In a speech delivered just before yesterday’s budget, Finance Minister Grant Robertson acknowledged that the New Zealand economy had its problems, even before COVID-19 hit our shores. Housing affordability, climate change, child well-being and productivity issues were enormous issues the country needed to face up to.
The announcements in the 2021 budget won’t have given many business owners confidence that from their perspective things will be changing any time soon. In fact, they may well be in for more of the same, only with higher levels of debt and ongoing shortages of skilled staff.
The budget’s concentration on increasing welfare payments or as Grant Robertson put it “righting the wrongs from 30 years ago” was undoubtedly necessary. New Zealand has chronic issues with child poverty and homelessness, particularly for the Maori and Pacifica communities, which have mostly been getting worse rather than better.
However, to truly transform the country and improve the wellbeing of all New Zealanders a bold plan was going to be needed to raise productivity and spur higher levels of growth. As Nobel-winning economist Paul Krugman famously said “Productivity isn't everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Plans to address productivity growth, or rather New Zealand’s alarming lack of it were absent from the budget and it was a missed opportunity.
Speeding up productivity growth
One of the major levers for improving productivity is by increasing the education and skills level of the workforce. Tertiary education was barely mentioned in the budget even though tertiary institutions are hurting badly from the lack of international students. The budget announced a relatively minor 1.2 percent increase in tertiary education tuition and training subsidies and an increase of $25 per week for student support. As the adoption of new technology accelerates across the world, New Zealand risks being left behind if we don’t have a clear plan to upskill and retool our workforce to prepare us for the future of work.
Another major factor in improving productivity performance is improving our use of natural resources. Climate change initiatives were also largely absent from the budget other than $300 million to the Green Investment Finance Ltd for investment in low-emissions technologies and previously announced plans to decarbonise the public service. Presumably we will have to wait for the Climate Change Commission's final recommendations at the end of 2021 for further developments in this area.
Brain drain to Australia?
By contrast, the recent Australian Federal Budget announced a range of measures to encourage growth which raises the very real prospect that we will see our highly skilled workers lured across the ditch.
Their budget included tax cuts, incentives for business to invest in plant and machinery, and support packages for the most COVID affected industries. Their $1.2 billion Digital Strategy was also billed as “an important driver of employment, wages and productivity growth” enabling small and medium business to adjust to a digitally enabled future.
Overall, what was missing from the 2021 “Recovery Budget” was an integrated plan to grow New Zealand’s economy and to invest in its productivity capacity. While raising welfare payments and minimum wages may be necessary in the short term, long term investments also need to be made in our businesses and our people if we are to create sustainable wellbeing for all New Zealanders into the future.
*Christoph Schumacher is Professor in Innovation and Economics at Massey University and Director of the Knowledge Exchange Hub. This article is a post from the GDPLive blog, and is here with permission. The New Zealand GDPLive resource can also be accessed here.
73 Comments
Productivity growth should not be conflated with "growth".
Consider the case of reducing productivity. The result is greater effort for reduced results. I would prefer to use less energy and effort for a given outcome myself (increasing productivity).
For a finite world, one should strive for ever increasing efficiency to reduce the damage to that finite world.
Here you go.
“Nearly 50% of the nitrogen found in human tissues originated from the Haber–Bosch process.[50] Thus, the Haber process serves as the "detonator of the population explosion", enabling the global population to increase from 1.6 billion in 1900 to 7.7 billion by November 2018.”
https://en.wikipedia.org/wiki/Haber_process
Another little oxymoron in the bean counters manual to economic nirvana, is the concept of working harder to obtain a better standard of living? Can you buy your way to a better standard of living? Personally I'd rather spend more time with friends and family, than working towards the next kitchen upgrade. Maybe that's just me?
Thanks for your "input" David. Hope you can pardon the pun. :-) There certainly are many inefficiencies in the way society is run, but one man's lack of efficiency seems to be another's profit somewhere else. Take sitting in traffic. Absolutely dead time and resource, and yet auto and energy industries are quite happy. I remember a few decades ago an organisation I worked for adopted a "Quality assurance" programme. Talk about an exercise in paper shuffling! People were looking productive, but really just another layer of complexity was established and staff at the coal face got on with it, in spite of all the extra box ticking, not because of it. Job satisfaction seemed to suffer.
