Whilst we may be avoiding a technical recession thanks to high net migration adding just enough to compensate for a falling individual income, we are failing to confront a wider reality.
We are going backwards.
Although some individuals are doing well, most Kiwis are finding they have less disposable income with each passing year. The drivers of this are structural, not cyclical.
Whether we are in a recession or not is irrelevant. New Zealand has been working hard to become a poor country for several decades and the good news is we are going to continue on that path.
The average wage in New Zealand back in 2010 was $959 a week or nearly $50,000 a year. A person earning such a princely wage would have paid $7980 in tax - or 16%.
As of March this year, the average salary is $1593 a week, or $82,836 per year. This average person will pay $17,000 in tax - or 21%.
This is after the tax cuts that came into effect this week. Data from the Budget shows Crown revenue increasing as a percentage of GDP, from 26% of GDP in 2014 to 32% currently, while Crown expenses are currently 33% of GDP and forecast to marginally fall over the coming years.
They will not. The consistency with which state spending exceeds forecasts is so well established that Treasury Economic Forecasts would be filed in the fiction section if they were to be sold at a bookstore.
Meanwhile, real wages are stagnant. According to Statistics New Zealand, wages rose by 5.2% in the last year while CPI was 4%, which is a marginal improvement for those in work but any gains were eviscerated by the gradual increase in mortgage and other debt-servicing costs.
And as we index tax rates once every fourteen years, while inflation continues to happily erode the value of our currency, expect your take-home pay to fall each year in real terms, before the tax bands are next lifted in 2038.
Meanwhile, labour productivity is comatose. The latest data from Stats NZ shows labour productivity actually fell in the year ending March 2023 by almost 1%.
As the public servants at the department describe this effect: if an employer added 3.4% more labour time, they only get a 2.5% in output. Ultimately, the wages that an individual earns is a function of the value that they add to the economy.
Labour laws and welfare payments can create temporary distortions but, outside of academia or the insolvency profession, what a person takes home will reflect the value of what they produce.
In 2021, the NZ Infrastructure Commission estimated that we need around $104 billion in public capital to cover the current infrastructure deficit and “…if we keep investing at the current rate, we will not keep up with renewals and future demand. We will be short by another $106b in 30 years’ time.”
We do not have the capital to close this gap. With each year the roads, hospitals, drains and schools will be hit with increased demand. Wait times for everything for getting onto a motorway to seeing a surgeon will increase.
And if that isn’t sufficient, we face an ongoing challenge with immigration.
Dr Bryce Wilkinson, from Wellington free-market think tank the NZ Initiative, undertook research on our immigration settings and noted that, although immigrants tended to be more highly qualified than the native-born population, “New Zealand is struggling to provide things that are important to people, including better paying jobs, more affordable housing.”
The issue, as Wilkinson foresees, is that “New Zealanders will continue to see Australia as an alternative to living in New Zealand. We need to shape up in the comparison.”
I’m not as sanguine as Wilkinson. I suspect that qualifications in one jurisdiction do not always translate into productivity in another, while those gapping it to the Gold Coast with their freshly minted medical degrees are not so easily replaced.
Neither major party is willing to even acknowledge the extent of the challenge.
Labour have convinced themselves that the problem can be solved with more aggressive tax policies on the diminishing percentage of Kiwis who are creating wealth; so there is no need for any structural changes to improve productivity and thus real incomes.
They will form the next government.
Meanwhile the leadership of National are showing themselves to be the same timid and ineffective party of cautious inactivity that we saw under Key. They lack the political will to take on the teacher unions and improve education. They are unable to introduce market discipline into health that is the only means of driving improved performance.
They lack the political will to bring state spending under control and while they will improve things at the margins they are unable to undertake the structural changes that we saw from Roger Douglas.
We are not in a recession because a recession implies a hiatus between periods of economic growth. We are experiencing sustained economic decline and are unwilling to either discuss this fact, nor do anything about it......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
Whether we are in a recession or not is irrelevant. New Zealand has been working hard to become a poor country for several decades and the good news is we are going to continue on that path.
