By Roger Douglas, Robert MacCulloch, and Hugh McCaffrey*
The New Zealand economy is in a parlous state and not simply because of the economic fall-out associated with the pandemic. For decades now, New Zealand has been falling further and further behind its OECD partners, with institutional inefficiencies, poor policy making and the almost willful refusal of successive governments to admit to (let alone confront) mounting economic problems, all combining to place us on the edge of a deep, and lasting, economic downturn.
Across a broad plethora of areas and key economic indicators, New Zealand lags behind almost every other advanced country against which it has traditionally measured itself. These areas include the three pillars of social wellbeing (education, health, and social welfare), housing, tax, productivity and debt.
In every case, we are either falling behind outcomes achieved in other countries (education, health, productivity), entrenching inequality through our failure to cater for the needs of our most vulnerable (housing, health, education, social welfare, tax), or failing to prepare adequately for looming economic and social costs - including those incurred by a rapidly aging population. If ignored, these problems will precipitate a crisis that may make the burden of recovering from Covid-19 pale by comparison (superannuation, health, debt).
In its much anticipated post-Covid budget, the Labour Government needs to not only provide a clear blueprint for helping those who have been adversely affected by the pandemic and New Zealand’s subsequent lockdown, but also signal its intention to tackle the systemic weaknesses which have placed our economy at such risk, and which threaten to consign our future generations to unwelcome, and unnecessary, economic and social hardship.
Crisis and Opportunity
It’s time we faced an unpalatable truth: New Zealand is going backwards, falling behind the vast majority of our OECD partners in virtually every social and economic measure that matters. Even now, the challenge of turning things around, and returning to a place where we can guarantee the future prosperity of our younger generations, is daunting. If we stay our current course, burying our heads in the sand and pretending that everything is all right, then that challenge will soon become insurmountable.
For this reason, Thursday’s budget is perhaps the most important in New Zealand’s history. In the aftermath of the economic fall-out caused by the Covid-19 outbreak, the Labour Government must not only seek to help those who have been most affected by the recent lockdown, but also introduce the framework for radical new policies; policies which address the systemic weaknesses that have undermined our economy and society for so long, and which threaten our very future.
In these extraordinary times, the upcoming budget amounts to a singular opportunity, and a real test of leadership. The Government holds New Zealand’s future in its hands. It has the chance to own up to our collective failings, hit the reset button, and provide for a prosperous future that advantages all New Zealanders.
Where We Stand
When assessing the overall health of a country’s society and economy, there are a variety of measures that should be taken into account. They include an assessment of:
- How well a country is handling the three cornerstones of social wellbeing - social welfare, education, and health.
- Its housing stock and the housing market.
- The level of tax burden that falls on individuals and corporations.
- Debt levels and their sustainability.
- Productivity.
In every single area, New Zealand lags behind countries against which it has traditionally measured itself. To catch up, bold thinking will be required, overhauling outmoded policy and institutional frameworks that have diminishing relevance in our modern world and which are inexorably leading us towards comparable poverty. Above all else, there has been a level of complacency and unwillingness to engage with ideas that challenge the prevailing norms. This conservatism has put us on the road towards poverty and threatens to jeopardise the social well-being of all New Zealanders.
The good news is that it’s not too late to change. An overhaul is still possible – and the authors have a template for change that they would like to add to the debate – but that is for another paper. Right now, we are facing a more pressing issue. It is this. To begin the process of fixing something that is broken, we must first own up to it being broken in the first place.
New Zealand is broken. The rest of this paper explains how this has come to pass, and the scale of the task facing us, if we are to right the ship.
The Emperor Has No Clothes
The New Zealand economy is like the man swimming naked in the ocean, blissfully unaware that the tide is going out. Everything is fine until the water recedes to a point where he is left exposed.
Right now, the tide is retreating rapidly, pulled by the economic aftershocks of Covid-19 and the gravitational weight that comes from decades of policy inertia. Across almost every area of social and economic policy that matters, New Zealand is not simply in danger of being exposed, it is standing naked in the shallows.
1. The Three Pillars of Social Wellbeing
For the last 80 years, the State has provided for education, health and social welfare in New Zealand, with each successive government, whether Labour or National, increasing its year-on-year spend in all three areas. In real terms, we have increased annual spending on these items from $4,500 per person in 1972 to over $12,000 today (NZD 2019).
Put another way, 71 cents in every dollar of Core Crown Expenditure is now spent on education, health and social welfare. Given this, you would expect the outcomes, in terms of productivity and performance, to have improved considerably across all three sectors. Instead, the opposite is true. Our education standards have fallen in comparison to our OECD partners; costs and queues have risen in the health sector (and things will only get worse as our population ages); and our social welfare system is broken, not only the focal point of rising community anger and resentment, but so impoverished that it is putting the most vulnerable at risk.
a) Education:
After 80 years of state-provided, free education and billions of dollars of investment, New Zealand might reasonably be expected to have a flourishing education system, with our attainment levels across all three major educational disciplines – literacy, mathematics, and science – amongst the best in the world. Sadly, this is not the case.
• In 2018, the Book Council announced its findings that 40% of Kiwi adults could not read at a day-to-day functioning level. Clearly, this is a troubling statistic, and – sadly - it is not one that we look like fixing in the near future. In 2017, the ‘Progress in International Reading Literacy Study’ found that New Zealand was one of only 12 nations where reading ability has fallen. This test, which recorded reading benchmarks for 10 year olds across 50 countries, showed about 27% of New Zealand children did not meet the relatively low, "intermediate benchmark", for reading, compared to an international median figure of 18%.
• In 2015, 16% of all Year 5 pupils in New Zealand sat below the international benchmark for numeracy. Whilst this might not seem a bad result, at first blush, what this means is that 16% of our students were unable to add or subtract whole numbers, were unable to understand multiplication by single digit numbers, or how to read simple bar graphs and tables. By comparison, the international average was 7%.
• In 2015, 12% of all New Zealand students failed to meet the similarly low benchmark in science, compared to 5% internationally.
