Wayne Jackson writes on Point of Order
New Zealand likes to imagine itself as a small nation that punches above its weight. But for the past 50 years, we’ve been punching underwater.
Since 1973 — the year Britain joined the European Economic Community and our guaranteed market vanished — New Zealand has been drifting while the rest of the world has been moving with purpose. The countries we once outperformed have overtaken us. The ones we used to pity now lap us. And the reason is painfully simple: when the world changed, New Zealand didn’t.
None of this is new. For more than a decade, the New Zealand Productivity Commission — supported by a long line of Treasury papers and economic briefings — has documented the same uncomfortable truth: New Zealand has experienced a 50‑year failure to rebuild a high‑value, high‑productivity economy after the shock of 1973. Those institutions have repeatedly shown how our economic model has drifted into low investment, low capital per worker, low innovation, and an over‑reliance on population growth and housing.
What this paper does is restate those findings without the dense, technical, and at times obfuscating language that often surrounds official reports. The evidence is already clear. The diagnosis is already settled. The challenge is not discovering what went wrong — it is finally speaking about it plainly and acting on it with purpose.
The numbers tell the story with brutal clarity. In the early 1970s, New Zealand’s GDP per capita sat close to Australia’s and ahead of Ireland, Finland, and Singapore. By the 2000s, every one of those countries had passed us. By 2023, Ireland and Singapore weren’t just ahead — they were in a different economic universe.
These aren’t abstract statistics. They reflect choices: theirs to transform, ours to hope.
To understand how we got here, we need to revisit the economic experiments that shaped our national psyche. New Zealand was not always a hands‑off economy. The 20th century was full of bold, interventionist attempts to reshape our industrial base — from the Rosenberg industrialisation strategy to postwar borrowing to Muldoon’s Think Big. These efforts created jobs and infrastructure, but they also left scars: protected industries that collapsed once exposed to competition, debt‑fuelled megaprojects that failed to deliver promised transformations, and a political culture deeply suspicious of government‑led strategy.
By the late 1980s, New Zealand had swung sharply toward market‑led development, light‑touch regulation, and fiscal conservatism. These reforms stabilised the economy and made it flexible — but they did not build a high‑productivity nation. We fixed the crisis, then assumed the market would take care of the rest. It didn’t.
From the 1990s onward, New Zealand settled into a pattern economists now call the “low‑productivity trap.” We became a country where GDP grows because more people work more hours, not because each hour produces more. Investment stayed low. R&D stayed low. Capital per worker stayed low. Firms stayed small. And the sectors that dominate our economy — property, construction, retail, transport, health, education — remained large, labour‑intensive, and slow‑growing.
The biggest drag of all is property. Real estate is now New Zealand’s largest sector, yet it contributes almost nothing to productivity growth. Rising house prices inflate GDP on paper but do not increase real output. Capital that could have gone into innovation, technology, or export capability instead flowed into land inflation. We became a country that earns like a high‑performing agricultural exporter but spends like a property‑obsessed consumer economy.
Meanwhile, other small nations made deliberate, strategic choices. Australia invested heavily in capital deepening and infrastructure, lifting productivity and wages. Denmark and Finland built world‑class education systems, innovation ecosystems, and targeted industrial strategies. Ireland aggressively courted foreign investment and built global tech and pharmaceutical clusters. Singapore relentlessly upgraded skills, technology, and industrial capability. These countries didn’t get lucky. They got strategic.
But strategy alone isn’t enough. New Zealand must also confront a fiscal reality we have avoided for too long: we cannot fix our long‑term economic trajectory simply by “growing the tax base.” For decades, governments have tried to fund rising expectations with a tax system that leans heavily on work, consumption, and property churn — while avoiding the harder conversation about what the state should and should not do. The result is a structural deficit that quietly widens each year, and a public balance sheet weighed down by the slow creep of both public and private debt.
New Zealand does not need more tax so much as it needs a different mix of tax, paired with a different mix of spending. Investment in the frontier areas that will lift productivity — skills, innovation, infrastructure, and globally competitive firms — is essential. But that investment must be funded through a combination of private capital and targeted public investment, not by endlessly expanding the state’s financial footprint.
That means confronting the politically sensitive reality that middle‑class and business welfare must shrink if we want room for the investments that actually build a high‑value economy. Universal subsidies, poorly targeted transfers, and corporate concessions that deliver little productivity return all crowd out the very spending that could change our long‑term trajectory.
Taxes have a role to play, but every new dollar of revenue must be matched by a willingness to cut low‑value programmes so that government becomes a strategic leader, not a perpetual funder of everything.
The goal is not austerity. It is discipline — a rebalancing that shifts the state from being the default financier of economic activity to being the architect of the environment in which productive investment can flourish. Without that shift, New Zealand will continue to borrow to stand still, taxing the wrong things while subsidising the wrong behaviours, and wondering why the gap with our peers keeps widening.
A modern New Zealand strategy requires clarity and discipline. We need to pick a handful of frontier plays where we can be genuinely world‑class — advanced food and biomanufacturing, climate and environmental tech, niche advanced manufacturing, and export‑oriented services and SaaS. We need deeper capital per worker, a real innovation system, stronger management capability, institutions with teeth, and housing reform that unblocks everything else.
For 40 years, we’ve tried to get rich by working harder, adding more people, and bidding up house prices. The countries that passed us chose a few things to be world‑class at, invested heavily in them, and built institutions to back them for decades. Our next chapter is about doing the same.
New Zealand is not doomed to decline. We are not too small, too distant, or too late. What we lack is not talent or potential — it is direction. The world changed in 1973. We didn’t. But we can change now. And if we do, the next 50 years can look very different from the last.