The average wage in New Zealand back in 2010 was $959 a week or nearly $50,000 a year. A person earning such a princely wage would have paid $7980 in tax - or 16%.
As of March this year, the average salary is $1593 a week, or $82,836 per year. This average person will pay $17,000 in tax - or 21%.
This is after the tax cuts that came into effect this week. Data from the Budget shows Crown revenue increasing as a percentage of GDP, from 26% of GDP in 2014 to 32% currently, while Crown expenses are currently 33% of GDP and forecast to marginally fall over the coming years.
They will not. The consistency with which state spending exceeds forecasts is so well established that Treasury Economic Forecasts would be filed in the fiction section if they were to be sold at a bookstore.
Meanwhile, real wages are stagnant. According to Statistics New Zealand, wages rose by 5.2% in the last year while CPI was 4%, which is a marginal improvement for those in work but any gains were eviscerated by the gradual increase in mortgage and other debt-servicing costs.
And as we index tax rates once every fourteen years, while inflation continues to happily erode the value of our currency, expect your take-home pay to fall each year in real terms, before the tax bands are next lifted in 2038.
Meanwhile, labour productivity is comatose. The latest data from Stats NZ shows labour productivity actually fell in the year ending March 2023 by almost 1%.
As the public servants at the department describe this effect: if an employer added 3.4% more labour time, they only get a 2.5% in output. Ultimately, the wages that an individual earns is a function of the value that they add to the economy.
Labour laws and welfare payments can create temporary distortions but, outside of academia or the insolvency profession, what a person takes home will reflect the value of what they produce.
In 2021, the NZ Infrastructure Commission estimated that we need around $104 billion in public capital to cover the current infrastructure deficit and “…if we keep investing at the current rate, we will not keep up with renewals and future demand. We will be short by another $106b in 30 years’ time.”
We do not have the capital to close this gap. With each year the roads, hospitals, drains and schools will be hit with increased demand. Wait times for everything for getting onto a motorway to seeing a surgeon will increase.
And if that isn’t sufficient, we face an ongoing challenge with immigration.
Dr Bryce Wilkinson, from Wellington free-market think tank the NZ Initiative, undertook research on our immigration settings and noted that, although immigrants tended to be more highly qualified than the native-born population, “New Zealand is struggling to provide things that are important to people, including better paying jobs, more affordable housing.”
The issue, as Wilkinson foresees, is that “New Zealanders will continue to see Australia as an alternative to living in New Zealand. We need to shape up in the comparison.”
I’m not as sanguine as Wilkinson. I suspect that qualifications in one jurisdiction do not always translate into productivity in another, while those gapping it to the Gold Coast with their freshly minted medical degrees are not so easily replaced.
Neither major party is willing to even acknowledge the extent of the challenge.
Labour have convinced themselves that the problem can be solved with more aggressive tax policies on the diminishing percentage of Kiwis who are creating wealth; so there is no need for any structural changes to improve productivity and thus real incomes.
They will form the next government.
Meanwhile the leadership of National are showing themselves to be the same timid and ineffective party of cautious inactivity that we saw under Key. They lack the political will to take on the teacher unions and improve education. They are unable to introduce market discipline into health that is the only means of driving improved performance.
They lack the political will to bring state spending under control and while they will improve things at the margins they are unable to undertake the structural changes that we saw from Roger Douglas.
We are not in a recession because a recession implies a hiatus between periods of economic growth. We are experiencing sustained economic decline and are unwilling to either discuss this fact, nor do anything about it......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
1 comment:
'undertake the structural changes under Douglas"
Agree with most of what you say but it was those changes that started the rot.
The 'structural' changes saw the demise of small businesses over the ensuing years, leading to the decline in productivity that once was.
Structural changes that shifted the income of many to the pockets of the corporates.
Here we are now.
Post a Comment