under payment of staff. The oversupply of “skilled” people discourages business from upskilling the rest of their staff which results in droves of high level, low skilled professionals which just makes making products just that more expensive (professional engineers being a typical example).
Labour and NZfirst did campaign on no immigration. But unfortunately the notion of no immigration became untenable when nurses went on strike for shorter working hours and more nurses, the police went to negotiate for 1500 extra police, the teachers went on strike for more teachers, the schools started closing off certain subjects from their curriculum as not enough teachers, the hotel industry started screaming for more chefs as tourists hit a record 4 million, the doctors want less working hours, The rest homes and aged care left patients frozen in toilets because of staff shortages. The hospital keeps dropping patients because only one staff is available when 2 or 3 is required to move patients due to understaffing.
A bus driver shortage is being blamed for leaving school children stranded without a ride in Tauranga.
A new network with more trips and buses has been introduced and passengers say they’re being left behind. Students have been left stranded, and passengers claim their complaints are being ignored.
Add bus drivers to the list of shortages.
“bus driver shortage is being blamed for leaving school children stranded without a ride in Tauranga.”
So we should give out visas to people to do 2 hours of work a day, in a city full of retires. Thats going to help productivity. This isn’t employment problem, so much as demonstrating the issues relating to cult of all tendering any and every thing out regardless of where it is wise. As unknowns go the number of children to be picked up isn’t rocket science. The dirty secret of the modern economics is the least risk adverse / most overly optimistic planner wins the contract.
School principals are expecting disruptions when most schools go back this week because of a shortage of staff. It’s estimated 650 more teachers are needed this year and that’s after 200 have been recruited from overseas.
I wouldn’t cease all immigration. Political ties to PI nations. Simple partners of New Zealanders. Even North Korea has the odd work permit (I once met a technician who supported their air traffic control system). However citizenship and permanent residency should be valued.
Migration from similar cultures (UK and Ireland) didn’t help NZ’s economy so why anyone thought multi-cultural immigration would sort our productivity problem is weird. I don’t think NZ is especially law abiding but certainly if I ever had a criminal opportunity that attracted me the fact that I have double citizenship sure makes a difference. The local Indian restauraunt was fined for paying staff about $3 per hour – the owners seem to have left the country.
Review of Eric Kaufman’s White shift at Marginal Revolution