The Secretary to the Treasury on productivity

A speech appeared on The Treasury’s website the other day.   It was, we were told, by Gabs Makhlouf, Secretary to the Treasury, and given as the closing address at a Productivity Hub Workshop last Friday.  The Productivity Hub is a grouping of government agencies, hosted at the Productivity Commission

which aims to improve how policy can contribute to the productivity performance of the New Zealand economy and the wellbeing of New Zealanders

It is a laudable aim.  I’ve been to a few of their events, and at times they’ve had some interesting and stimulating speakers.   Whatever the event was that Makhlouf was speaking at, it has a very low profile  –  there is nothing about it on the Hub’s homepage, or anywhere else I can see.  I’ve lodged a request for the papers and presentations.

I’m all in favour of pro-active release of material by government agencies, but I was a little curious why The Treasury chose to make this speech something on-the-record.  Closing addresses usually seek to summarise and draw lessons from what has been heard at the conference/workshop.   But in Makhlouf’s speech there is no reference to any of the papers that had been presented, or any of the material discussed at the workshop.    Perhaps he just wanted to signal that he, Secretary to the Treasury, treats productivity as something important (on checking, I found that Treasury had also published his brief remarks to a couple of previous Productivity Hub events)?

Whatever the reason, when the Secretary to the Treasury  –  head of the government’s main economic advisory agency –  talks about productivity, it should be worth taking note of.   After all, presumably even now Treasury is in the process of pulling together the analysis and advice that will form the basis for their Briefing to the Incoming Minister (BIM) after the election.     We might hope they will be (a) pointing out to the Minister of Finance that New Zealand’s productivity performance is woeful, and (b) offering a compelling narrative and set of recommendations for what might reverse that performance and enable New Zealand to deliver for its citizens the sort of standard of living they should reasonably expect.     But on the basis of the Secretary’s latest speech, I wouldn’t be holding your breath.

Of course, one can’t expect any sort of fully-developed story in a few pages closing a workshop.  But if there is (a) a sense of urgency, and (b) a well-developed set of policy proposals being worked-up, that should be clear in a speech of this sort. Neither is there.

Makhouf recognises that our productivity performance leaves something to be desired, but how is this for minimising the issue?

We are middle of the OECD pack at best in the amount of income we derive per hour worked, and we have made little or no headway on lifting our productivity performance rankings over the past 15 years.

There are 35 OECD countries now, and only 13 had real GDP per hour worked less than New Zealand’s in 2015 (most recent comprehensive data).   And the only reason we are even near the middle of the OECD pack is because so many poorer countries have been allowed into the OECD.    Every single one of the 11 new members in recent decades was poorer, and less productive than us, when they joined.

When we joined the OECD in 1973, it was a club of 24 countries.  OECD data go back to 1970.  And in 1970, our real GDP per hour worked was similar to that in France and Germany.     These days, they have productivity 60 per cent higher than ours, and of those 24 countries only Portugal, Turkey, and Greece now have lower real GDP per hour worked than we do.   In 1970, Turkey had GDP per hour worked less than half ours, while on the latest estimates it is now almost equal to us.

And while it is certainly true that “we have made little or no headway on lifting our productivity performance rankings over the past 15 years”, the story is much worse than that, as even the OECD highlighted last week.    Here is their chart

OECD productivity

And this is mine, from a post a couple of weeks ago

douglas 3

In 47 years now there has never been a time when New Zealand has succeeded in narrowing the productivity gaps that have opened up between us and other advanced countries.  At best, we’ve gone sideways in some periods.

And if Makhouf understates the severity of the problem, he overstates any signs of progress

Our understanding of New Zealand’s productivity performance is improving, thanks to a wealth of information that has recently been released including as a result of the Productivity Commission’s report Achieving New Zealand’s Productivity Potential, the OECD’s New Zealand Country Study and Going for Growth, and the Treasury’s He Tirohanga Mokopuna.  (That last one is a cracking read, by the way.)

Really?   The Treasury report he refers to was their long-term fiscal report, and I’m genuinely puzzled as to how he thinks that (useful) report advances our understanding of the productivity underperformance.    The Productivity Commission piece, which I wrote about here, was an interesting effort, and did represent a step forward in some areas (including the treatment of immigration policy) but it has hardly galvanised the nation –  or even, as far as I can tell, official Wellington.  As for the OECD’s report, surely Makhlouf was just being diplomatic  –  the OECD chief economist was at the workshop –  rather than seriously suggesting that they have a compelling narrative to explain New Zealand’s underperformance and, thus, a solid model to use in proposing remedies?

Makhlouf goes on

Our challenge now is to keep building the momentum of progress and turning our growing understanding into action that lifts our productivity performance.

But where is the progress at all?   Where, specifically, is the evidence that Treasury –  or other government agencies –  are any closer to credible answers?

Makhlouf set out what might have been an interesting marker

As I mentioned, we have seen little improvement on where we rank among OECD countries for productivity, yet we have been told that we have world-leading settings.
This raises a few questions for me.  ….. Or could it in fact be that New Zealand’s world leading economic and policy settings aren’t so world-leading anymore?

I’m not sure who really thinks of New Zealand policies are being “world-leading” these days.  In some areas, perhaps they are.  In other areas, we score quite badly.  But I’d have thought a fair overall description would probably be ‘no worse than the typical OECD country’.

Sadly, Makhouf doesn’t really do much to develop his tantalising question.

‘World-leading’ is always evolving.  Looking back through history, Rome, China, India and the United Kingdom have all at times been world leading economies, just as the United States is today.  So while some things will continue to hold for productivity and incomes, we need to make sure we are not working towards something that used to be world-leading, but is no longer so.  It’s also likely that what’s world-leading will vary by country so it’s not a recipe that we can simply copy.

Surely all this confuses great power status –  not unrelated to economic strength typically  –  with world-leading (economic) policy settings?   After all, he could have noted that 100 years ago, New Zealand looked pretty world-leading –  not as a “great power” but as one of the very richest and most productive nations on earth.   Nor am I really quite sure how “what’s world-leading will vary by country” makes much sense, unless he is saying –  in which case I agree –  that in thinking about diagnosing New Zealand’s problems and offering remedies to policymakers we need to think hard about the specifics of New Zealand’s situation.  It isn’t clear that the OECD (at least) has really done that.

But it isn’t clear that Treasury is really doing so either.  Because Makhlouf devotes the rest of his remarks to

five factors that the Treasury believes always matter: skills, connections, markets, resources and rules.