On the basis of these figures, it is impossible to escape the conclusion that education, in its current form, is failing many of our children and particularly our most vulnerable. If we are to catch up with the rest of the advanced world, we need to approach the problem differently than we have done.
b) Health:
In 2019, we spent almost twice as much in real terms on healthcare as we did in 2001 (the spend having increased from around 9.5 billion in 2001 to in excess of 18 billion today – in 2019 dollars). Despite this increase in costs:
• At a primary healthcare level, there has been a decline in the number of consultations taken in New Zealand, per head of population.
• One in three New Zealanders over the age of 15 have one or more unmet needs from primary healthcare in the last year.
• Almost every single District Health Board in New Zealand is in debt, with their spending far outstripping their income (and, it might be added, using their allocated resources poorly, with around 33 cents in every dollar lost to institutional inefficiencies).
• Significant inequalities remain in terms of access to, and the provision of, healthcare, with Māori, Pacific peoples, disabled people, and people experiencing poverty, particularly disadvantaged.
When we add our aging population into the mix, and the enormous extra burden that will be imposed on our health-care system in the decades to come, it is hard to disagree with the Ministry of Health’s own finding, in its 2016 strategy report, that the current services provided by the government are unsustainable in the long run and that “it is essential we find new and sustainable ways to deliver services.”
c) Social Welfare
The government currently spends around 9.7% of GDP on social welfare (including superannuation), well in excess of any other item, and almost as much as we spend on health and education combined. Whilst it does so for good reason - to alleviate poverty and material hardship for New Zealanders – our social welfare system is failing.
Despite a drastic increase in funding per beneficiary over 80 years of government, there are still large amounts of material hardship in New Zealand. In June 2019, 13.4% of all our children lived in a household experiencing material hardship, whilst the recent report published by the Welfare Expert Advisory Group (who were appointed by the current Labour Government), makes for harrowing reading. It notes that that the payments available to families who are reliant on benefits falls well short of “those levels of income necessary for an adequate standard of living, let alone the levels necessary for even modest participation in society.”
The report further notes that “our current system was set up in a different time and no longer meets the needs of those it was designed to support”, that it is “unmanageably complex”, “infantilizing”, “puts vulnerable people at the whim of politicians”, and that it “ diminishes trust, causes anger and resentment and contributes to toxic levels of stress.”
Clearly, the current system requires more thought if we are to create a welfare system that provides beneficiaries with the requisite levels of dignity and opportunity. It is difficult, though, to see where the money will come from, if the government continues to fund the sector under its current model.
In no small part, this is due to the looming crisis associated with superannuation: namely, the enormous costs that New Zealand will face in the coming decades, as it meets its commitments to an aging population.
In 1970, the median age of New Zealand was around 26 years old. In 2016, it had increased to 37, and is projected to increase to around 40 by the early 2030s, and to 46 by 2068. More troubling, the ratio between those who are of working age (15-64 years old) and those aged 65 and over, is dropping precipitously. In the mid-1960s this ratio was 7.1. It had dropped to 4.4 by 2016 and – under current modeling – will stand at 2.8 in the mid-2030s and 2.0 in 2068. In other words, by 2068, there will only be two working age New Zealanders to every superannuitant.
How can such a small working population, relatively speaking, possibly care for itself, at the same time as meeting the requirements imposed by our current social welfare policies; requirements which depend on New Zealand’s workers to cover the costs of caring for beneficiaries and those aged over 65? For too long, our governments have turned a blind eye to the coming tsunami, putting the problem of an aging population off for another day (and for another government to deal with).
We can no longer afford to do so. This is particularly clear when you also factor in the health costs of caring for an aging population. In New Zealand, by 2025, 50% of all Government spending on healthcare will be spent on those aged 65 and over (despite the elderly making up only 15% of the population). This is consistent with OECD statistics which indicate that, on average, those over 65 account for 40 to 50% of health spending and, per capita, have healthcare costs 3 to 5 times that of those under 65.
By not saving now for future healthcare costs and superannuation, and instead relying on future taxpayers to cover them, out of general tax revenue, we are playing a very dangerous game; one that puts the social well-being of New Zealand’s most vulnerable citizens at the mercy of political whims. We are not simply hoping that our future generations will be able to meet the costs of these payments, but that they will be willing to prioritise such spending over all other meritorious (and unmeritorious) demands for spending. If nothing changes, New Zealand will need to raise taxes significantly or borrow enormous amounts of money, simply to keep our health-care and superannuation programmes afloat.
The current social welfare model is broken. New methods of thinking are required to protect recipients, ensuring that:
• Beneficiaries are afforded a decent standard of living (including the opportunity to play a full role in society);
• Child poverty is eradicated;
• All New Zealanders have the opportunity to enjoy a comfortable retirement, with sufficient capital to earn a substantial income, no matter what their jobs have been in their working lives.
2. Tax
The age-old response of governments to crises like the ones outlined above, has been to increase the tax burden. This is no longer an option, for the following reasons:
- The economic consequence of the Covid-19 shutdown, unfolding as we write this paper, could be as great as the Great Depression. It has caused economic devastation; to individuals, their families, and their businesses. At the moment, they simply cannot afford the costs of higher taxes. For the medium term at least, tax rates will need to stay where they are, and arguably (in the case of low income workers and small businesses), should even be reduced.
- New Zealand’s tax burden is already amongst the highest in the world. Whilst this might come as a surprise to those who are encouraged by our politicians to simply compare our headline personal tax rates with those of our OECD partners, the truth is that our proportion of income tax and company tax to GDP is high, as is our proportion of GST revenue to GDP. In a recent study using the Heritage Foundation’s Economic Freedom Index, New Zealand economist, Bryce Wilkinson, found that in 2018, individuals living in 135 out of 180 countries had a lower tax average than New Zealand. By count of population, that amounted to 94% of the world’s population living in a lower tax environment than we do!
- History tells us that when governments create a high tax environment, they unwittingly provide an incentive for those who can afford it to hire smart accountants to find innovative ways to lower their tax. In other words, high taxes will often result in a reduction in tax revenues. The lessons of 1988 are salutary here. When the Labour Government of the time reduced the top tax rate (for those earning $60,000+), from 66% to 48%, and then to 33%, the number of New Zealanders declaring income over $60,000 rose six-fold, with a revenue increase from $876 million to $2,544 million (1993 dollars).
