The charade of this Government’s sound economic management is unraveling. Misleading GDP figures, pumped up by property speculation and high immigration, have given the impression that all is well, masking our continued productivity decline compared to OECD countries.
In fact, we are near the top of the OECD in hours worked, but near the bottom in terms of productivity. We’re working harder and working longer hours, but not working smarter. The result is that we’re getting more stressed, with less time for families and each other, while losing ground economically. Lose, lose, lose.
The latest analysis of labour productivity comes from the Productivity Commission, following the Treasury’s critical report on New Zealand’s long term fiscal position. The Prime Minister has rejected both without any justification, as Rod Oram has pointed out. The reports show a serious lack of vision and mounting economic imbalances.
The Productivity Commission report shows a cluster of related problems that are contributing to our low productivity.
Low investment per worker
Firstly, we have low investment per worker. The Productivity Commission shows low investment in workers’ skills in 19 out of 24 industries, compared to Australia. This is linked to relatively low wage rates and more short term contracts, which mean there is low investment in upgrading worker skills and improving technology. The Green Party supports a stronger role for government in extending educational opportunities to all kids, including those in low decile schools, and strengthening vocational training.
Secondly, the Productivity Commission report shows that, instead of investing in productive enterprise, investment is going into tax-free speculation, such as residential housing. New Zealand’s diversion of capital into residential housing is far above the OECD average.
As a result, productive enterprises aren’t getting access to capital, or if they are, they are paying high real interest rates compared to OECD countries. It doesn’t help that light regulation of the banking sector has allowed banks to widen the spread between their cost of capital and interest rates, thereby boosting bank profits but acting as a drag on the economy. This flows through into artificially high exchange rates, further penalising exporters.
This provides a strong argument for shifting the tax burden away from speculation towards the productive economy through the Green Party’s proposal for a capital gains tax (excluding the family home), as well as stronger competition in the banking sector and the development of a savings culture. We need to ensure that New Zealand manufacturing and the productive services businesses are not penalised by high-interest costs and over-valued exchange rates.
Thirdly, the Productivity Commission has documented in successive reports how New Zealanders pay high prices for non-traded goods and services in New Zealand. This is partly a result of high housing costs that contribute to high cost of living, but also due to a lack of competition in non-traded sectors and domination by a few companies. The last three decades of ‘light regulation’ have resulted in a high-cost economy and high costs to vulnerable people and the economy through failures like Pike River, finance companies, and leaky homes.
The latest example comes from a separate report on the tertiary education sector, on student visa fraud. A lack of regulation has allowed New Zealand to become a destination for low-grade diplomas with the likelihood of a getting a visa to live in New Zealand as part of the package. Scams and evidence of organised criminal activity by immigration agents have left students vulnerable and New Zealand’s reputation in tatters. Our fourth biggest overseas income sector, education, is at risk.
This research reveals the story of an economy being fuelled by increased government and private sector debt, speculation, immigration, and poorly-regulated, low-productivity services such as education for overseas students. It is a long way from the pretence that the economy is doing well, a myth endlessly repeated by the outgoing Prime Minister and the National Party. In reality, the economy is continuing a downward slide, compared to others in the OECD.
There is a myth that the National Party has been a good economic manager. A closer look at the evidence reveals the reality. We should be managing for a sound future, not to make the figures look good for the election cycle.