Any micro-focused policy agency almost anywhere in world could trot out that list

Of skills

The Treasury believes that opportunities remain to lift skills and resilience in the workforce, and it’s important that those opportunities are pursued.

No doubt, but it doesn’t seem particularly persuasive that gaps here are big part of the 45 year story of underperformance, when the OECD adult skills data suggests New Zealand workers already have among the highest skills of any in the OECD.

Of connections

Connections matter, in particular people-to-people connections.  And as Asia continues to dominate economic activity, perhaps those types of connections – ie, relationships – matter more than ever.  Improving connections can help to improve the flow of people, capital, trade and ideas that contribute to productivity.  Strong people-to-people relationships build confidence and understanding and promote learning.  They help our businesses to identify capabilities that will help them improve their productivity and ultimately compete and succeed in both domestic and global markets.

I suspect this is some sort of code for “keep on having lots of immigration”, but it isn’t terribly specific.    And as a reminder, with rare exceptions, Asia isn’t the home to the richest or most productive economies.  But again, with hugely high (by international standards) rates of non-citizen immigration, did Makhlouf and Treasury have anything remotely specific in mind?

He gets a little more specific on “markets”

In the Treasury’s view we need to continue to lift the competitive intensity of the New Zealand economy.  The pressure of competition pushes firms to be more productive, for example by innovation to improve quality or cut costs.  We need to ensure our markets are as competitive as possible by reducing the barriers to entry, including for imports (whether in goods or services), or by regulating the price and quality of goods and services in markets where there is little or no competition, such as in our telecommunications and electricity markets.  And we need to maintain the effectiveness of competition laws and institutions.  If we want competitive markets and the productivity gains they bring, we have to ask ourselves: what are the regulatory barriers preventing competition and what can we do about them?  How bold do we want to be to invite competition?

It isn’t really my area, but if there is useful stuff to be done in this area how plausible is it that it can materially explain 45 years of relative economic decline?  Say what you like about competition in New Zealand now, but in almost all areas there is a great deal more than there used to be.

Then he moves onto natural and physical resources.  Here he includes housing.

Our natural and physical resources are next.  One of the most high profile issues we’re examining in New Zealand – housing – illustrates how these resources are a significant factor in productivity.  We are all aware of issues in house price growth in Auckland and the inefficiencies in our use of land which are proving to be a bottleneck in New Zealand’s growth and productivity.

I’m not sure there is really any evidence for this proposition.  If there is, in a New Zealand context, perhaps The Treasury could publish it.    Dreadful as our housing policies are, when the city that is worst affected by them has (a) had very rapid population growth, and (b) has a very small margin by which productivity exceeds that in the rest of country, it suggests that overseas studies –  on places like San Francisco and New York (which have had little population growth, and very high productivity margins) –  may not be of much direct relevance here.

Still on housing

the degree of its affordability or unaffordability is a product of our entire urban development chain and of multiple interacting areas of policy. We’re considering these issues holistically, as well as particularly how land owners capture the economic rents and potentially magnify the problems. We see the concept of competitive land markets as an important part of the way forward.

Surely if there is something there, it could have been written a great deal more simply?  And portentous words about “the concept of competitive land markets as an important part of the way forward” almost make a mockery of people priced out of home ownership right now.

In some areas, I’m not sure Makhlouf really knows what he is saying

At the moment, it can be argued that too much of our natural resource use is determined by incumbency rather than most efficient use.

Does inumbency here mean “the person who owns it”?   But, surely, land is our greatest natural resource.  Mostly, it is pretty freely tradable.    Anyone with a better, more profitable use, in mind can surely make an offer?  Or (but surely not) is the Secretary perhaps a bit worried about private land ownership?

Actually, despite what he said, he seemed to be mostly talking about water rights and pollution.  What he says on water sounds sensible

To use water as an example, the ‘first-in first-served’ approach to water allocation means it may not always be allocated to the highest value use, and the current system lacks sufficient incentives for use to move to a higher value one. The Freshwater Allocation Work Programme is considering options that could be more appropriate to ensure that we are getting the best use of our water resources.

And I’m sure there are some real issues around pollution too.  But when he says

Better rules around use and around pricing externalities such as pollution are critical to making best use of resources and are likely to be key to promoting significant diversification of the economy and contributing to an improvement in productivity.

I think he makes it sound all too easy.  For example, it is all very well to talk of water pollution arising from more intensive dairying, or indeed of the implications for carbon emissions, but without a great supporting analysis it sounds a lot like feel-good rhetoric to suggest that restricting such industries is likely to be significant in lifting overall productivity in the economy.  What channels, one wonders, does the Secretary have in mind?

His final category was rules

The making of rules and regulations – whether by central or local government or even by self-regulated occupational groups – has an impact on productivity.  All rule-makers help shape the environment in which investment, enterprise, and job creation is either promoted or limited.  Rule-makers in the public sphere have a double responsibility: to ensure effectiveness in public spending and decision-making, and to provide the best possible regulatory and policy settings.

Hard to disagree really.  But is this really the best the Secretary to the Treasury –  an agency with key responsibility for regulatory review policy – can do on the contribution of New Zealand regulation to productivity?       There isn’t even an attempt to draw some of his points together, and note that (for example) well-intentioned but flawed rules help explain the absence of a well-functioning market in urban and peripheral land.

Overall, there is no sense of urgency, and no hint of any fresh insights either.

Makhlouf ended his speech this way

We need to continue to test our assumptions about what does and doesn’t work, and to apply new things where they make sense.  I know there’s a lot of willpower and brain power here to ask questions, find solutions and take actions to raise New Zealand’s productivity.

Of course, it is elected politicians, not officials, who would get to “take actions to raise New Zealand’s productivity”.  Sadly, despite the approaching election, there is little sign among any of them –  or those competing to take their place –  of much will to change, or much interest in attempts at serious answers to decades of decline.