Ultimately, there is a tipping point where increases in taxes actually cause a decrease in revenue. From the evidence, New Zealand may have already reached that point, meaning that raising taxes – either now or in the foreseeable future – will not be the panacea many statists would have us believe. Rather than helping us pay our way out of trouble, such a move would almost certainly have a detrimental effect, both from an economic and societal standpoint.
And besides, the simple truth is this: we already have enough money in the system to provide world-class services; it’s just that the money is being poorly used, captured by the very institutions that are meant to help, rather than being passed through to the pupil, the patient, or the consumer, in a way that makes a material difference to their lives.
3. Housing
A few decades ago, most New Zealanders regarded home ownership almost as an implicit right; a cornerstone of our egalitarian tradition and a safe harbor to store and accumulate wealth.
How times have changed. In the last 20 years, house prices have quadrupled, with low housing stocks, an overly complex policy environment, land banking, and the intransigence of privileged landowners, all contributing to a situation that not only undermines the opportunity for New Zealanders to own their own home, but our entire social fabric.
When we look at the issue of housing, we see the following problems:
- Our house prices are too high. All of us understand this instinctively, but by applying the ‘median multiple’ method which Demographia International uses to conduct an annual survey of housing affordability, we can truly see how difficult it has become to own a home in New Zealand. The ‘median multiple’ measures house prices divided by median household income to compare cities and countries around the world (i.e., how many years annual income does it take to buy a house?). Demographia considers that if the median multiple is less than 3, house prices are generally considered affordable. At the other end of the scale, if the multiple is more than 5.1, then they consider house prices to be severely unaffordable. In 2019, the most affordable housing markets were to be found in the US, with a ‘moderately unaffordable’ multiple of 3.9, followed by those in Canada at 4.4, the UK at 4.6 and Ireland at 4.7. In comparison, Australia’s measured cities had a multiple of 6.9, whilst Auckland – with a staggering multiple of 8.6 – was considered severely unaffordable.
- When house prices increase, it has a disproportionate impact on low income New Zealanders, not simply because they have no hope of purchasing their own home, but because rent prices increase too. Inevitably, high rents take up a greater portion of disposable income for low-income earners. In 2016, housing costs typically consumed 20% of income of a working-age household, as compared to 14% in the mid-1980s. But if you sat in the poorest fifth of New Zealand in terms of income over that period, housing costs rose from 29% to 49%. Such an increase cannot come without a commensurate increase in material hardship for many New Zealanders. If we want to find a reason why 13% of our children live in poverty or near poverty, then rent and mortgage costs are a good place to start.
- High house prices also affect investment in New Zealand. Because high prices consume savings, there is less left over to invest in productive industries.
- The demand for houses has far outstripped supply. A report prepared for the New Zealand Initiative by Michael Bassett and Luke Malpass found that New Zealand’s new house building is lagging, with a shortfall of at least 10,000 new houses annually, whilst the New Zealand Productivity Commission’s enquiry into housing affordability found that New Zealand, in comparison to most of its OECD partners, has been slow (and about half as effective) in its responsiveness to changes in housing demands. Of course, this is not because we suffer from a paucity of land in New Zealand upon which to build. Rather, the shortage is an artificial one, with limits imposed by Local Councils, Central Government and/or private developers all working to maximize returns from land banking, at the expense of affordable land and housing.
- When you add the complex set of rules and regulations that New Zealand operates under, then matters become worse. Of particular concern is the system we’ve created that protects privileged landowners at the expense of those most in need, with existing homeowners having broad rights to object to any change to their neighbourhoods. Inevitably, such rights lead to a reduction (or, in many cases, the elimination) of any new construction in an area, locking people out of the housing market or relegating them to distant suburbs, so that our society becomes increasingly stratified geographically. When you consider that affluent suburbs typically have better public services available, including schools, libraries, transportation, and other amenities, then this issue might be seen as lying at the root of New Zealand’s pervasive social inequality, with ramifications beyond the simple fact that many low-income families are forced to live a considerable distance from the city.
- Finally, too much of our limited housing stock is of poor quality. As the Productivity Commission has noted, the poor condition of New Zealand’s housing stock has been linked to poor health outcomes, particularly our unprecedented high levels of rheumatic fever. It is a tragedy that such outcomes are seen most prevalently amongst Māori and Pacific peoples.
New Zealand’s housing market is in a state of disarray. If we are to return to the days where everyone who wants to purchase their own home, can afford to (and there’s no reason why this shouldn’t be possible), then existing privileges, regulations, and land banking will all need to be ended, replaced instead by a more equitable – and efficient – policy framework for housing.
4. Productivity
There is only one way to continually and sustainably increase the living standards of all New Zealanders over time and that is to lift productivity in New Zealand.
Productivity is a measure of certain outputs to inputs. When we make more or better goods and services for the same or fewer inputs (i.e., the time and/or resources we put in to producing a good or service), our productivity improves. It is not about working longer hours, or even working harder, productivity is about getting more from the effort or resources we put in.
Unfortunately, there is something baked deep within the structure of New Zealand’s policy environment that has seen long-term, low, and declining productivity growth rates, across labour, capital, and multi-factor productivity measures. From 1960 to 1984, New Zealand had the slowest rate of productivity growth in the OECD, and not much has changed since. By international comparison, our labour productivity remains 40% below the top half of the OECD, the net result of which is below average incomes in New Zealand.
In a recent comparison of OECD countries, New Zealand economist Michael Reddell notes that New Zealand ranks 4th last for labour productivity growth and “simply last” for multi-factor productivity growth. Moreover, for the most recent 5 year period measured, New Zealand averages about 65% of the GDP per hour worked of the median country for which the OECD as data.
Given that GDP per hour is a fairly reliable indicator of the prospects of a country in the long term, we are quite clearly running a long way behind our competitors, and losing ground fast.
