National’s economic plan

Michael Reddell New Zealand economic performance, Productivity

I’d seen a few underwhelmed comments on the speech by Simon Bridges earlier in the week, “National’s economic plan for 2020”.   But just possibly some of those critics had missed some real gems, that might signal an Opposition party really serious about addressing New Zealand’s longrunning economic failures. For anyone wanting the short version, there was nothing of that sort.

I was quite critical of Bridges’s speech to the National Party conference last July

But, for all the almost ritualised mentions in Simon Bridges’s speech of the importance of a strong economy (even the Prime Minister mouths those sorts of line from time to time), there was nothing –  not a word –  to suggest that he recognises that the biggest obstacle to higher material living standards (whether in the form of cancer care or other public or private goods and services) is the woeful productivity record that successive governments –  led only by National and Labour –  have presided over.    There is plenty of talk about cyclical issues, but nothing about the structural failures, and nothing about what National might do that would conceivably make a real difference in reversing that performance.

Sure, it wasn’t primarily a speech about economics, but there has been nothing from Bridges or his colleagues elsewhere, and no hint of a recognition here, that much-improved productivity performance is the only sustainable path to much better material living standards.  And not a hint of a recognition that these failures were already well apparent in the government in which he served (latterly as Minister of Economic Development) –  and if you think politicians never make such acknowledgements then (and in fairness to Bridges) I should point out that in his brief speech at the start of the conference he did acknowledge that National hadn’t done that well on housing (“but we weren’t Phil Twyford”).

But I was a bit more positive about the economic policy discussion document released a month or so later.

Quite a few of things National is proposing look sensible. The general direction looks sensible.   The rhetoric is better than it was –  although, by itself, such rhetoric is cheap, and is the sort of thing most Oppositions for 25 years have eventually come round to saying.  But the scale of the policy response they are talking about is simply incommensurate to the scale of the problem (much of the policy mix they are suggesting is carrying on a broad approach they adopted in government, and productivity growth was very disappointing then).  For New Zealand average labour productivity to match that in top-tier OECD countries would require a 60 per cent lift from where we are.    That is simply huge.  Huge problems are rarely successfully answered with small changes (even a succession of them).

And so my challenge to National is along the lines of that the rhetoric is great, and I hope it reflects a shared sense that New Zealand’s long-term economic performance really is deeply disappointing, and has not sustainably improved –  relative to other advanced countries –  for any prolonged period for many decades now.  As they say, that has real implications for us, our children and our grandchildren, for the material living standards –  and public and private services –  we can achieve for the population as a whole.

But if you are serious, and you really mean what you say – all those good quotes I posted earlier –  you need to keep thinking harder, digging deeply, consulting broadly and testing and evaluating the proposals and analysis put to you.   Great ambitions need to be matched by excellent analysis, courageous policy, and skilful management of the political challenges.   Perhaps for many in the National caucus, winning the next election is all that matter, but I’d urge the party, and its members, not to focus on the small ambitions, but on the really big challenge that, successfully confronted, would so much transform New Zealand for the better, for almost all New Zealanders.

That was six months ago,  The election is now only seven months away, and if the speech earlier this week wasn’t intended to set out too many details (specific tax rate changes etc), if there was any sign at all that they were serious about more than just gettingback into office, it should be showing through by now, reflecting some sort of integrated story –  and telling that story –  about what has gone wrong, what needs to be done quite differently, and how National under the leadership of Mr Bridges proposed to set about doing it.   But no.

So what does he have to say?

It is pretty much all cyclical stuff.

The first page is pretty much a boilerplate recitation of the woes and challenges of the wider world, and there isn’t anything very much to disagree with.    Then we get this

Our commodity prices are high and our terms of trade are near the best they have ever been. From our primary sector through to our technology and innovative sectors, New Zealand should be booming and the envy of the world.

Perhaps there is a small amount to such a story on a cyclical basis, but no one in their right mind would envy our structural performance, among advanced economies, at any time this century (arguably, for most of the previous half-century either).