Should there be more urgency?  I’d have thought so.    There has been plenty of talk in the last few years of New Zealand and Australia relative economic performance.  Australia is our biggest trade and investment partner, and of course historically an outlet for New Zealanders pursuing the far higher incomes typically on offer there.       It is certainly true that the Australian labour market has been cyclically weak in recent years, even more so than ours.   But here is the latest update of labour productivity in the two countries (in NZ, using an average of the two GDP measures, and an adjustment to hours worked for the break in the series last June).   The chart is indexed to 2007q4, just prior to the recession, but remember that even then we were well behind Australia (incomes and productivity levels)

GDP phw NZ vs Aus June 17

As it happens, Makhlouf’s appointment as Secretary to the Treasury was announced on 28 June 2011.   We’ve had barely any productivity growth since then (none for the last five years).    That, of course, isn’t directly his fault, but one does have to ask whether The Treasury under his stewardship has even once put forward a compelling set of policy proposals to end even this multi-year drought, let alone to reverse the 45 years and more or relative decline.  On the basis of this latest speech, we shouldn’t be very hopeful of what they might have to offer a government formed later this year.

 

 

 

Answers from Switzerland?

A month or so ago, prompted by a Herald news article talking up a New Zealand Initiative study tour to Switzerland to learn “the secrets of their success”,  I pointed out that Switzerland wasn’t such an obvious place to look for lessons on lifting New Zealand’s continuing disappointing economic performance.  After all, since 1970 they were the only OECD country to have had slower productivity growth than New Zealand

switz 70 to 15

and although the average productivity level in Switzerland is still much higher than that in New Zealand, it is no longer among the very best in the OECD.   Denmark, Belgium, and the United States are among the countries doing much better than Switzerland, and even they don’t top the rankings.

A few days later it turned out that the author of the article, veteran journalist Fran O’Sullivan, was actually participating in the study tour, not just talking it up.  At the time, I noted that it would be interesting to hear, in due course, what she learned from Switzerland, while being a little sceptical as to how detached from a New Zealand Initiative perspective she would prove able to be.

In Saturday’s Herald, O’Sullivan devoted a substantial article to reporting back on what was learned on the tour (this time with all the appropriate disclosures, including her partial sponsorship from one of the Initiative’s member companies).   Much of the article is quotes from New Zealand Initiative people.  And the answer it seems, at least on O’Sullivan’s summary take, is in the headline: Education key to Swiss success.

Near the start she observes of her own past trips to Switzerland

Other times I have been to Switzerland, it has been straight to Geneva to the World Trade Organisation’s HQ for trade discussions, or to observe the World Economic Forum in Davos. Not to look at what underpins Switzerland’s own resounding economic success.

I’m still quite genuinely puzzled at where she –  or the Initiative –  get this idea of “resounding economic success”.  I’m sure there are many things to like about  Switzerland but –  despite a very strong starting point a few decades ago –  it just isn’t one of the great economic success stories of modern times.  Productivity growth has been underwhelming –  to say the least –  and although GDP per capita in Switzerland is higher than in, say, France or Germany, it is so mostly because the Swiss put in a lot of hours.  Average productivity is higher in France and Germany, while Switzerland is like New Zealand in that total bours worked per capita are very high in both countries.

I quite like the sound of the Swiss political system –  highly decentralised, lots of quite small, and competitive local authorities.  It is the antithesis of something like the Auckland “supercity” put in place a few years ago by our government.     But one has to wonder quite what economic gains it might have produced.    The New Zealand Initiative seems dead keen on the highly decentralised system

“Private and central bankers, economists and journalists, federal and local politicians alike – in fact everyone we talked to – agreed that this was the most crucial component to the Swiss success formula,” says NZ Initiative executive director Oliver Hartwich.

But when your country has had the weakest productivity growth in the OECD over 45 years, you have to wonder whether the alleged contribution to “economic success” is not mostly one of those myths that all countries have, that don’t necessarily line up that well with the evidence.  I’m sure the decentralised system is cherished, but in modern times it has seen (although not necessarily caused) Switzerland drifting backwards.

But the political system isn’t the thrust of O’Sullivan’s article.  Rather, the education and vocational training systems seem to be.  In fact, even Hartwich seems to agree

Concludes Hartwich: “The most important insight was the fact that a solid vocational apprenticeship is just as respected as a university degree (and sometimes leads to better salaries, too). New Zealand businesses should not only co-operate with institutions but lead the debate on the required reforms.”

And a couple of quotes to give you the flavour of the rest

It may seem ruthless to stream students at an early level into academic and vocational education training (VET) streams. But Switzerland does just that.

About 20 per cent go into the university stream and the rest into the upper secondary school vocational education training stream, where students combine school learning with skills developed in the workplace.

This system serves 70 to 80 per cent of Swiss young people, preparing them for careers ranging from high-tech jobs to health sector roles and traditional trades. Both white collar and blue collar roles are appreciated. There are about 230 vocational categories.

and

The upshot is that Switzerland enjoys virtually full employment, the youth unemployment rate is among the lowest in developed countries and the Swiss enjoy a very high standard of living. Those doing the VET stream are not locked out from university education, which they can do at a later stage.

….

Asked if they could import one feature of Switzerland to New Zealand, the consensus of the visiting business leaders was that it would be the vocational training system.

ASB chief executive Chapman says any growing economy relies on a pipeline of skilled and motivated workers for momentum, and “in that context I think there is a lot to learn from the Swiss”.

“The Swiss have an enviable record of high youth employment.

I don’t know anything specific about the Swiss vocational training programmes, so there may well be some specific aspects that New Zealand firms, or New Zealand governments, could learn from.     But as I reflected on O’Sullivan’s article, the story about education etc didn’t seem terribly convincing as an explanation of Swiss “economic success”.

Overall employment rates in New Zealand and Switzerland are very similar (on OECD data 66.2 per cent in both countries last year).  But on youth employment, Switzerland does appear to have had a consistently higher employment rate.  Among those aged 15 to 24,  62 per cent of Swiss were employed last year, and 54 per cent of New Zealanders.

Employment among young people is a bit of an ambiguous indicator.  After all, if young people are in full-time study (school or tertiary) they often won’t be in employment at all.  Youth employment rates were probably higher in both countries 100 years ago.

But what about youth unemployment: people who want a job, are looking for a job, but can’t find a job?   Here, Switzerland seems unambiguously to do better than New Zealand.

U rates Switz and NZ

And what are some of the things that affects the ability of young people to get into work?  Minimum wage laws are likely to be one of them.  I recall the New Zealand Initiative’s Eric Crampton, when he was at Canterbury University, making some very useful contributions  (eg here) to the debate about the impact of the much more stringent minimum wage provisions, especially as they affect young people, that were put in place here about 10 years ago.

Readers may recall that, relatively low as New Zealand wages are, our minimum wage relative to median wages –  the sort of metric relevant when thinking about whether minimum wage provisions exclude some people from employment –  are very high by OECD standards (fourth highest in fact).