Whilst there are a number of reasons for this, including the high off-the-shelf costs of capital goods in New Zealand, the small size of our domestic market, and our low investment in knowledge-based capital, productivity within government sectors is also to blame. These services, which include education and health, amount to close to a fifth of the economy and their abysmal productivity levels contribute to our poor performance. For example, between 1996 and 2018, labour productivity for New Zealand averaged 1.4% per year (the OECD average was over 2%), compared to labour productivity for the health sector, which averaged 0.8%, and the education sector, which averaged negative 1.4%.
An increase in the rate of productivity growth per year will deliver New Zealanders the real increase in wages they so desperately need. We should not lose hope that this is possible. If we are willing to to bring this issue out into the open, keep a laser focus on improving outcomes and put in place quality policies (including the reforms supported by the authors in their upcoming paper), we can transform New Zealand into a high wage, wealthy economy.
5. Debt
Recent New Zealand Prime Ministers, and their Finance Ministers, have made much of our debt levels, trumpeting them not only as historically low, but also as positioning us for a rosy economic future. Putting aside the fact that much of this debt reduction happened as a result of policies instigated in the 1980s and 1990s, and that our true debt levels are scandalously under-represented (more on this later), this rhetoric is about to change.
Covid-19, and the economic devastation it has wrought, has not simply shifted the goalposts, it has set everything up on an entirely new playing field. In its wake, the costs of keeping the New Zealand economy on its feet, let alone managing a recovery, will run into tens of billions, perhaps even hundreds of billions, of dollars. Already, Finance Minister Grant Robertson has warned that New Zealand will be running deficits for an extended period of time and that debt levels will reach an “all-time high”. Whilst details about what this means in concrete terms are sorely lacking, one can’t help but imagine that the news isn’t good for the young generation of Kiwis who will be saddled with the costs of repaying this debt.
When we add to this the tens of billions of dollars we lose every year, as a result of the government’s studied reluctance to tackle the twin problems of privilege and waste, it is clear that the issue of national debt will soon become part of our day to day lives.
Unfortunately, it is not simply our Covid-related debt that we must seek to manage in the medium to long term. We also face an additional debt burden that may dwarf even the costs of our post-Covid recovery, and which threatens to cripple us. That problem – as mentioned earlier in the paper – relates to our ageing population and the strain it is about to place on superannuation and on our health system.
As of December 2019 (for all working New Zealanders over the age of 18, and those already in retirement), New Zealand had accrued a liability (undiscounted) of roughly $695 billion in relation to future NZS payments; more than 2.2 times New Zealand’s nominal GDP in 2019. Even if we offset the assets of the Cullen Fund (roughly $42 billion), we are still left with an undiscounted current liability of roughly $650 billion. Assuming no population growth, which is highly unlikely, this liability will continue to increase by some $30-40 billion a year.
This figure is calamitous in itself, but there remains the matter of health costs, for those aged 65 and over, to add to it. With around 45% of core Crown expenditure on healthcare going to those aged over 65, we can see that, in 2019, the government spent, on average, $10,500 per person for those over 65 in health-care. If we index the rise in health-care to 4% (lower than Treasury’s long-term forecast), that means the total cost for someone with 20 years retirement is approximately $313,000 (in 2019 dollars).
These are startling figures, frightening even, and yet they remain unfunded. If we consider such healthcare costs on an accrual basis, like superannuation, we can see an accrued liability in relation to retirement healthcare costs of over $500 billion. Taking both New Zealand Superannuation and healthcare costs together, we had an undiscounted accrued liability in 2019 of over $1.2 trillion.
Unfortunately for New Zealanders, we are not able to see the true costs of our current policies because the Government deems that such liability does not ‘accrue’ until you apply for such an entitlement. While it is certainly arguable as to when we should deem a policy to accrue for accounting purposes, this misses the point. Just because you can pretend it is not a liability for the purposes of accounting, does not alter reality. New Zealand’s current scheme is racking up significant unfunded liabilities with no thought as to how they will be met in the future. If the Government were more straightforward about its future liabilities, we could have a serious discussion as a nation about how we are going to meet them.
If we did account for such liabilities, we believe it would show a simple truth: without change, we are on a path that will see us struggle to meet our future debt obligations, something made all the more apparent, and urgent, by the additional debt we are about to incur as we deal with the economic fall-out from Covid-19.
How, then, are future governments going to care for citizens aged over 65, who have been brought up to believe that the government will look after them upon their retirement, and who have every right to expect they will live comfortably once they have stopped work? Under the current system, the simple – and tragic – answer is this: ‘they’re not’.
As the authors noted at the start of this paper, you can’t begin to fix something until you admit that it is broken. Scandalously, a string of New Zealand governments have refused to acknowledge our looming debt crisis. Instead, they have maintained the fiction that they are running surpluses, refusing to take into account future liabilities that have already accrued.
If a company kept its books in the same manner as the Government in relation to its employees’ retirement savings scheme, it would rightly be brought before the courts on fraud charges.
The Government needs to find the courage to face this crisis (which begins by admitting it exists), instead of indulging in the empty politicking that comes with pretending that everything is okay, leaving it to future governments, and our younger generations, to deal with the mess.
Conclusion
For too long, we have lived with the fiction that we are doing well, lulled by successive governments into believing we truly do have a ‘rock-star’ economy. Nothing could be further from the truth. Starting with Grant Robertson’s post-Covid budget, we must admit to the problems facing our economy and begin to deal with them. Otherwise, current inequalities will remain entrenched, we will continue to fall further behind our OECD partners, and the prosperity of our younger generations will be placed at peril.
With thanks to: Grant Douglas, Brogan Powlesland, Barry Parkin, Stefan Olson, and Adrian Dixon.
*Roger Douglas was Minister of Finance in the Lange Labour government, Robert MacCulloch is Professor at The University of Auckland's Graduate School of Management, and Hugh McCaffrey, who is a researcher and commercial litigator working in private practice.
