There are lots of ways of measuring how New Zealand is doing, and none of them is perfect.
We stack up very well on measures like life expectancy, unemployment, infant mortality, and car ownership. Not so well on the quality of our education system – an area where we have been going backwards in recent years, at least in comparison to other developed countries and many of the East Asian countries.
And we stack up particularly poorly in terms of the rate at which production per hour worked – or productivity – is growing. Indeed, our productivity growth has been slower than virtually every other developed country for years, and was particularly disappointing over the last decade. And it is growth in production per hour worked which, in the end, is the only sustainable basis for improving economic well-being.
So it was particularly pleasing to see the new National Party Leader, Christopher Luxon, openly acknowledge that our productivity record has been very poor for a long time, including over the nine years during which National was most recently in power.
When John Key became Prime Minister in 2008 he said that his aim was to have income levels in New Zealand (a reflection of productivity) match those in Australia by 2025 and, as one of the conditions of ACT’s coalition agreement with National, he established the 2025 Taskforce to provide the Government with advice on how best to achieve that goal and to monitor progress. I had the privilege of chairing that Taskforce.
The Taskforce prepared two reports setting out the policies which, in our judgement, would have been required to give us some chance of achieving the Prime Minister’s goal, though we knew that reaching Australian income levels in 17 years was a tough challenge. To have had any chance of success it would have required the Government to give improving productivity a very high priority.
Just two years after its creation, the Taskforce was disbanded and the Prime Minister never discussed our reports with us. Sadly, the gap between productivity in New Zealand and that in Australia has continued to widen.
We must all hope that Mr Luxon is serious when he says New Zealand must improve productivity, and hopefully he has a plan about how to achieve that objective.
But if productivity growth is so poor in New Zealand, how come the Credit Suisse Global Wealth Databook reveals that, in 2020, the median wealth per adult in New Zealand was, at US$171,620, the fourth highest in the world, behind only Australia, Belgium and Hong Kong, and well ahead of Switzerland, France, the United Kingdom, Canada and the United States?
The answer to that paradox is almost certainly our old friend, which I have written about repeatedly in these columns, our absurdly over-priced housing market. I know nothing about the housing market in Belgium, but the other countries above us on this measure, Hong Kong and Australia, suffer from the same housing market disease that we do.
We continue to hear politicians lament the ridiculous price of housing in New Zealand, though of course the Prime Minister is on record saying that she wants house prices to continue rising – but more slowly!
The reality is that successive governments have tinkered with this problem – blocked most foreigners from buying houses, promised to tax any gains from selling houses (other than owner-occupied ones) unless held for 10 years, distorted the tax system by denying deductibility of interest for houses owned by investors – all to no avail. And the suggestion that the primary cause of the rapid escalation in house prices is a high rate of immigration has surely been debunked over the last year or so, when there has actually been a small net outflow of people even while house prices have risen at an absurd rate.
Recently, we’ve seen the Government reach agreement with the National Party to change the law so that people owning residential property in our major cities will be able to have up to three homes on sections where previously only one was allowed.
So far at least none of these measures has resulted in any fall in house prices, though the rate of increase seems to have slowed somewhat and a few commentators are even forecasting a modest reduction in prices for the next 12 to 18 months. Such a fall, it is suggested, might even take prices back to the already-very-elevated level of 12 months ago.
The harsh reality is that no amount of tinkering will bring house prices back to the level at which the ordinary wage and salary earner has the slightest chance of buying a house unless they have access to the bank of Mum and Dad – which means that at least 40% of the population will reach retirement age while still paying rent.
Read the rest of this piece at DonBrash.com.
Don Brash has been one of New Zealand's leading economic and financial policy advisers, and over the years he has provided advice to governments in many parts of the world – in New Zealand most obviously, but also in recent years in Indonesia, Cambodia, the Bahamas, Saudi Arabia, and the Pacific Islands.
He was Governor of the Reserve Bank of New Zealand (the nation’s central bank) for 14 years. During his tenure inflation in New Zealand was reduced to its lowest level for several decades (1988-2002). Don led the Bank through the passage of the Reserve Bank Act of 1989, pioneering legislation which both established a relationship between government and central bank which was internationally unique at that time and made the objective of monetary policy unambiguously clear – achieving and maintaining stability in the general level of prices.
Don then served in Parliament from 2002 to 2007, and led the National Party into the 2005 election, nearly doubling its share of votes, though not winning the election.
Photo: by Allen Collins; Volcanic Mount Eden, Auckland, via Wikimedia under CC 3.0 License.
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