And what about Switzerland?   Well, in Switzerland there is no minimum wage law at all.   And not that long ago, Swiss voters overwhelmingly rejected an attempt to establish one.     Perhaps in the course of the Initiative’s study tour no one thought to ask the question about minimum wages.  But whatever the reason, it looks as though it could be a rather important omission.  It isn’t the really skilled young people who typically have difficulty getting jobs, but the less skilled and more troubled ones.  Our systems works against them getting established in the labour force, while the Swiss one seems not to.   As the ASB chief executive put it:

“You can’t underestimate the power this has on the optimism and confidence of their youth as they look to their own future.”

But I was also a little puzzled about the story that seemed to downplay the role of universities in Switzerland.  I’m as willing as next person (including New Zealand Initiative members) to think that perhaps New Zealand went through a phase where too many people went to university.   And a good builder or plumber will certainly earn more than many of the occupations our more-marginal university students end up in.

But what did the data show?  As it happens, the OECD Economic Survey on New Zealand came out on Thursday, and they had a whole chapter on the labour market, skills etc.   So I flicked through it looking for relevant charts.  Like this one.

skills young

Switzerland is “CHE”.   Relative to New Zealand –  and to the OECD as a whole –  Swiss young workers (25 to 34 year olds) now have a far higher rate of completed tertiary qualifications than New Zealand ones do.

And there was also this chart

skills swiss

Whether for younger people or older ones, Switzerland is ahead of New Zealand, particularly in the proportions with masters or doctorates.

And yet

Tertiary Education Commissioner Sir Christopher Mace says, “to be highly qualified technically rather than academically was totally acceptable in Switzerland.”

No doubt that is true –  or rather I have no reason to doubt it.  But a huge proportion of Swiss young people are getting strong academic qualifications.

Oh, and the OECD also makes much in their reports of the adult skills data I’ve written about here previously. Switzerland didn’t participate in that survey, but New Zealand workers came up with some of the very highest skills (notably problem-solving skills) of any of the many countries that did participate.

Still flicking through the OECD chapter, I found another interesting chart on employment.  Ideally it would be a chart of all sole parents, not just mothers, but it was part of another chart focused on maternal employment.

Swiss sole parents

Switzerland is at the far right end of the chart.

Which is by way of leading into another difference between Switzerland and New Zealand –  the overall size of government is a bit smaller there.  Here is the OECD data on current government receipts (mostly taxes) as a per cent of GDP.

govt size nz and swiss

The Swiss tax take is smaller than ours, as a share of GDP, but (a) the gap seems to have been closing, and (b) at least as much of that is coming from the Swiss raising average taxes as from us lowering them.   Again, if one is concerned about productivity, it isn’t obvious that the Swiss experience has a great deal that is positive to teach us, even if the reasons for their weak productivity growth might well be different from the reasons for our own.

The Swiss track record with weak productivity growth isn’t something new that no one had noticed before  –  the OECD, for example, has been offering thoughts on it for some time (eg here).  So it is still a bit of a mystery why the New Zealand Initiative is touting Switzerland as a success story to emulate, or why a senior journalist is channelling those lines.   Perhaps it would have offended New Zealand business leaders’ sense of amour propre to have gone further east, but if there are many lesssons to be learned for us in Europe about lifting overall economic performance, it seems more likely they might be found in countries like Slovakia or Slovenia, Estonia or Latvia (all now fellow members of the OECD) where productivity is fast catching up (in some cases already has) average levels in New Zealand –  and that in countries that for the whole of modern New Zealand history (ie since say 1840) have been much much poorer and less productive than New Zealand.

Travel generally broadens the mind, and almost any country can probably offers some experiences (good and bad) that visitors could learn from.  I’ve no doubt Switzerland does too (eg about minimum wages and company tax rates perhaps) .    But Switzerland’s overall economic growth performance has been poor for decades, and that even with the advantages that come from being a relatively-small government place in the heart of one of the most prosperous places on the planet (northern Europe).  It seems unlikely there is very much to learn from them, at least in a positive sense, about how to markedly lift the performance of another struggling country almost as far from anywhere (and from suppliers, markets, clusters of knowledge)  as it is possible to be.

One could wonder whether this group of leading business people, (having gone off to learn from Switzerland, where they would have found a system with no minimum wages and much lower company tax rates, but nonetheless want to tell a story about training and education as the secrets of what they see as Swiss success) are not perhaps preparing against the chance of a change of government later in the year.   All that talk in the article would, no doubt, have seemed like music to Grant Robertson’s ears.  Perhaps not, but I’m struggling to formulate a better hypothesis.   Because the data don’t really seem to fit their story.

 

 

 

Another Budget in an underwhelming economy

If people had wanted a centre-left government, one might suppose that they would have voted for the real thing.  Despite the additional redistribution announced in yesterday’s Budget, perhaps they still will.

Still, for all the headlines about money being put (back) in people’s pockets, it is worth keeping the overall numbers in perspective.  Core Crown tax revenue as a share of GDP was 27.8 per cent last year, is estimated at 27.7 per cent of GDP this year, is forecast at 27.5 per cent in 2017/18, and in the final forecast period it is predicted to be 27.7 per cent.  The government isn’t yet shrinking its pre-emptive claim on overall economic resources.  Expenditure as a share of GDP is forecast is gradually shrink, and if that was sustained –  which will be a challenge, including because of the reluctance to act soon on NZS –  it could open the way to future real reductions in the tax burden.

It is sad to reflect that much of the increased spending announced yesterday was simply a palliative for the failures of the government.   The cost of housing is, pure and simple, the fault of successive governments’ land-use regulation.  In a country with plenty of land, and the lowest real interest rates for decades, housing should be more affordable than ever.  That it isn’t, should be something governments are held accountable for (and although governments of both parties have had much the same flawed policies, the current government has now been in power for almost nine years).    And the lack of productivity  growth –  recall that we have had none at all for five years now –  is the biggest single thing that holds back the income growth of working people.    With a well-functioning housing market, and an economy with robust productivity growth, many of the pressures that led to increased spending yesterday would simply have been unnecessary.

As for tax, how many more decades will we have wait before a simple reform like inflation-indexing the income tax brackets is enacted?  Even the United States, with its enormously complex and distorted tax code, manages that one.