77 Comments
It is a matter of the difference between the top and the bottom. In my wife's tribal village there is varying status, a top and a bottom but even the least villager has a voice and can be heard. Growing up in the western world 60 years ago in state housing my prospects, my access to the countryside, my everyday life was much the same as 99.9% of my fellow countrymen (the 0.1% might have servants to polish their cars but the owners of farms and businesses lived much the same life as their labourers) and certainly nothing but inate ability stopped you going from bottom to top - in the UK check the lives of Ramsay MacDonald and Ernest Bevin.
We have lost that. And it is getting worse. So great as NZ certainly is for living in now if judged in terms of hope it it doesn't match many poorer countries emerging from behind the iron curtain.
TO RESTART NEW AND SUSTAINED ECONOMY FROM THIS PAUSED LEVEL .......
The government should RETHINK twice what is best to REDUCE INEQUALITY, helping hand to SMALL BUSINESSES, more and equal job opportunities to our YOUNG PEOPLE in tomorrow’s budget.
https://www.google.co.nz/amp/s/amp.ft.com/content/832877b6-80b9-11ea-8f…
Sustained economy?
What is that, exactly?
Sustainable and sustained (temporarily) are two very different things. The consumption of our planet, which we currently measure without ascertaining how much is left of it, nor how much poo we're leaving behind us (CO2, oceanic plastic, pesticide residues, leaching landfills etc) was temporary.
All other considerations at this juncture, are secondary.
""how dependent even the wealthy are on low-income workers, including in healthcare, postal services, security and waste disposal"" add to the wealthy the middle class like myself. However our political parties left and right find it soothes their souls to give means tested hand-outs rather than admit all children are an investment in the future and they all ought to have two parents and live in a warm home. Our benefit and taxation systems nudge families apart and every child would prefer to see both parents regularly over any amount of the trappings of money.
OK my prescription: lowest tax band at 0%; cohabiting couples to transfer income between one another to minimise income tax, generous universal child benefit paid to both parents living with child; dept of works building houses (or converting empty commercial property to residential) - paid for by higher taxes, less tertiary education, later age for Super and if necessary higher income tax rates for top bands.
We are in a different world. We are in a world that desperately needs us to stop destroying it or it will destroy us, and/or we will destroy each other.
Much, much more aware thinking is required and much, much less consumerism is as well.
We are at a crossroads now, which way?
I don't hold much hope for this current crew, who seems hopelessly out of their depth when it comes to anything financial.
Rather than address any cause for a collapse in business confidence this coalition turned the blame onto the struggling business owners.
It is doing the same to companies going bankrupt by forwarding a ridiculous argument that any business that fails due to lockdown restrictions must have been in trouble before hand.
One sees this even in these Hallowed Halls, where some commenters harrumph that 'businesses didn't save for a rainy day'. This of course blithely ignores the fact that any business which depends on Inventory turn, has most of the Assets in its Statement of Financial Position as Inventory, not cash-at-bank. Being denied the ability to turn Inventory into Cash, as has been the case of the last 7 weeks, means that the 'rainy day fund' implicit in holding Inventory, simply cannot be liquidated........Derrrrr.....
Gee that's a very very hard question and I totally agree about the systemic nature of much of it.
I voted for Labour back in the day, based on the fact that nobody in National at the time had any experience in running a country but then voted for National last election for the exact same reason. So my tendency would be to vote Labour now because they have three years under their belt - but honestly I'm baulking at the moment.
What I want is less idealogical clap trap and more people focused pragmatism. Both sickness and poverty are real.
But where will we get that?
If I were King of the world I would appoint a combination government of all parties with a specific mandate to get their shit together, stop feathering their own nests and start working for the benefit of the whole country, which is driving into a massive hole.
But fantasy aside I am not sure we can drive economically blind for much longer, or at least am sure the costs of doing so are ramping through the roof and those costs will start to really bite by the end of the year.
Not much of a reply is it.
Too wedded to the 'free market' and globalisation? Too afraid to do something that might support local business and enterprise and risk pissing off large trading partners? after all they allowed a clause in the TPPPPA (or what ever) that allowed foreign companies to sue the Government if they enacted laws that went against them, and this clause wasn't in the Aussie version!
But that's the whole point of the article, the level of debt suggests that there was a huge amount of trouble in the NZ economy before the pandemic. Unless debt leads to greater productivity then the debt is a problem, why is there so much debt if everyone is so successful? Ever inflating debt is a sign of something unsustainable and we've been discussing that on this site for years. Why is NZ productivity so low? Why does NZ struggle to retain or attract highly skilled workers?
Also there is a longer term reality to what PDK is highlighting. There is also a huge sustainability problem with our current consumption/population rates. I would argue that a huge part of that is cultural. Western soft power is highly consumer based. Growth is highly consumer based. People are encouraged to want "stuff" and without earning capacity to buy all the "stuff" they are borrowing.
Can we be productive without consumerism and population growth? Why does growth have to exist at all? What is all this growing for? When is enough, enough?
Gingerninja, what is the historical alternative of consumerism? when i was reading your comment, i had the people of the continent of Asia in mind. People living with most basic things, while a very small number had massive wealth (think Maharajahs). Religion and other social systems (e.g. casts and class based societies) were the "system" to explain why the state is as it is and why it should be preserved.
In 20th century, we get communist countries who are very good at distributing poverty equally between their citizen (elites and fanatic supporters excluded off course).
I think we can live without consumerism and growth, but it will be a lot less desirable than you think.
I'll repeat the statement slowly - science has disproven Darwinian materialism.
1. Current knowledge of the fossil record disproves his theory.
2. The mathematics of probability disproves his theory.
3. The existence of, and what we now know about what DNA is disproves his theory.
If you have an interest in facts you might need to read some science. The atheist theories of material reductionism are a logical contradiction.
Why biblical? Why Christian? Why any sort of belief in gods? You do not need any of those in order to live in a more "spiritual" manner, and how I choose to do that, how a Muslim might choose to do that, how a Hindu chooses to do that, how a Buddhist chooses to do that and how a Christian chooses to do that are all as legitimate as each other, so long as that is what they are. Start pitting religions against each (my sky friend is better than your sky friend) and we're back killing each other pdq.
Darwinism, fast forwarded to today and honed by modern science still has much, much more evidence than any belief system.
I'm a little confused by Ralph's reply.