Not true. I have posted this a few times on here over the past few weeks (I have nothing to do with them), but this shows you how it can be done:
https://halterhq.com/
For us as a country, investing in this tech and rolling it out in a major way would be a huge productivity boom to farmers:
+ Less to no fencing, possibly except boundaries/waterways
+ Less/no need for farm dogs and their training
+ Less need for farm bikes
+ Less need for human workers
+ Better use of grazing land (can move stock based on set schedules or based on behaviour)
+ Animal health detection
+ Animal behaviour detection
+ Potential for add on's like methane/burp detectors
+ Potential for better research and further productivity gains
+ Really good tracing of individual animals, leading to automated ASD's and automated tracing (disease management at a country level becomes simpler)
+ Ability to trace animals from pasture to plate, which is what many of our exporters are beginning to demand. You could literally show the customer where their meat walked for it's entire life
This is a great example of applying technology to a problem and getting a huge increase in productivity, with significantly less inputs. Would the government support it? Don't make me laugh, they don't even understand what productivity is.
If overall ecological health is a part of the context for management descisions then there is no reason why land cannot support food production indefinitely. This is what the best of regeneration agriculture is all about. Collaboratively we are figuring out what needs to be monitored (rainfall infiltration rate, active soil carbon % etc) then checking the effects of different management descisions accordingly.
We currently find our productivity is improving as the ecological health does, even though this was not the focus.
What we are discovering about microbes and their functions makes for an exciting future. Biocides and overfertilising could well find themselves confined to the dustbin of history. We haven't used them since 2011. Solar energy is more productive, no downstream consequences and free.
Human input into managing stock is just that - another input. Remember in the context of productivity it's all about achieving more or the same output with less input.
In real terms, yes that would mean less employment in the sector. But those employees aren't doing anything particularly taxing or innovative, which is why machines like these will eventually take over such work. The human capital can then be redeployed into more meaningful labour, higher up the value chain.
This sort of tech doesn't change the land support equation, it simply makes the job of managing stock less onerous. It means the farmers time is freed up to concentrate on higher value tasks.
Enjoyed your article. Much as I respect Paul Krugmans views I can't help but muse that our productive economy is being usurped by an exercise in inflating assets through credit expansion to inflate CPI presently. Will we require an educated, productive population or highly developed industrial base to continue that 'industry'?
I rather suspect Governments focus on 'managing' the crisis of today, not some future crisis they will inevitably face later.
That's a good discussion thanks. Reflecting on it has raised questions for me in regard to the details of how productivity is increased.
NZ primary sector is working hard even though it faces a heap of regulatory head winds. And performance expectations from the urban population who seem to consider the rural landscape as primarily their playground while taking for granted the export earnings that underpin the national economy and standard of living.
Is one key to unlocking productivity gains, reducing the regulatory burden across the economy? Not just primary sector. The industry that has grown around health and safety, adds significant cost to pretty much most private and public sector enterprise/initiatives. Just compare the number of scaffolding companies now with 20 years ago. Or the number of road safety staff/companies.
I'm a 'new' volunteer firefighter in a remote rural community and am required to go through a traffic management training course to legitimise controlling traffic at incidents we respond to. That's essentially covering the FENZ liability in the remote possibility of an incident where first responder instructions to road users are ignored. Having the training box ticked off is not going to prevent that wayward road user ignoring directions. That's beyond FENZ control.
That's a minor illustration of the regular cost burden that permeates throughout the economy. Just what is the total $ quantum of such compliance across the economy? How much does it weigh in productivity?
It seems to me that the state has assumed responsibility for individual's safety broadly across the community/economy. What was the NZ Food Safety Authority was pursuing a zero consumer risk policy through food standards regulations (is the equivalent still following that path?). There is high cost to achieve zero risk. Would a reassertion of personal responsibility for safety in the workplace increase productivity?
Good comment. Thinking back, life was a bit like the wild west in the seventies and my earliest memories. Eating out was like a lottery. You never knew if you were going to spend your evening with your head down the great white telephone. Similarly other endeavours. Attitudes to drinking and safety in general were lax. I remember my first farm job. Spraying 245T with no safety gear provided. Working loud machinery without ear protection. Driving a 2wd tractor with no brakes on medium hill. You could dump whatever toxic waste sitting in your garage in an uncontrolled landfill. Have the rules gone too far? It is getting past that stage in many areas, but the safety mindset has it's own momentum now. Very difficult to contain. Interesting to know if the '70s were more productive than the '10s, with all the extra bureaucracy?