Perhaps more importantly, for all the rhetoric about encouraging enterprise –  and more subsidies for favoured uneconomic industries (film, rail and so on), there was no sign at all of action to lower what is probably the most costly and distortionary major item in our tax system –  the company tax rate.   It is curious to reflect that the previous Labour government cut the company tax rate more than the current government has.

I ran this chart a few weeks ago
company tax rates

New Zealand’s company tax rate is in the upper third of OECD member country rates.   For a country that talks a good game about welcoming foreign investment, and supposedly aspires to reverse the decades of productivity underperformance,  it simply isn’t good enough.    Politicians seem afraid of making the well-established economic point that taxes on businesses are typically borne substantially by wage-earners, not by owners of capital.   Less investment than otherwise means fewer high productivity and, thus, high wage jobs.  And if our company tax rates are high, it makes it harder for overseas investors to justify locating an operation here rather than in a lower tax country.   For a country with a pretty disadvantageous location to start with, it is the sort of additional burden we shouldn’t be putting on enterprise.    (I’ve focused this paragraph on foreign investors.  Taxes also discourage domestic-owned business investment, but for owners of those businesses, the maximum personal tax rate is ultimately the important consideration, rather than the company tax rate itself).

Anyone who listened to, or read, the Budget speech itself was clearly supposed to come away with a message about how well the New Zealand economy was doing.  There on the very first page was the Minister’s claim

“Our economy is 14 per cent larger than it was just five years ago”.

Yes, but the population is about 8 per cent larger.  That would leave an annual average growth in per capita terms of 1.1 per cent.  Better than nothing, to be sure, but not the sort of stuff most finance ministers would want to boast about.

And Treasury’s own numbers –  done at arms-length from the Minister –  don’t really back up the Minister’s story, whether cyclically or structurally.

Take the cyclical position first.  Here is Treasury’s estimate of the output gap (positive numbers suggest activity and demand are running a bit ahead of what is sustainable –  “potential GDP” – and negative numbers suggest there is still slack in the economy).

treasury output gaps

On these estimates, New Zealand will have had a negative output gap –  resources being underutilised –  for 10 consecutive years, including the whole of this government’s term to date, and the next year as well.    One can argue all one likes about what governments should or shouldn’t have done to lift potential productivity growth, but these estimates just take for granted what actually happened with structural policy and look at the cyclical position.  And there is really no excuse for putting the economy through such sustained period of resource underutilisation.  I can’t think of any time in modern New Zealand history, when the output gap would have been negative for so long.

Output gap estimates are pretty bloodless things, that don’t necessarily resonate with a wider audience.  They also can’t be observed directly.   But here are the unemployment rate numbers (actual and Treasury forecasts).

Tsy U

Last year, Treasury told us that they thought the

Treasury takes the view that the unemployment rate consistent with full employment (the nonaccelerating inflation rate of unemployment or NAIRU) has also fallen over time, so that…. it would be closer to 4.0%

I’m not sure precisely what number they had in mind, although in a chart included in that 2016 paper, the unemployment rate levelled out at around 4.1 per cent, so I included an indicative NAIRU line in my chart at 4.1 per cent.   But whatever the precise estimate, on official numbers and Treasury estimates we are looking at 10 years (or perhaps 11) with an unemployment rate higher than necessary to keep inflation in check.  The government has consistently presided over less than full employment.  That is simply poor economic management, and since we know that having a job is one of the best ways to secure better life outcomes, it is pretty poor management more generally.

Perhaps such unfortunate results might be excusable in a country that had no discretionary monetary policy leeway left (interest rates were already at or just below zero), or which was in fiscal crisis and had no borrowing capacity left.   Places like Portugal spring to mind.    But not New Zealand.   We have a floating exchange rate and our OCR has never got below 1.75 per cent (and even if that capacity had been exhausted, our public debt has been relatively modest).

It is also easy –  and right at one level – to blame the Reserve Bank.  They do short-term macroeconomic management.  But only as agent for the government and the Minister of Finance.  The Minister sets the targets and is ultimately responsible to citizens for their performance.  I do hope that Treasury, in offering advice to the Minister of Finance (whoever he or she may be after the election) on the appointment of a new Governor, and the design of the PTA, will take seriously the record of underperformance over the last decade.  This isn’t some trivial inside-the-Beltway governance issues.  These are real lives and opportunites that are unnecessarily blighted.

The government also likes to pretend that New Zealand’s economy is doing very well by international standards.   Thus, we are told by the Minister that

“we are at the moment growing faster than the United States, the UK, Australia, the EU, Japan and Canada”

One would certainly hope so.  Our population is growing materially faster than the population in any of those countries/regions.

But what about per capita growth?

I noticed various commentators yesterday suggesting that Treasury’s growth forecasts looked a bit optimistic.  I had some sympathy for that view, but here I’ll just take them at face value.   And I wondered how their forecasts for real per capita GDP growth compared to those the IMF has recently published for each advanced economy.

Treasury forecasts on a June year basis, and the IMF numbers are for calendar years. Over a forecast horizon of four years (Treasury’s horizon), it shouldn’t make much difference.    In the chart below I used Treasury’s forecasts of real per capita growth for the four years to June 2021, and compared them to the average of the IMF’s forecasts for the four years to December 2020 and the four years to December 2021.

IMF forecasts of real GDP pc

If the Treasury numbers are right for New Zealand, our growth in real GDP per capita would be just slightly below that of the median advanced country over the next four years.   I guess that isn’t that bad, but it isn’t much to boast about either.

After all, our per capita incomes are a long way down this list of countries.  On the IMF’s numbers

IMF real GDP pc.png

The aim –  supposedly –  for a very long time has been to catch up again with those top tier countries, almost of whom we were richer than not that long ago.    And catch-up or convergence certainly isn’t unknown, or unexpected, for other countries.   Here is how those Treasury forecasts for New Zealand’s real per capita GDP growth compare to the IMF’s for the 12 countries poorer than us.

IMF and the poor advanced countries

We only manage to beat two of those countries.    In fairness, of course, some of those poor advanced countries are recovering from savage recessions.    But even if one just focuses on the six former eastern-bloc countries, all but one is forecast to not only manage faster per capita growth over the next few years, but also to have achieved faster growth than New Zealand for the whole period from 2007 (just before the global recession) to 2021.  They are catching up. We aren’t.

(Compared with the richest 12 advanced countries, we are forecast to match the median per capita growth rate of those countries over the next four years, but the eastern Europeans are actually catching up.)