I'm guessing he's genuinely religious, to the point of denying evolution?
It that's the case, it's probably too far across the debating chamber. I remember Professor Ellen Moseley-Thompson, years ago, talking about those who thought that "all this, the dinosaurs, the hanging valleys, the fossils - all happened in the last 4000 years". And she finished "go figure".
Enough said.
The evolution theory as outlined by Darwin has been proved wrong. That state of affairs has nothing to do with me.
It is wrong. Science has proved it to be wrong in three separate ways. The fossil record (as we know it now) is one of the three scientific problems the theory cannot overcome.
Not that I am suggesting Darwin was in any way a idiot, he didn't have fossil record we have, nor the maths we now use and nobody knew about DNA in his time.
Well, without the bible the label christian losses all meaning. If you don't follow the teaching of Christ then on what rational basis can you call yourself 'Christian'? So that was a point of clarity or definition if you will.
It's a good example because it describes the state of affairs in the western world before Darwin reawakened the old materialistic theories of the Greeks. But, if the world is nothing but material (Dawkins meaningless random time and chance) that precludes spirit or spirituality.
Fascism (of both political spectrums) killed more people in the last 100 years than any religion. If we were rational we might conclude politics was much more dangerous than any religion. If we stuck to the facts.
Besides, the existence of some kind of a God is the best rational explanation of reality as we find it. Plato, Aristotle, Socrates, Newton, Kepler and Galileo all believed in the existence of a God so I am in exalted company.
One thought is that it doesn't have to be all or nothing, eg in the short to medium term we could have a national conversation about what we're trying to grow towards (eg standard of living goals), or how much we want to consume (more and more plastic?).
In the long term growth will eventually have to stop (sci-fi futurism about colonising the galaxy aside), and it's probably better that we stop it in a controlled transition than in a collapse.
There's some interesting math around the physical constraints of growth, even aside from resource scarcity, pollution
, overcrowding etc:
https://dothemath.ucsd.edu/2012/04/economist-meets-physicist/
Tldr: "At that 2.3% growth rate, we would be using energy at a rate corresponding to the total solar input striking Earth in a little over 400 years." + we cook ourselves with waste heat.
"the level of debt suggests that there was a huge amount of trouble in the NZ economy before the pandemic"
Yes, but it's not the businesses themselves that create the structural disasters in the economy. If we were to accept that successive government policies (or lack thereof) are largely to blame then we might be quite nervous in the light of Einstein's observation, "We cannot solve our problems with the same thinking we used when we created them."
If the governments are the problem then what are the chance they are the ones who can really fix anything?
Still a disingenuous politician after all this time....using total dollar figures and using proportion of tax figures without declaring the background position to create false impressions instantly undermines anything the article (and future ones) may have to say.
""New Zealand lags behind almost every other advanced country against which it has traditionally measured itself"".
The figures quoted for education failing didn't worry me much - eg how important is numeracy to every single adult? Cetainly useful but not essential so long as you live in a friendly social group that can help you. Being forced to learn how to divide or read graphs for a decade of schooling is painful and stops you developing whatever your gifts really are (maybe hunting or growing vegetables).
The figures for health don't worry me either. We live about 4 years longer and new medicine has been developed since 2001 - both my wife and I are alive because of new cancer and heart treatments.
His information about social welfare is right on. Take these quotes “our current system was set up in a different time and no longer meets the needs of those it was designed to support”, that it is “unmanageably complex”, “infantilizing”, “puts vulnerable people at the whim of politicians”, and that it “ diminishes trust, causes anger and resentment and contributes to toxic levels of stress.” Jacinda: please read them and take them to heart - you have a once in a lifetime chance to change it - IMHO anything that handicaps families must be cleared out of how tax and benefit systems.
I read this and my brief summary is that what they're saying is that as a country we've become lazy, greedy and ignorant but expect good outcomes.
Having worked overseas, its not just me that thinks the average Kiwi is at times a little delusional.
My experience is that if you attempt to be productive, you get shutdown and mostly by those who have benefited from policy over the last 10-20 years because they don't want change. Yet not forcing change means the system they're backing will self-implode.
correction; *is probably already self-imploding*.
We have built a world that is so fragile, so vulnerable that it has to run *exactly* as it has been running or else the whole system collapses. There is no rainy day fund, no flexibility or resilience in the system, there is only more debt. We have to face the reality that if the world wasn't so indebted, temporary economic restrictions as a pandemic strategy would not be such a huge problem, its not as if wars, pandemics and big old natural disasters don't come along regularly or anything. If every single person, company and organisation in the world had savings for 3-6 months of cash flow, which is the goddam received wisdom anyway, and weren't suffocating under debts, then this would all be very different.
There is no single person to blame for any of this, the debt has long been part of our culture and it had become an entrenched systemic problem but to deny how much of a problem it is, is deluded.
To my mind, housing is a good example of this cognitive disconnect.
A government gets elected on a promise to build scores of "affordable" housing but local government reform was on nobodies agenda so land cost probably excluded any possibility of success before they began.
Yep!
The average kiwi that is doing OK, is not willing to change because they don't want to risk losing out on some of the things they've caught onto to keep their living standards 'hopeful'.
No government in the last 15 years has found a way to educate the average kiwi on what change is necessary.
Incidentally, the average kiwi that has worked overseas has probably immediately recognized they need to change a little, and has latched on to the better ways that things somethings work in other countries. And even looked to improve on what they do and use that as a spring board to greater heights.
Wanted Ad : a future politician with work and even entrepreneural experience overseas, please.
with around 33 cents in every dollar lost to institutional inefficiencies
Back when the nurses were on strike, some appalling information came to light such as no cap on admin staff wages at DHBs and large amounts collectively spent on non-medical consultancy fees (IT, general business, etc.) by all DHBs as a proportion of total health funding.
33 per cent inefficiency is highly disappointing given all that money handed out to business consultants.
Ralph you ask the wrong question.
Ask what the problem is first. Then ask if an unfettered mass of self-seekers is the answer, or the problem.
Then - and only then - ask if more or less Govt is the answer.
Douglas et al failed that test, as does most discussion even now.