Wow - that last question raised would make a great question for a Master's thesis investigation/analysis.
How very, very interesting that would be.
I've often thought that the technological progress and its resultant outputs - is what drives much of our regulatory compliance costs. Take automobiles for example - the first affordable passenger car, the Ford Model T had a maximum speed of top speed of 40–45 mph (64–72 km/h). No one died in a head on collision;
https://en.wikipedia.org/wiki/Ford_Model_T#:~:text=The%20Ford%20Model%2…(colloquially,available%20to%20middle%2Dclass%20Americans.
Kate, nobody would be dying in head on car crash's now if every road with a speed limit of 80km/hr and above was a dual carriage way. 100km/hr roads with just a white line of separation is suicide alley. Its just a question of the cost of roads vs the cost of human lives.
Yes, but I think you miss my point about technological progress having an effect on regulatory compliance costs.
Here's another example - Dolly the Sheep - not an example of health and safety regulatory costs, but it illustrates the point better.
https://en.wikipedia.org/wiki/Dolly_(sheep)
Had it not been for Dolly, NZ (and all countries the world over) would not have needed to develop/introduce legislation to regulate matters of research associated with cloning. Our Act is called the Human Assisted Reproduction Act 2004 (https://www.legislation.govt.nz/act/public/2004/0092/latest/whole.html)
I'm not saying the world should not progress technologically - but with its advances there are regulatory costs, and many of them produce additional compliance costs (and laws that impact on human freedoms, but for good reason). For example, the Christchurch massacre/call - had the offender not had the technology to video-stream it live on the internet from the end of his weapon would he have committed the heinous crime? And look at the compliance costs of implementing a ban of these rapid-fire weapons in NZ.
That's sort of the cost of complexity.
Yes, Rachel Carson (Silent Spring) spoke about it way back in the 60's;
"Man's attitude toward nature is today critically important simply because we have now acquired a fateful power to alter and destroy nature. But man is a part of nature, and his war against nature is inevitably a war against himself. [We are] challenged as mankind has never been challenged before to prove our maturity and our mastery, not of nature, but of ourselves."
We observe two extreme : Trying to please Investors and trying to please people on dole.
Both are unproductive and no incentive to hard working middle class Kiwi.
Maybe time to change political system as democracy is now only aimed to woo the votes and nothing matters otherwise Jacinda Arden with absolute majority had power and opportunity to reset but failed as only thing that matter is votes.
Even the role of reserve bank has to be looked as no accountability.
NZ is all about the landlord and the beneficiary. If you don't fall into either camp you're likely paying the taxes required to carry the landlord and beneficiary who both take from the government, but don't necessarily give much in return (of course there are exceptions, but when most landlords tell me they pay no taxes, how do I tell if they're joking?)
good article in stuff today about the accommodation subsidy, its not fit for purpose does more harm than good and is a waste of money, national brought it in thirty years ago in the mother of all budgets and it was the worst mistake they ever made, thirty years of wasted taxes that could have built housing, and people hold them up as good money managers they are just as crap as labour
https://www.stuff.co.nz/business/125195278/accommodation-supplement-pro…
Wonder how many are living this way:
"My fortnightly wages from payroll go directly to my rent payments.
Accommodation supplement covers my food and work expenses, including working for home options.
Its not a fantastic lifestyle, its just subsistence living, after NZs low wage growth and hurdles to salary band scales rises we now do not expect much.
My retirement plans in seven years are to move out of Auckland ASAP, maybe to Vietnam,
or as a Silver nomad in a mobile home, with a plus one."
NZ is a train wreck in the making.
Including this one by some prat who has made a fortune thanks to the central bank/s, government, and personal avarice of the voters. It sure beats working for a living I guess. Isn't 'the wealth effect' glorious!?!
"I would class myself as wealthy as are most of my friends. The general feeling is that we are totally beyond the reach of any government and are all grateful to the capital gains achieved in the past year. Most of us have seen increases well in excess of $1 million over the past 12 months. All gloriously tax free and as a group would vote for this bunch if there was the likelihood of a continuance."
I'd wind it back using a rent control mechanism. I designed a formulaic approach for just that purpose:
Weekly rent maxima = (CV/1000) +/- x%
You can't just 'cap' our existingly high rents. You have to bring them down slowly over time.