In wrapping up his Budget speech, the Minister of Finance claimed that

“we have a strong and growing economy built on a strong economic plan.  We must maintain our focus on growing the economy and sticking to the plan”

Earlier he had claimed that

Under the Government’s strong economic leadership, New Zealand is shaping globalisation to its advantage.  We’ve embraced increased trade, new technologies, innovation and investment.

All this in a country where exports as a share of GDP have been shrinking.  And productivity growth has been all-but-non-existent for years.

The bare-faced cheek of these assertions should be breath-taking.  Sadly, it seems like just another episode in a long succession in which the government simply makes stuff up.

 

The sort of productivity growth we once achieved

Over the weekend I was (as you do) dipping into the 1968 edition of the New Zealand Official Yearbook, in pursuit of some material I might write about later in the week.

As I flicked through the pages, I stumbled on a table showing labour productivity for the previous 12 years.  It wasn’t an ideal measure.  There wasn’t a good series of hours worked nationwide in those days, so this series was a measure of real GDP per person employed.  But what really caught my eye was the numbers.  Over only 12 years, labour productivity was estimated to have increased by 28.9 per cent.  And this was in an era when experts, and official agencies, were starting to worry about New Zealand’s productivity growth, and to produce data showing that we were beginning to fall behind other advanced economies.

Here is the chart showing both the old data (for 1954/55 to 1967/68) and the same measure (real GDP per person employed) for the 12 years from 2004 to 2016.  For the more recent period I have (a) used an average of the production and expenditure GDP measures, and (b) adjusted for a lift in measured employment of around 2 per cent in June last year, solely because of the change in the HLFS itself.

real gdp per person employed

Over 12 years, they managed 28.9 per cent productivity growth in the 50s and 60s (with a fairly inward looking economy, with high levels of trade protection), and in our generation  in the same period we’ve seen only about 7.9 per cent growth.

Of course, much of the slowdown is a common phenomenon seen across the advanced world, so this isn’t intended mainly as a stick with which to beat New Zealand governments specifically.    But is a sobering reflection on how little material progress we, and other countries, are now making, relative to the astonishing progress seen in those post-war decades.

And, of course, we do have better data now.   A rising share of part-time workers tends to dampen GDP per person employed.  Here is real GDP per hour worked for the same modern period – ie 2004 to 2016.

real gdp per hour worked 04 to 16

Overall growth has been a bit stronger (12.1 per cent in total) on this better measure.  But this measure also puts the New Zealand specific problems into sharper relief.  We’ve had no productivity growth at all, on this measure, for four or five years.  And that isn’t a global phenomenon, just a New Zealand one.

Could we manage 28.9 per cent productivity growth over 12 years again?  It is only an average annual growth rate of a touch over 2 per cent, and the gaps now between New Zealand average productivity and that in the leading OECD economies are so large (they are more than 60 per cent higher than us) that it really should be achievable.   But it would probably require, as a first step, giving up the rhetoric suggesting that really everything is just fine in New Zealand, and starting to focus on measures that might make a real difference.

 

 

 

Do big countries get richer (or more productive) faster?

The short answer appears to be “no”.

Much of the debate around the appropriate immigration policy for New Zealand seems to have as a sub-text (implicitly or otherwise) a sense that New Zealand population is just too small, and that if only we had more people we would be richer (per capita) and more productive.     Those who run, or rely, on this line rarely seem to engage with the estimates that New Zealand’s GDP per capita was at its peak, relative to incomes in other countries, at a time (around 100 years ago) when our population was about a quarter of what it is now.  (Of course, the population of other countries has also grown since then, but in most advanced countries the population growth rate has been much slower than in New Zealand –  the UK had about 45m people 100 years ago and about 65m now.)

In their recent report in support of New Zealand’s immigration policy, the New Zealand Initiative joined the group of those arguing that a larger population would be good for New Zealand’s per capita income and productivity.

I wrote about this point in a post back in 2015, in which I observed

I’ve long been fairly sceptical of that proposition. A casual glance around the world suggests no very obvious relationship. The United States and Iceland co-exist, and Japan and Singapore. At the other ends of the income spectrum, India and Bhutan, and Brazil and Costa Rica. There are all sorts of arguments advanced around the economics of agglomeration, and that analysis seems to work quite well in describing what happens within countries. But it does much less well in describing economic performance across countries. And as I’ve pointed out to people previously, if the real economic opportunities in big countries were so much superior to those in small countries, large countries would tend to have (more high-yielding projects and) higher real interest rates than small countries. But they don’t.

Over recent decades we’ve also seen many more smaller countries emerging, presumably because the people in those places concluded they wouldn’t pay too much of a price to be independent.

In the earlier post, I included some scatter plots suggesting that there was basically no relationship at all between the size of country and the subsequent growth in its real GDP per capita or productivity (real GDP per hour worked).    In this post I’m looking at much the same relationships, but this time just using the Conference Board’s Total Economy Database, which starts in 1950.

One of the challenges in any work in this area is that people tend to flow to rich and successful countries.  Indeed, plausibly in a successful fast-growing country, people might even be willing have more children on average.   The simplest way to correct for that is to take the population level at some historical point in time and then look at per capita growth subsequently.   Here is a chart for 33 relatively advanced (and relatively free) economies showing population in 1950 (in logs) and total percentage growth in real GDP per capita over the subsequent 65 years to 2015.

1950 popn and subseqeunt GDP pc

The simple regression line is still slightly downward sloping even if the very fastest growing countries (Singapore, Taiwan and South Korea) are excluded.  But note that I’m not arguing that higher populations are necessarily bad for subsequent growth, simply that there is little evidence (none in the simple bivariate relationships) that larger populations are good for growth.  Small and large countries seem able to successfully, and prosperously, co-exist.

What about more recent periods?  There has been a line of argument –  associated in the context of the New Zealand debate with Philip McCann –  that these issues have become much more important in recent decades as the nature of the global economy has changed (more reliance on ideas, trade in services etc).

Here is the same chart for the 25 years since 1990.

1990 population and real GDP pc

Take out the outlier (Singapore) and the bivariate regression line still slopes slightly downwards.

And for the same countries, here is the relationship between total hours worked in 1990 and subsequent growth in real GDP per hour worked.

1990 hours worked and subseqeunt productivity growth

And still no positive relationship.

My sample of countries in these charts excluded the countries of the former eastern bloc.  Most of them have relatively small populations, and most have –  not surprisingly –  done quite well in the last 25 years or so, once the shackles of communism were removed.   The quality of the data from 1990 might also be in some question.