What this paper does is restate those findings without the dense, technical, and at times obfuscating language that often surrounds official reports. The evidence is already clear. The diagnosis is already settled. The challenge is not discovering what went wrong — it is finally speaking about it plainly and acting on it with purpose.
The numbers tell the story with brutal clarity. In the early 1970s, New Zealand’s GDP per capita sat close to Australia’s and ahead of Ireland, Finland, and Singapore. By the 2000s, every one of those countries had passed us. By 2023, Ireland and Singapore weren’t just ahead — they were in a different economic universe.
These aren’t abstract statistics. They reflect choices: theirs to transform, ours to hope.
To understand how we got here, we need to revisit the economic experiments that shaped our national psyche. New Zealand was not always a hands‑off economy. The 20th century was full of bold, interventionist attempts to reshape our industrial base — from the Rosenberg industrialisation strategy to postwar borrowing to Muldoon’s Think Big. These efforts created jobs and infrastructure, but they also left scars: protected industries that collapsed once exposed to competition, debt‑fuelled megaprojects that failed to deliver promised transformations, and a political culture deeply suspicious of government‑led strategy.
By the late 1980s, New Zealand had swung sharply toward market‑led development, light‑touch regulation, and fiscal conservatism. These reforms stabilised the economy and made it flexible — but they did not build a high‑productivity nation. We fixed the crisis, then assumed the market would take care of the rest. It didn’t.
From the 1990s onward, New Zealand settled into a pattern economists now call the “low‑productivity trap.” We became a country where GDP grows because more people work more hours, not because each hour produces more. Investment stayed low. R&D stayed low. Capital per worker stayed low. Firms stayed small. And the sectors that dominate our economy — property, construction, retail, transport, health, education — remained large, labour‑intensive, and slow‑growing.
The biggest drag of all is property. Real estate is now New Zealand’s largest sector, yet it contributes almost nothing to productivity growth. Rising house prices inflate GDP on paper but do not increase real output. Capital that could have gone into innovation, technology, or export capability instead flowed into land inflation. We became a country that earns like a high‑performing agricultural exporter but spends like a property‑obsessed consumer economy.
Meanwhile, other small nations made deliberate, strategic choices. Australia invested heavily in capital deepening and infrastructure, lifting productivity and wages. Denmark and Finland built world‑class education systems, innovation ecosystems, and targeted industrial strategies. Ireland aggressively courted foreign investment and built global tech and pharmaceutical clusters. Singapore relentlessly upgraded skills, technology, and industrial capability. These countries didn’t get lucky. They got strategic.
But strategy alone isn’t enough. New Zealand must also confront a fiscal reality we have avoided for too long: we cannot fix our long‑term economic trajectory simply by “growing the tax base.” For decades, governments have tried to fund rising expectations with a tax system that leans heavily on work, consumption, and property churn — while avoiding the harder conversation about what the state should and should not do. The result is a structural deficit that quietly widens each year, and a public balance sheet weighed down by the slow creep of both public and private debt.
New Zealand does not need more tax so much as it needs a different mix of tax, paired with a different mix of spending. Investment in the frontier areas that will lift productivity — skills, innovation, infrastructure, and globally competitive firms — is essential. But that investment must be funded through a combination of private capital and targeted public investment, not by endlessly expanding the state’s financial footprint.
That means confronting the politically sensitive reality that middle‑class and business welfare must shrink if we want room for the investments that actually build a high‑value economy. Universal subsidies, poorly targeted transfers, and corporate concessions that deliver little productivity return all crowd out the very spending that could change our long‑term trajectory.
Taxes have a role to play, but every new dollar of revenue must be matched by a willingness to cut low‑value programmes so that government becomes a strategic leader, not a perpetual funder of everything.
The goal is not austerity. It is discipline — a rebalancing that shifts the state from being the default financier of economic activity to being the architect of the environment in which productive investment can flourish. Without that shift, New Zealand will continue to borrow to stand still, taxing the wrong things while subsidising the wrong behaviours, and wondering why the gap with our peers keeps widening.
A modern New Zealand strategy requires clarity and discipline. We need to pick a handful of frontier plays where we can be genuinely world‑class — advanced food and biomanufacturing, climate and environmental tech, niche advanced manufacturing, and export‑oriented services and SaaS. We need deeper capital per worker, a real innovation system, stronger management capability, institutions with teeth, and housing reform that unblocks everything else.
For 40 years, we’ve tried to get rich by working harder, adding more people, and bidding up house prices. The countries that passed us chose a few things to be world‑class at, invested heavily in them, and built institutions to back them for decades. Our next chapter is about doing the same.
New Zealand is not doomed to decline. We are not too small, too distant, or too late. What we lack is not talent or potential — it is direction. The world changed in 1973. We didn’t. But we can change now. And if we do, the next 50 years can look very different from the last.
4 comments:
NZ certainly has not tried to get rich by working harder, at least not working harder producing things. It's the opposite.
Our main growth has been gangs, beneficiaries and useless public servants. Those who do work hard and produce are punished and made scapegoat. And to add to that we have the Maori who sit on their backsides sucking the country dry, while wanting to run the place.
The concerning thing is we're getting worse. Everyone complains about the so called cost of living crisis. That's one of the main reasons people are supporting Labour, but they expect money to just fall from the sky.
We are doomed to stagnate not decline. We still will have every fifth shop being empty, no visionary leaders or managers, too many civil servants going to pointless meetings and shifting papers around their desks, too many regulations and time wasting consultations, and people with sense fleeing the country to be replaced with more Uber drivers from India.
Interesting. Who [party] has the vision to lead this change?
Time to take your rose-tinted glasses off, Wayne. The ongoing Maorification of New Zealand (erosion of personal property rights being just one egregious example) has us heading rapidly to third world status.
No amount of economic reform is going to change that.
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