I’m not going to disagree with much of the shorter-term stuff

Because Jacinda Ardern’s Government has failed to deliver on its promises, has piled on the tax, cost and red tape, made things more uncertain domestically at a time of global uncertainty, and as a result New Zealand has become a country of lost opportunities.

They [people] deserve a government that does what it says it will, that delivers with certainty and removes barriers and burdens like tax, cost and red tape.

But then it starts getting a bit odd.

We have slipped to the seventh lowest GDP per capita growth in the OECD. We are behind countries like Chile, Hungary, Poland, Latvia, Estonia, Lithuania, Spain and even Greece.

Which is a rather odd list to be anguished about, seeing as all those eight countries have lower per capita GDP than we do (Spain is very close).  In conventional analysis of such things, one might reasonably expect (and hope) that poorer countries will grow faster than rich countries so that, over time, economic performance converges.    Oh, and Greece was coming off the back of probably the most savage economic downturn in the advanced world in almost a century, so it would be a surprise –  nay, a worry –  if they did not eventually begin to limp back towards full employment.

So, really strange list of countries, but it is certainly a fair point that seventh lowest per capita GDP growth in the OECD is pretty bad.    Unfortunately it has become par for the course.  For the whole period since 1970, we’ve had the third lowest growth in real per capita GDP in the OECD (small sample of countries for which there is data for the whole period).    There is complete data for the whole OECD membership since 1995, and over that period –  after all the reforms we did, but also period presided over by both National and Labour governments – we were 11th worst (out of 36 OECD countries).

And on productivity growth –  real GDP per hour worked – the only secure underpinning for long-term improvements in living standards, we’ve been 7th worst in the entire OECD over that whole period since 1995.

We’ve been doing poorly, mostly drifting backwards, relative to other advanced countries for a long time.     And if one year’s growth –  thrown around by all sorts of things, including measurement challenges (who knows how our latest annual growth rate will finally be measured, or ranked against those of other countries, when all revisions are in several years hence) makes for short-term political headlines, it is mostly a distraction from the real long-term failures.    A deliberate one one might suggest.

I couldn’t exactly replicate the Bridges claim that we were 7th worst in per capita growth –  I’m sure it is so on some or other series, but the ones I happened to check gave slightly different results.   I’m assuming he was using annual data, for which the most recent numbers are of course 2018 –  quite a lot (good and ill) has happened since then. I also checked the OECD quarterly seasonally adjusted per capita data, and as happens can offer a factoid Bridges might like: in the two years to September 2019 (latest official data, and covering the full period of this government) New Zealand’s per capita GDP growth shows as being 11th worst in the OECD, while for the previous three years (final term of the National government) we were 14th best –  ie actually better than the median OECD country.

But…..productivity.  Have I mentioned productivity?  (Bridges didn’t)   Over that whole five year period, our labour productivity was fifth worst in the OECD.   That was National’s failure, and it is Labour’s failure.  It would now take a 67 per cent lift in average New Zealand labour productivity to match average productivity in the leading OECD group (a bunch of north European countries and the US).

Now, in fairness to Bridges, there is one vestigial reference to such gaps

In comparison, if our GDP per capita were as good as Australia’s, the average Kiwi would be 35 per cent richer.

By my reckoning that is more like the productivity gap than the GDP per capita gap, but either way it is a big number.   No narrower now that it was –  wider on the productivity measure –  before the last recession.

Bridges goes on

That doesn’t happen by accident, it doesn’t take a country the size of Australia to achieve it. It happens when you have a strong economy focussed on you. Led by a competent government with a track record of delivering.

As Economic Development Minister and Associate Finance Minister, I saw how real this is.

Except that the gaps didn’t narrow then either, and all he goes on to enumerate is a series of either modest cyclical points or wholly rhetorical ones

It’s about getting up in the morning and seeing New Zealand ambitious and confident about itself again.

National’s response

National’s focus is simple and resolute.

  1. We will keep taxes and red tape low and grow incomes to help with your cost of living
  2. We will be responsible managers of the economy
  3. We will focus on growing the economy for all
  4. We will invest more in core public services like health and education
  5. Finally, we will create more jobs and opportunities for all New Zealanders

Except for the first half of item 1, Labour could – probably did – trot out exactly the same list in 2017.