Given Mr Robertson has already signalled a big increase in government is coming in this budget I feel to question that as a solution if inefficient is running at 33% is quite a good question.
Were he to fix the efficiency problem he could liberate 10% increase (figure plucked from nowhere) for no increase in inputs.
Part of this 33% is purely structural, and structures can be changed. I've been a CFO in local government, tertiary education and was head-hunted into IT consultancy for the last quarter-century. I have seen inside enough Gubmint department, health sector (primary-care and hospital-sectors) plus private businesses to see that the underlying issue is simply structural rigidity in the public sector.
Private sector businesses of any scale have no compunction about rearranging their coverage, administration, governance and other structural components when the economic weather changes. Gubmints have huge difficulties in so doing.
Partly by design: their functions need to be conservative in the sense of incremental not revolutionary change. But as the reaction to this article so clearly shows, there comes a point where, like a locked fault that one day releases and we have ourselves The Big One, Gubmint structures are too locked for their own good.
And there aren't the indicators to show that the public-sector crunch point approacheth - as witness the Verrall report on contact tracing, which exposed a simply appalling lack of preparation despite the WuHuFlu having been around, at that point, for the best part of 3 months. Everyone was in full CYA mode and whistle-blowers in general tend to have short and unhappy work lives despite the official soothings.
Private sector lives and dies on the Performance and Position statements, KPI's like inventory turn, margins, GP vs NP and a plethora of others. Public sector doesn't even have debtors or cash-flow worries........
Private sector lives and dies on the Performance and Position statements, KPI's like inventory turn, margins, GP vs NP and a plethora of others.
If that were so, I have no idea why we had to by back both an airline and a railway. Or why Obama had to bailout the banks. Or why other government largesse in the US was spent on share buybacks, as opposed to employment creation.
Not to mention the plethora of private sector companies domiciled in some far away tax haven for the sole purpose of screwing the PAYE taxpayer.
In many ways, the private sector is more at fault for the situation the world finds itself in than their corresponding governments.
Far too binary, Kate. Your ire is rightly directed at large multinationals. But the half-million SME's in NZ (or soon to be what's left of 'em) certainly don't fit your sweeping generalisation. And they are the direct source of employment for many citoyen. If they fail to thrive, Gubmint is left with the pieces, but with no equivalent in terms of job creation. A few conservation and tree jobs, maybe. But it's possible to turn barista into hammer hands, too, with a Credential and a piece of paper for Safety at Heights, otherwise known as How Not to Fall Off of a Ladder.
SkyCity just announced 700 redundancies - equivalent to 70 SMEs employing 10 people each. Whether it's a SME or a large corporate - one more unemployed is one more unemployed. I don't think it makes sense to keep anyone employed where there is no work to be done.
Especially when there is so much work to be done in New Zealand. A few conservation jobs? Have you seen the wilding pines problem on the SI? How many of our waterways are as yet unfenced? How many rabbits do we need to exterminate? How many miles of coastline would benefit from native planting? How many weeds can we dredge from our lakes, or eradicate from our river banks. Sure it's all outdoor work, but certainly not at heights and not particularly difficult, nor dangerous. Young NZers are up for it, provided it returns a decent wage.
"..the simple truth is this: we already have enough money in the system to provide world-class services; it’s just that the money is being poorly used..."
Delusional conclusion of the highest order.
Either he is saying Capitalism is hopeless at allocation … or he is blind to the fact that the limits have nothing to do with money...
It's physical Limits that create ultimate scarcity.
And it was their onset - 1970 onwards - which led a minor cohort to attempt ownership at the expense of an increasing major cohort. Douglas was merely the NZ expression of the minor cohort. That is history now, and clearly no place to be looking for future answers.
But it does ask a question of academia - still specialising, still in some parts peddling ideology-slash-mantra. So much for a species becoming sapient enough before it totally trashed it's support systems.
I'd encourage you to google intensive growth vs extensive growth. There is a profound difference. Readers here will know if you have done this little bit of homework because you will be unable to stay locked into your Limits on Growth paradigm. It will be a whole new world for you to explore. Extensive growth is what eventually puts pressure on support systems. Characterized most clearly by tribal, state mandated or socialist economies. Intensive growth, characterized by market driven innovation of technology, actually creates new resources all the time, out of what formerly was not a resource. And makes obsolete or less necessary those resources coming under supply pressure.
It's almost like as a nation we are complacent with receiving poor quality for what we pay. We pin our unreasonably high living costs on either the tyranny of distance from the rest of the world or less economies of scale. Very few care to ponder over the high margins made by unproductive intermediaries due to their monopolistic market position.
RMA alone has led to huge productivity and efficiency losses in our ability to build homes, commercial spaces and critical infrastructure. Think about how much more bang for our buck we could get with the amount we currently spend on these nation-building activities.
Policy creates land prices. Rural land is worth, at the high end of hort, $50k/ha. Subdivision gets 11 plots per hectares, which allows 33% for utilities, roads, parks, reserves etc. So a core land price per 600 squares plot is - apply advanced arithmetic - 50,000/11 = $4,546. Add say $100K for services per plot (QS types can refine this figure) and $30K for a contribution to remote services, add 10% for profit margin, and there's a $150K plot price, give or take. Which happens to be the usual plot price around Christchurch fringes, as a reality check. Add a 90 squares little house at $2K/square, and there's the house many of us grew up in, for a total outlay of $330K.
So why is an Auckland plot worth north of $500K (or three times my leetle thought experiment????) Ticket-clippers, in the form of the District Plan, the RUB, the land bankers, the tax incentives, the Council's Modest Fees, GST, and so on. The basics are the easy bit.....
I like this quick calc. Not a QS but $100k seems probably about right for services and by services I mean to provide roading, water, sewage, storm water and electricity and excludes Engineering Consultants, Surveyors, Lawyers and Council charges. These likely to add $50k min. Earthworks if not associated with roading but for section layout is likely to contribute extra as well.
I've seen a Consultants report for a subdivison on an existing section in a zoned Residential area. It amounted to about 15 pages. Could have been done in about five and still fulfilled Council requirements. Will happen to those who have no technical knowledge or concept of how these processes work and I'd include about 90% of the population in this category and a few developers as well.