In the modelling I did, less than 30% of the property owners would lose money based on the original purchase price of the property (I modelled 'x' = 0 for the Lower and Upper Hutt area). The reason most of them are screaming foul at present about the tax changes is because they leveraged and leveraged and leverage on the rising values across their portfolios. And hence, they want to talk about yield, not profit.
Just imagine what a landlord of a block of flats purchased in the 1980s (time of the National government sell off of state housing and Ruth R's 'Mother of all budgets') is making as an the ROI on those assets held!!!!!
Yeah, worst thing any National government has done to the country - selling off existing state assets and providing this Accommodation Supplement to subsidise the cost of market rents.
I'm interested to see what happens with our net migration with Australia this year. If there are big outflows it might be a wake up call for the RBNZ and government. People don't have to keep the property ponzi going, they can just leave for a better life across the ditch.
I have an idea! Why don’t we lower interest rates to almost zero and increase the money supply. We could create most of the new money via the commercial banks. That way whenever Joe and Karen upgrade their house to the latest McMansion, they will help increase NZ’s ‘productivity’ by spending new money into the system. This also has the added benefit of ‘trickling down’ wealth to the rest of the economy. I think it’s the silver bullet we’ve been searching for!
So what would our productivity look like if we removed the non-value-added waste from, for example, housing?
The non-value-added waste of rentier monopoly inflated house prices account for up to 1/2 the value of a house, from 100% to 60% of your debt and what you pay interest on.
We can't measure productivity well, because it's matched to an idea of 'output' that's too crude. It's much like the problem with GDP, where an oil spill is 'great for GDP' because a whole lot of money is spent cleaning it up. It's not obvious that we need more 'output' overall -- or if we do, it's not of things that are measured by the current metrics. We have enough food, we have enough stuff, we produce *enough*; our problems lie elsewhere.
So, so true. And I'd add we are the real 'Lucky Country' because of our freshwater resources and relatively high rainfall climate.
https://en.wikipedia.org/wiki/The_Lucky_Country
I wouldn't mind a move to AUS today - but I imagine my great-great grandchildren will benefit from their Aotearoa/NZ citizenship.
Tertiary Education may be missing out on international students for income but this may allow them to refocus on providing good technical education to their local students and for industry.
But they will need increased govt funding - and that does not seem to be coming from this govt.
1) Outside of the budget the government has:
a) Commented on dropping the immigration rate. This should help gdp/capita.
b) Changed investor property taxes which will move some money to "more" productive use.
2) "Tertiary education was barely mentioned in the budget". Many tertiary students end up going overseas for better opportunities (i.e. we train too many - I'm an example). There does need to be a better central clearing house between students, government & business ensuring stronger incentives to train in areas needed by the NZ economy.
3) NZ:
a) Faces tyranny of distance
b) Most of our export economy is farmers (already reasonably efficient but facing climate change challenges)
c) The rest of employment is mainly small businesses without the scale or economies or capital to export
c) Our economy has wasted decades bidding up land prices buying houses off each other
4) "ongoing shortages of skilled staff" - no such thing - it's an ongoing shortage of skilled staff at the price I'm willing to pay (including training costs).
5) If we want productivity (balanced with wellbeing):
a) population strategy aimed at maximising gdp/capita growth - externalities
b) land tax - land is resource and needs to be used efficiently (central govt land tax, local government rates on improvements) & at the same time fix the RMA
c) increased environmental taxes (& land tax) and reduce taxes on labour & capital
d) make central government undertake social cost benefit on all its spending (its doing a lot already)
e) make local government undertake social cost benefit on all its spending (its doing little)
f) improve the incentives for small export focused businesses. The medium and large businesses already exist and are mainly profitable. Its the small businesses that need the support to have a chance to grow.
What is this obsession with land tax? I look at my property and wonder how a land tax would improve the efficiency in how it's run? After going through 2 seasons of extremely dry conditions and now in the midst of a winter drought and the prospect of a disappointing spring ahead. A land tax would surely improve my cashflow and allow me to invest. I guess I could improve productivity by ripping out all my environmental work to pay the proposed tax? Efficiency dogma is best consigned to the dustbin of failed grasp of reality!
a) A land tax would be offset by drops in other taxes - company & income
b) As Kate indicates there would be an urban/rural differential
c) A comprehensive capital gains tax would be better, but a land tax is a good first step, given its simplicity and the complexity of capital gains taxes.
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