But for completeness,  here are two charts from 1990 to 2015 with various of the eastern European countries added in (those now in the OECD and/or the EU).   This one for all the countries.

1990 hours etc - enlarged sample

And this one – as much for visibility as anything – just excluding Singapore, South Korea and Taiwan.

1990 hours etc - enlarged sample ex Sing, Taiwan, S Korea

There doesn’t seem to be any simple evidence that, across the relatively advanced world as a whole, a higher starting population has helped make for stronger subsequent growth in real GDP per capita or real labour productivity.

I concluded my earlier post this way

Charts of this sort are, of course, not conclusive. Lots of other things are going on in each country.  In an ideal world, one would want a much fuller and formal modelling of the determinants of growth. But equally, the absence of a positive relationship between the size of the country and its subsequent growth shouldn’t be surprising, and there have been previous formal research results suggesting a negative relationship.

Of course, perhaps New Zealand is an exception. Perhaps real per capita incomes would really be materially lifted if we had many more people here, even though there has been no such relationship across the wider range of advanced countries in history.  But in a sense we have been trying that strategy for 100 years and there is no sign that it has worked so far.   Very few relatively advanced countries have had weaker real per capita growth than New Zealand in the last 100 years (only places like Argentina and Rumania).

Perhaps the next 25 or 100 years would be different. But I think the onus is now on the advocates of policies to bring about a bigger and more populous New Zealand to demonstrate where and how the gains to New Zealanders from a much larger population are occurring?

At that stage, I was putting less emphasis than I now would on two (probably related) factors that make it even less likely that such a beneficial relationship would exist for New Zealand even if it did –  and these charts suggest it doesn’t –  for other advanced countries:

  • our extreme distance from other countries (markets, suppliers, value-chains, competitors etc) in an era when, if anything, personal contacts seem more important than ever, and
  • our continued very heavy reliance on natural resources –  and ability to apply new and better skills to those resources.   Those resources are in fixed supply, our heavy reliance on such natural resources is now quite unusual (it isn’t so for most OECD countries), and there is little sign of the economy successfully gravitating away to any significant extent from a reliance on natural resources.

Playing to our strengths, and maximising the prospects for New Zealanders, looks as if it would be much better-served by an approach that didn’t seem determined to drive up the population, regardless of the 100 years (or 70 or 25 or whatever period you like) in which there has been no evidence that a larger population is enhancing the economic well-being, or productivity, of New Zealanders.

And here is one last chart, for completeness, including all the relatively advanced countries –  eastern European and Asian alike –  and showing population in 1990, and subsequent growth in real GDP per capita.

1990 population and real GDP pc extended sample

Still no sign of that vaunted upward-sloping relationship.

What does the OECD really have to offer us?

The Organisation for Economic Cooperation and Development (OECD) is often loosely described as “the rich countries club”.  It isn’t an entirely accurate description –  there are several high income oil exporting countries who don’t belong (as well as places like Singapore and Taiwan), and some countries that are members (notably Mexico and Turkey) aren’t particularly high income.     But it is a grouping of mostly fairly advanced fairly open economies (New Zealand’s been a member since 1973).   And the organisation claims to be able to offer useful advice to countries as to how to improve their economic performance.  I’ve become increasingly sceptical of that proposition, especially as regards New Zealand.

On a biennial cycle the OECD’s Economic and Development Review Committee (EDRC) meets in Paris to review each member country’s overall economic performance, and offers some specific advice both on general economic management issues and on specific topics agreed in advance between the secretariat and the country concerned.  I wrote about the process, which draws on extensive staff work, on the day New Zealand was last reviewed in April 2015.

The next review is almost upon us.  The EDRC is scheduled to discuss New Zealand on 20 April, so the draft text is probably already in the hands of New Zealand government agencies.   The final text will presumably be released in late May or early June.  This year’s agreed special topics are “Increasing Productivity”, and “Labour Markets and Skills”.    The latter topic apparently includes the New Zealand immigration system, and when the OECD team came to Wellington last year I participated in a meeting with them, along with various government agency representatives, on some of the strengths and weaknesses of our system.   Historically, the OECD tends to be very strongly pro-immigration –  without much evidence for its benefits, especially in remote places like New Zealand –  and I expect their treatment this time will again reflect that presumption, probably with some suggested tweaks at the margins.   But, as often, the OECD might be able to present some cross-country data on the issues in interesting ways.

Quite what they’ll come up with to increase productivity could be more interesting.   In many ways, New Zealand is a test for whether the OECD has much useful to say.  For a member that was once among the richest and most productive OECD economies and now languishes a long way down the league table, New Zealand has been a bit of an embarrassment to the OECD.  After all, we did an awful lot of what they suggested 25 to 30 years ago.

I’m writing about the issue because a few days ago the OECD released one of their flagship cross-country publications, Going for GrowthThese documents often contain a lot of interesting cross-country comparative material –  data collection and presentation is one thing the OECD defintely does well.  But they also get specific, and have a couple of pages of economic policy priority recommendations for each country.  Since the OECD  must already have written their full substantive report on New Zealand for the forthcoming EDRC survey, one might have expected that the recommendations for New Zealand would be particularly incisive and well-focused, offering suggestions which, if adopted, would clearly help reverse our long-term underperformance.   As they note, labour productivity gaps between New Zealand and the other advanced economies have continued to widen over the last quarter century.   As the OECD’s own chart illustrates, real GDP per hour worked is now about 37 per cent below the average for the countries in the upper half of the OECD  (these are countries from Luxembourg and Norway at the top, to Italy and the UK at the bottom).

So what does the OECD propose for New Zealand?