He then gets a little more specific

To do this, today I am announcing five key measures that I want the sixth National Government’s first term to be measured by. They are things that matter to Kiwis because they impact us in our everyday lives.

  1. New Zealand’s economic growth is back to at least three per cent per annum.
  2. New Zealand’s growth rate per person is in the top half of the OECD
  3. We are reducing the after-tax income gap with Australia
  4. More New Zealanders feel they can reach their potential at home, rather than overseas
  5. We have revived business confidence so that businesses feel like they can take more risks and create opportunities for you and your family

Nothing very wrong with that I guess, but not much ambition either –  nothing about the level of GDP for example.   Nothing about productivity, and –  re the final point – business investment was really rather subdued under the previous government as well.

How will this be done?

Over the next few months I will be announcing our comprehensive Economic Plan.

The five major planks to it are five packages on:

  1. Tax relief
  2. Regulation reduction
  3. Infrastructure
  4. Small Business
  5. Families

Details to come, to be sure, but it is hard to believe it will amount to much, beyond a bit of political product differentiation, and (no doubt) a few useful steps at the margin.     If you plan to spend more, and keep the budget more or less in balance, for example, there is hardly room for game-changing tax reform.     And if I really quite like this

We have already promised to cut red tape and regulation. We will light a regulations bonfire in our first six months of government, and cut two regulations for every new one we create.

it isn’t much different to what National always says in Opposition, which never amounts to very much in government.  Why will this time be different?  Did Bridges have a reputation as a reforming liberaliser when he was a Cabinet minister?

The speech goes on with some soft-soap stuff that I won’t trouble you with.   And then we get to the conclusion

National’s view is that the 2020s should be New Zealand’s decade.

Which sounds good, but there is nothing in the speech suggesting thought, ideas, plans, ambition commensurate with the scale of that challenge.   It is really just a promise to manage a bit more compentently –  not an unworthy goal necessarily, but just part of keeping our ongoing relative decline tidy.   Ours kids deserve better.

Then there is this sentenc.  I read it first yesterday and read it again today and it still makes no sense –  or, most generously, just repeats itself in saying nothing.

Our ambition as a country can never be too great for what we need to achieve.

The decades of economic failure just keep on mounting up, on watches overseen by both National and Labour.  The scale of the failure –  the extent to which relative material living standards here have slipped away – is huge.  But while Bridges –  just like Ardern, or Key, or Clark, or Shipley –  might like to leave the impression they might finally be the one to wave a magic wand, all the evidence is that they (a) they don’t really care, and (b) have no serious ideas about what went wrong and no serious interest in knowing, or doing, what it might take to really turn this country’s economic future around.

If, perhaps, none of that is a surprise, I suppose we should simply be “grateful” that Bridges’s speech, just a few months out from the election, makes that indifference utterly clear.

 

 

33 thoughts on “National’s economic plan”

  1. Michael

    How much is the size of Government impacting on our productivity?

    We have almost 10% of our working age population on some form of State funded benefit, how does that compare with other OECD countries, and is this an impediment to our productivity?

    If a new National government could introduce just ONE significant initiative to improve productivity, what would you recommend?

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      • It is about time we face facts instead of just continuos harping on about immigration who are just people to do the jobs that we do not have kiwis that want to do those jobs or even in sufficient numbers available to do those jobs. The government has no other realistic option other than to drive immigration numbers upwards. The voting public will not tolerate a recession if we drop our GDP growth and as we all know our GDP growth is entirely dependent on population growing. Our industries are all pretty much in services and great service always equal more people and not less.

        Every other country that beats NZ in the productivity stakes just have more automation in Financial services or more automation in products. We are too far away from markets to put in a large Tesla factory and we reject the sort of billion dollar automated theme parks like Disneyland or like the Goldcoast ones that can charge $25 for a large cup of coke or caramelised pop corn.