I happen to have created an entire subdivision (earthworks on the hill part of Newfields in Invercargill) in a brief spell of employment with the old Ministry of Works in the early '70's. Total surveyor input: an old school mate, in the old Lands & Survey, with a builder's dumpy and a few pegs. There was probably a bit of mapping back in the office to decide where to plonk 'em. My toolkit: an ancient Cat D7 3T series dozer with a cable blade and a dual-drum winch, a cable scraper (halved it, got another from the backblocks good enough for Gubmint work). Did the rough scrape - it was all farm paddocks complete with a well and windmill, stockpiled all topsoil, rough cut for roads and footpaths, re-spread topsoil, on to the next bit. K&C, road metalling and sealing were all later, contracted out. Went back a few years back - houses all OK. So I get a little bemused about the amount of kit needed for subdivisions now. And about the cost.
No TLA DC's or Modest Fees. No Worksafe (the old D7 was sans muffler, hearing protection unknown). No Traffic Management (I walked the D7 all over public roads on planks and traffic had to take its chance). No site inspectors (I once had the scraper fall sideways off of a 7m high stockpile because some eejit on a loader had excavated the side of the thing unbeknownst to me, and had an exciting hour maneuvering dozer and scraper to the point where I could back the entire rig straight down the side and off the heap) - no-one noticed except a fascinated high-school class at the Newfield HS about 100m away.
It was a much less regulation-mad, low-key Gubmint. Zero comparison with the risk-averse, safety-mad, high-cost model one sees everywhere now. And then folks gape in wonderment at plot prices that are in Buzz Lightyear territory....
"Very few care to ponder over the high margins made by unproductive intermediaries due to their monopolistic market position". As someone who has loved overseas for 17 years the odd prices here, and the lack of any offsetting high input prices, has been very noticeable. Some entrenched operators are about to get an unpleasant surprise.
This is breathtaking in it's arrogance.
Roger Douglas created and promoted the very conditions he is saying caused the problems he's highlighting. For the last 40 years we've lived his neo liberal economics and it's failed us, and other western countries. Utterly. There is no such thing as unlimited growth.
His solution?
More of the same. More privatisation. Less Government. Less spending on services.
An utter failure for all except the wealthy who have benefited.
He states the current social welfare model is broken - he created it! Agreed, it is excessively punitive and punishes those who do not benefit from rising property prices or large inheritances.
High taxes? Yeezus, straight out of neo liberal 101. In actual fact relative taxation is low in New Zealand. This is appallingly bad.
Clearly the libertarian right are running scared to wheel this lot out.
Indeed, according to Wikipedia:
By and large, governments since the 1980s have retained or reinforced the policies promoted by Douglas in the years 1984 to 1987, including low levels of import-protection, "credible" monetary and fiscal policies, deregulated financial markets and limited subsidies and other interventions in the economy.
Douglas should be trying to claim some credit for NZ being such a great little country, #11 out of 80 best countries in the world. Up from #12 in 2019 and only not better than #12 because we don't have much power and have little heritage.
Healthcare. The facts on the amount spent on old people, lets say 65+ is high and that's to be expected. I had a recent stint in hospital of about 5 days and my re-action on being admitted to a ward of 6 was, hospitals are about keeping old people alive. I was in the middle with 3 older and two younger. The nurse heard my comment and said they, the on duty staff, had been discussing this as well. Not sure who is going to play God in this situation. Give a Dr, $1mil and they'll keep a 100 year old alive for another day.
... it is impossible to escape the conclusion that education, in its current form, is failing many of our children and particularly our most vulnerable.
I come to a different "conclusion" and that is many children are failing our education system and their classmates by being disruptive and refusing to learn.
Ah yes, Roger Douglas, architect of the neoliberal failures that he is now apparently complaining about? I see nothing new proposed in this article, just more of the same ultra-right-wing free-market nonsense. Repeating the mistakes of the past in an attempt to fix their results is just not going to cut it. We need to fundamentally change our approach away from the ideological shackles of the individualist, neoliberal market-driven austerity that has been holding NZ hostage to a status-quo that entrenches poverty and inequality.
Let's start by acknowledging that our government has the sovereign power and duty to spend for the public purpose, and that by virtue of this power, vested in the Reserve Bank, there is no financial constraint to achieving our democratic objectives. Anything we can do, we can afford. Let the govt invest in people, in infrastructure, and in our future. Only then can we start to unwind the long downwards spiral of the last 40 years, and give hope and meaning back to our communities who have suffered so long under forces beyond their control.
Half way through this opinion piece I thought it was a bit rubbish with the 'education is failing our children' and the tired 'swimming naked' analogy and I then looked at who the author was and was astonished to find that it was Roger Douglas. Yes, sadness is what I felt too.
Same wrong headed ideas from 1984 warmed over. Nation economies are not corner stores or households. They never die and going bust is usually an outcome of corruption and loss of trust not excessive debt. Just check Japan and now also China. Not that we want to be like them with public dent over 200% GDP.
What NZ has like many other countries, is a monstrous misallocation of capital. Not a lack of capital. Massive amounts of our private investments have been funnelled into housing speculation. Encouraged by central bank policies meant to stimulate investment in productivity. Meanwhile wages and demand have stagnated because of the belief that it is OK to put NZ wages earners in competition with workers from really low wage economies. These ideas have circulated on this forum since forever. They are nothing new.
Fundamentally New Zealand is very wealthy. We have something very valuable. Social cohesion. But it has been badly betrayed over the last decades. Lets hope we forget about trying to save and spend less. Or that somehow private ownership of strategic assetts in an island economy is a good thing. Privatised telecom network anyone? The focus should be on improving demand by reducing the cost of housing and improving income inequality. So much income is wasted on housing. Everyone knows it. That spending sucks demand from the rest of the economy inhibiting jobs and investment in other areas. Its a big topic. One good thing about this essay is that it transparently exposes the flawed ideas that led to where we are. They provide a great contrast to help us find a new way to where we need to go.
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