  1. Reduce barriers to FDI and trade and to competition in network sectors.   Recommendations:  Ease FDI screening requirements, clarify criteria for meeting the net national benefit test and remove ministerial discretion in their application. Encourage more extensive use of advance rulings on imports and improve the publication and dissemination of trade information. Sell remaining government shareholdings in electricity generators and Air New Zealand. Remove legal exemptions from competition policy in international freight transport.
  2. Improve housing policies. Recommendations: Implement the Productivity Commission’s recommendations on improving urban planning, including: adopting different regulatory approaches for the natural and built environments; making clearer government’s priorities concerning land use regulation and infrastructure provision; making the planning system more responsive in providing key infrastructure; adopting a more restrained approach to land regulation; strengthening local and central government emphasis on rigorous analysis of policy options and planning proposals; implementing pricing to reduce urban road congestion; and diversifying urban infrastructure funding sources.
  3. Reduce educational underachievement among specific groups. Recommendations: Better target early childhood education on groups with low participation in such education. Improve standards, appraisal and accountability in the schooling system.To improve the school-to-work transition, enhance the quality of teaching, careers advice and pathways, especially for disadvantaged youth, and expand the Youth Guarantee. Facilitate participation of disadvantaged youth in training and apprenticeships. Students from Maori, Pasifika and lower socio-economic backgrounds have much less favourable education outcomes than others.
  4. Improve health sector efficiency and outcomes among specific groupsRecommendations: Increase District Health Boards’ incentives to enhance hospital efficiency, improve workforce utilisation, integrate primary and secondary care, and better managed chronic care. Continue to encourage the adoption of more healthy lifestyles.
  5. Raise effectiveness of R&D support. Recommendations: Further boost support for business R&D to help lift it to the longer term goal of 1% of GDP. Evaluate grant programmes. Co-ordinate immigration and education policies with business skills needs for innovation.

The general goals seem fine, in as far as they go.  And some of the specifics seem sensible enough too (others –  more R&D subsidies, government encouragement of “more healthy lifestyles”  –  seem distinctly questionable).    But could anyone with a reasonably in-depth understanding of the New Zealand economy and its performance over the last few decades, really think that that list, even if adopted in full, would really make a material difference in turning around New Zealand’s long-term productivity underperformance?   I’m all for fixing the housing policy disaster, but when the OECD talks of the agglomeration gains that might make possible, have they actually looked at the dismal Auckland productivity performance over a period when Auckland’s population has already grown very rapidly?

It is also quite surprising what they don’t mention.   Perhaps macro imbalances, such as our persistently high real exchange rate, or our (typically) highest real interest rates in the OECD, don’t easily fit in a structural policy document –  although they are significant symptoms that a list of possible structural policy remedies needs to notice.

But the OECD does publish as part of Going for Growth quite a range of cross-country comparative data on various structural policy indicators.  Even then there are puzzling omissions.  There is nothing at all, for example, on immigration policy.    And company tax is also missing.   Here is the data from the OECD website on statutory company tax rates for 2016.

company tax rates

New Zealand is in the upper third of OECD countries –  and with a company tax rate well above that group of countries (from the Czech Republic to Switzerland) at around 20 per cent.   I’m all in favour of reducing FDI barriers, for example, but for many firms who might consider establishing here, the likely tax bill is probaly a more significant consideration.  And I suspect it offers more payoff in improving productivity than the health system, whatever the merits of the specifics they propose there.

It was also interesting that the OECD does not mention our labour laws.    It is well-known that our minimum wage is quite high relative to median wages/labour costs. In fact, the OECD again illustrate it in their indicator pack. This is their chart, and I’ve simply highlighted New Zealand.

min wage OECD

It is a quite a stark picture, but doesn’t seem to be a priority issue for the OECD.  Actually, I doubt altering the minimum wage laws offers very much on the productivity front, but even if one is simply concerned about disadvantage (as they very much seem to be) we know that getting people into jobs is the best path towards longer-term economic security.   One needn’t go to the US end of this spectrum, but places like the Netherlands and Belgium aren’t exactly known as bastions of heartlessness, small government or whatever.

Overall, I think the list still suggests the OECD has very little idea what has gone wrong in New Zealand, and hence has little more than a generalised grab bag of ideas to offer in response –  many no doubt quite useful in their own way, but mostly likely to be tinkering at the margins.

Out of curiousity, I had a look at what they had to recommend for the previous country on the (alphabetical) list –  the Netherlands.  It is an interesting country too.  Productivity –  GDP per hour worked –  is above that for the group of countries in the upper half of the OECD.  Indeed for decades productivity levels in the Netherlands have been very similar to those in the United States.  Per capita income lags a bit behind, because Dutch people on average don’t work long hours each year (although the participation rate is high).    But it is, by most counts, a very successful economy.    Real GDP per hour worked is about 65 per cent higher than in New Zealand.

What does the OECD recommend for them?

  1. Lower marginal effective tax rates on labour income.
  2. Ease employment protection legislation for regular contracts and duality with the self-employed.
  3. Reform the unemployment benefit system and strengthen active labour market policies.
  4. Increase the scope of the unregulated part of the housing market
  5. Increase direct public support for R&D  [even New Zealand spends more on this than they do]

Setting aside the OECD’s taste for R&D subsidies, it mostly seems sensible, plausible, and well-targeted.  They  seem to have a better idea what to offer an already rich and successful country in the heart of Europe, than they have to offer a once-rich now-underperforming remote one.   For us, that is a real shame.

One can only hope that when the productivity chapter of the forthcoming New Zealand economic survey comes out, they can offer a more persuasive grounded set of recommendations as to what might make a real difference in reversing our decades of underperformance.

(For a more optimistic take on the OECD’s recommendations for New Zealand, see Donal Curtin’s assessment.)

 

 

Superior measures, but still no productivity growth

Statistics New Zealand this morning released their best estimates of New Zealand productivity growth.  They are annual only –  so the new data is for the year to March 2016 –  and cover only the “measured sector”, so excluding parts of the public sector in particular where productivity is just very hard to measure (there are few market prices for the services for a start).  They also make an adjustment for the changes in the composition of the labour force –  there is, in principle at least, a lot more human capital associated with an average worker now than decades ago when few people had a tertiary education.

Last week I ran this chart, showing an estimate of quarterly labour productivity growth (real GDP per hour worked)

real gdp phw dec 16 release

It isn’t an encouraging picture.  In fact, the last five years have been so bad, I’ve been hesitant about believing reality was quite that bad.

But here is new annual data, showing labour productivity and multi-factor productivity, both indexed to 1998 when the data in this format start.

measured sector productivity mar 2017

The summary?

  • No multi-factor productivity growth, in aggregate, for a decade –  the latest data point is very slightly  below that for the year to March 2006.
  • And no labour productivity growth for the last four years –  a picture very similar to the (differently measured, and more recent) real GDP per hour worked chart above.   In the last 10 years, there has been only around 4.5 per cent labour productivity growth in total.

Different models, and different measurement bases, will produce different results.  None of them suggest there has been much productivity growth in New Zealand for some considerable time.  And to repeat Paul Krugman’s succinct summary

“Productivity isn’t everything, but in the long run it is almost everything.”