        I suggest we aim to have an ambitious robot building program but the government cannot offer its voters a life of no work poverty living in cars as the alternative.

        So Robots need to pay the equivalent of PAYE. We treat Robot workers like we treat human workers. Currently our human workforce pays the government $100 billion in tax revenue. That money must come from Robots.

        We embark on a aggressive robot workforce funded by the government who will produce and will earn and will pay an equivalent PAYE that will replace human labour where in products or in services. Humans that get redundant then get a Universal salary. The more robots the more PAYE the government can collect and start to pay higher and higher and to more and more humans redundant and without work.

        Unfortunately this is what higher productivity means.

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      • GGS: “”The voting public will not tolerate a recession if we drop our GDP growth “” – but isn’t that exactly what the voters in Britain did with Brexit – they were told they would be worse off but they still chose to leave. Not much different with my children leaving home – they also knew it was not the optimum financial decision.

        “”Our industries are all pretty much in services and great service always equal more people”” – If true and we insist on globalisation then services will be valued as per the poorest country. In other words we are importing 3rd world wages and practices. The best way of charging 1st world rates for services is to be selling a unique quality product and that ought to be an unspoiled, low population New Zealand.

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      • Bob, population in NZ of 5 million is very low. We have the land mass the size of Japan with 125 million people. We export 95% of what ever food we produce because we can’t eat most of it. We have food up to our eyeballs and coming out of our ears. This is not a country with a scarcity of land or resources.

        Our increased population is as simple as the fact that our old people need care. Young people ie migrants provide that care and population grows because old people are not dying. Very simple maths.

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      • GGS: If old people need care and it can only be provided by immigrants then don’t you see the need for increased productivity? Because it equates to wealth per capita. This issue with aging applies to all OECD countries and the wealthier ones will out bid us to get those caring nurses from the Phillipines. What fraction of our annual immigrant intake work providing services to elderly Kiwis unable to care for themselves? Why does my son looking for unskilled work have to compete with large numbers of low paid immigrants in many work categories?

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      • Bob, your son has a job if he really wants it. They are short of workers in the health industry and in the hospitality industry. My niece just got a job in a restaurant by just walking in and asking. My nephew mows lawns for $60 an hour in his neighbourhood. Businesses have to give locals preference over migrant labour. The Social Welfare department will even help find him a job and offer free training as soon as he registers for Welfare payments. Social Welfare will subsidise employers to hire your kiwi born son. The real question is really “Does your son really want to work?”

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  2. Government spending and revenue in NZ are just a bit below the average or median among OECD countries.

    The key plank in my pro-productivity agenda specifically for NZ would be to cut the immigration residence approvals target to 10-15K per annum, with supporting changes in work visas etc. Doing so would, over time, reduce the cost of capital, lower the real exchange rate and remove the policy-led skew inwards of our economy.

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    • I concur with your proposal although the devil is in the detail. Some immigrants are clearly beneficial to NZ’s productivity and just as surely some are not. The problem with your proposal is that the results would take more years to eventuate than are found in an election cycle. Also they would take some time to action since any fair minded person would complete processing those already in the system. [Currently our immigration quota of 35-45K is being achieved by deliberate bureaucratic delay. This is the worst of all options since it must be causing all the talented applicants with skills wanted worldwide to choose other countries].

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      • The administration of the system in the last couple of years has been a disaster – and actually they’ve been undershooting the official target. Some are already talking of having to do a reset – wipe all applications and get people to reapply – anyway. i have no particular view on that, altho the status quo can’t go on.

        To your wider point, of course showing fruits takes time – altho I think a bit less than you suggest, done in a well-signalled way. but that is where – as with all serious reform effective political leadersip comes: a leader who inspires confidence and with a compelling story makes a great deal of difference.

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      • oh, incidentally, altho i was asked about the one thing i’d do, I usually push back and say that one needs a package of reforms, partly for reasons for substance, but partly to manage the political challenges, partially compensate some losers, tackle other sore points (and thus build a coalition) etc.

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      • One significant item missing from your song sheet is energy

        Energy all types input into all production is “about” 20% economy-wide

        Petrol pricing in NZ is 40% higher than Australia. At that premium, NZ manufacture can hardly compete with Australian manufacture. Electricity Power prices in NZ are not cheaper than Australia despite the fact the bulk of Australia’s power is derived from coal fired power generators which has to be dug up and transported to the generator

        Primary industry dairy farmers use power to operate milking machines, refrigerate the vats, Fonterra transports the milk, uses large quantities of power to operate the driers and produce other products, butter, cheese and processed milk then transport them to the supermarkets. Australia has far larger distribution costs

        Australia has achieved an installed residential ratio of 50% solar power to the point the generators are squealing it is difficult to manage their national grid. Industry and supermarkets and retail are adopting it rapidly. NZ installed capacity of solar power is negligible

        NZ Petrol and electricity prices are effectively a tax built into the economy

        Simon Bridges and National could close that gap between AU-NZ easily

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      • Two quick thoughts (on a topic I don’t have firm views on):

        – part of the petrol price difference is that we use petrol taxes to fund roads, while Aus more heavily uses tolls
        – as I understand it, solar is less attractive here partly because we have a cooler climate so that peak power demand is in winter, when the sun in shining less.

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      • Most of the toll roads are in the main metropolitan areas and were built by PPP’s. Brisbane’s Clem Jones tunnel was Brisbane’s first privately financed inner city toll road. The Sydney Cross City Tunnel is a 2.1 km-long twin-tunnel tollway located in Sydney, New South Wales, Australia, which is operated by Transurban. Melbournes Citylink Tollway is owned by Transurban. Melbourne Eastlink is owned by ConnectEast a private company. It was only opened in 2010

        The difference in solar. The Australian Federal Government began encouraging residential solar installations in 2005 with subsidies. State governments chipped in with Feed-in-tariffs which began at $0.66 per kw/h which rapidly dwindled as the industry became established. In AU the supply-install industry comprising 1000’s of small competing operators, is actively fostered by government. There are 9.5 million residences nationwide, 5 million homes now have rooftop solar panels. NZ government has passively discouraged solar power. The main players are the big players – the gentailers – Meridian, Genesis etc. I was an early adopter when in Australia. Re-locating here to NZ the economics are not encouraging and the gentailers were disinterested. The next step to wind-power is being kept in-house by the big-players.

        Solar requires daylight. The cooler the better. In AU I paid nothing for electricity for 5 years. Now here in NZ I’m paying $2,000 per year for electricity

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  3. Michael
    Productivity is not an election issue. How voters feel about their own circumstances is an election issue. Each of the 3 main parties will be targeting a group of votes, who they hope can persuaded about the personal merits of voting Green, Labour, National. The other two parties (ACT and NZF) are available for protest votes. At political meetings the person on the dais may talk about stuff the audience wants to hear.. tax on the rich…. productivity… but in reality they know that such things don’t win votes, they just make those voters a bit stickier.
    Unfortunately for you, and your desire to have government seriously emphasize productivity, its not going to happen.
    Look at how blurred and out of focus is the conversation about Climate Change. It seems to be the one issue which some people will vote on which has no direct immediate benefit (in fact it will cost). But, as a moral issue it feels to only have as much sway as “Christian values”, albeit more than “ban bird eating cats” (as promoted by failed political campaigns in the 2017 election).
    Until a politician can sell the message “productivity = wages & wealth for you”… its not going to happen.
    Sorry
    Tim

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    • Tim

      I don’t think I disagree wth anything you are saying. “productivity” is to a considerable extent a shorthand, and a means to diverse desired ends. But there is no hint in this speech – an Bridges is no worse than Labour – that they have seriously recognised the problem or thought hard about solution, let alone found ways to translate the diagnosis/solutions in campaign messaging. Of course, as I’ve noted in other posts,in some ways or senior officials and econ agencies are at least as much to blame: they don’t have the analysis/prescriptions that the politicians can take and a) sell an b) courageously implement. I don’t recall “productivity” featuring in the 1984 campaign either, but there was a stock of serious thought and policy options open to an incoming govt, key figures in which had recognised things had gone v wrong, and resolved to be part of trying hard to change those outcomes.

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      • I just did a quick online poll. Surprisingly Simon Bridges was ahead of Jacinda Ardern on the question, “Who you would like to see as Prime Minister after this election?” Looks like the tide is turning. Jacinda Ardern is showing her incompetence and have told too many giant lies.

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    • I guess its how you frame the issue… no one really knows what ‘productivity’ means and you right that expressed in technocratic terms no one cares. However, if you say, as Bridges did, that if we had the same productivity growth as Australia then we would all be 35% better of, the voters have some context.

      The next step is to then convert that benefit into tangible outcomes that voters care about… better schools, hospitals, roads etc etc etc.

      The point is to emphasise that a focus on improving productivity is a pathway to the things voters care about… rather than the current lots tax and spend or borrow and spend mentality.

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  4. Migration doesn’t work – it’s a drug called “hopium” pronounced “hopey-um”

    Here’s how it’s not working
    Why do we need to borrow $12 billion for infrastructure

    NZ population
    2006-2013 increased 200,000
    2013-2018 increased 450,000

    If the migration scheme was working, then 700k migrants should have contributed $20 billion in income taxes, GST, plus excise duties over the last 5 years.

    Where has that money gone?

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    • Immigration probably generates a modest fiscal benefit over a horizon of several decades. What it hasn’t done in N Z is to help lift productivity – on my telling, it has undermined productivity growth.

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      • But at what cost?..With current govt policy they buy existing assets/businesses….With business they import family as labour…not hard to see, Visit a local dairy, bottle shop, or take away once owned by a local…

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      • Kurt, the local who sold benefit from the sale. It’s a market, willing buyer and willing seller. We could go back to our previous “White only” immigration policy? Anyway Maori under the Treaty of Waitangi does not recognise the NZ government. That’s why our government is still the British Crown.

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    • It is more complicated. Recent headlines were about Auckland primary schools discovering increased school rolls meaning a need for more class rooms and teachers. And last month Prof Paul Spoonley was deducing the majority of registered births last year in Auckland indicated non-Anglo-Saxon names and therefore mainly recent immigrant parents.
      NZ encourages young, frequently student immigrants so it is not a surprise we have a growing number of Kiwi children. In general it does not bother me where New Zealand children’s parents came from so long as they grow up identifying with New Zealand. However this is all part of the financial cost of our high per capita rate of immigration.

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  5. In 1950 the population of NZ was 1,900,000
    In that time the following were just 2 of the major projects
    Maraetai Hydro Power Station opened 1953
    Karapito Hydro Power Station opened 1947

    How many major projects have been achieved in the last 20 years?

    The money must be going somewhere

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  6. Published this morning https://www.interest.co.nz/business/103730/masseys-alison-brook-finds-we-have-been-good-creating-jobs-not-right-sort-jobs

    Containing this quote that I doubt our political parties will use when electioneering “” New Zealand’s labour productivity is currently around 40% below the top half of OECD countries. A 2016 study by the Productivity Commission found that NZ firms were on average one-third less productive than comparable international firms in the same industry. “”

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    • David Seymour also fully support and has a bill in support of Euthanasia. I guess that is the ultimate productivity option. You don’t need more migrant health workers if you just kill off old people suffering from dementia or those suffering from ill health driven poverty.

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      • The Police were given the rights to seize assets under the “Proceeds of Crimes Act”. They have now abused this Act. Non elected officials have a history of abusing their powers.

        “The police are using the proceeds of crimes laws for the first time in a health and safety case against Ron Salter, who runs Salters Cartage in Wiri. He and the business were sentenced in 2017 for safety breaches after an explosion killed a young contractor in 2015.They are now fighting an unprecedented attempt by police to seize their property over the workplace death.”

        https://www.rnz.co.nz/news/national/410123/police-use-of-proceeds-of-crime-laws-in-health-and-safety-case-staggering

        A medical practitioner or a family faced with mounting costs and government funding cuts for say dementia patients can exercise a cull under this Euthanasia Bill.

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