In 2024, net national income per capita was 30% higher in Australia, according to the Paris-based OECD. It was only 19% higher on average over the four years to 2019.
That 2024 gap represents a missing NZ$20,000 per person a year. That is $100 billion a year spread over 5 million people.
The gap means New Zealanders can afford less of everything than can Australians. It means less housing, food, footwear, health care, home heating, less safe workplaces, worse transport, and makes a cleaner environment less affordable.
No wonder, many New Zealanders now live in Australia.
The New Zealand Institute of Economic Research's latest report correctly identifies the main proximate factor: too little productive capital per worker. Firms have not invested enough in the machinery, technology, and infrastructure that make labour more productive. The education system has also performed poorly.
Low average labour productivity means low average wage rates, relative to the cost of living.
What causes low investment per worker?
The NZIER’s report usefully rehearses the contributing factors. Indeed, the likely reasons have been rehearsed for decades by officials, think tanks, the Treasury, the IMF and the OECD.
There is much that government could do to reduce red tape, improve the quality of spending and reduce tax burdens.
Indeed, a government task force in 2009 had over 60 recommendations to help close the income gap with Australia by 2025. Few have been actioned. The Initiative’s 2026 publication, Prescription for Prosperity 2026, made 170 policy recommendations.
Unfortunately, the NZIER’s report does not dig into the barriers to more effective government action.
The malaise surely comes down to voter preferences and political incentives. An entrenched status quo has many defenders.
As one overseas politician notably observed: “We know what needs to be done, we just do not know how to get re-elected after we have done it”.
The critical constraint is the balance of voter opinion between the insatiable “what’s in it for me” demand for redistribution and the "what is best for New Zealanders overall" mindset.
The balance is important because aspirational and productive young New Zealanders need good reasons to stay in New Zealand when Australia is so attractive.
These are high stakes for the public debate.
Good policy recommendations for lifting productivity abound. The issue is to explain them to the public. That is a matter of political leadership.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced
No wonder, many New Zealanders now live in Australia.
The New Zealand Institute of Economic Research's latest report correctly identifies the main proximate factor: too little productive capital per worker. Firms have not invested enough in the machinery, technology, and infrastructure that make labour more productive. The education system has also performed poorly.
Low average labour productivity means low average wage rates, relative to the cost of living.
What causes low investment per worker?
The NZIER’s report usefully rehearses the contributing factors. Indeed, the likely reasons have been rehearsed for decades by officials, think tanks, the Treasury, the IMF and the OECD.
There is much that government could do to reduce red tape, improve the quality of spending and reduce tax burdens.
Indeed, a government task force in 2009 had over 60 recommendations to help close the income gap with Australia by 2025. Few have been actioned. The Initiative’s 2026 publication, Prescription for Prosperity 2026, made 170 policy recommendations.
Unfortunately, the NZIER’s report does not dig into the barriers to more effective government action.
The malaise surely comes down to voter preferences and political incentives. An entrenched status quo has many defenders.
As one overseas politician notably observed: “We know what needs to be done, we just do not know how to get re-elected after we have done it”.
The critical constraint is the balance of voter opinion between the insatiable “what’s in it for me” demand for redistribution and the "what is best for New Zealanders overall" mindset.
The balance is important because aspirational and productive young New Zealanders need good reasons to stay in New Zealand when Australia is so attractive.
These are high stakes for the public debate.
Good policy recommendations for lifting productivity abound. The issue is to explain them to the public. That is a matter of political leadership.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced
10 comments:
Isn’t it ironic that nzers voted for a crew to do what was needed- knowing it was going to be difficult- yet the crew they voted for are about to have their wings clipped at the next election because they failed to do what was needed.
The real problem is that we are scared to say what the actual issue is.
Its the size of the Govt. the productive output is known to be less than it was pre 2017 but the spend has exploded by arguably 6% of GDP.
that $28B is what is wrong in NZ.
We insist on closing factories with ridiculous energy prices driven by a desire to virtue signal about weather.
Reduce the Govt. spend a lot, AI the sector. release 30,000 "workers from homers" for real output.
Apart from agriculture, which probably gets as much investment as it can handle already, it would be interesting to know where else this investment could go in NZ.
I don't think we can claim that agriculture gets as much as it needs or could use.
We produce probably 1% of the worlds dairy output could that be 1.5%.
could we produce our output with higher water quality targets, almost certainly.
Lastly the reason Socialism does not work is because a centrally planned economy is doomed. Do not look to Govt. for the next big thing, just let folk get at it with defined social and environment constraints.
Name one picked winner by Govt!
I will if you like name any number of picked losers.
So boring = Wilkinson repeats his religious libertarian mantra from the 80s = cut regulation & government & taxes = ACT & its advisers like Bryce have become worn out recordings = NZ needs a new approach and the old guard, which now includes stuck in 80s thinking Seymour, are standing in the way, defending the monopolists, and need to go.
Totally agree Robert and great to see you still debating it if less frequently.
In defense of David he is still constrained by coalition protocol.
The reality is that productivity improvement is driven by fear of failure in enterprise not from Govt. spending and trying to help.
They should just get out of the way and remove the rent seekers.
Wouldn’t it be great if our legislators did not aspire to stay there forever. An absolute fixed term (say 6 years) might be great for their courage, and determination to do what needed to be done, and damn the torpedoes. Ah well…
Come on Robert 10:01 AM. Give ACT some credit for 2026 policy to shrink Parliament , the Government and bureaucracy after the upcoming election .
That is not stale 80's politics . Just a brief glance at the malaise of ministries and ministers in Government shows the near impossible pathway to prosperity in NZ as it is.
Australia has wealth in the ground the likes of which we do not. And thye do not carry the expensive burden of maori.
Hi Basil = but they haven't shrunk Parliament and barely dented the bureaucracy = when I got involved with ACT David swore he'd shrink the thousands of bureaucrats in the Department of Education who he said he couldn't work out what they did. (Neither can I). But he's been in power for three years and he hasn't. Bryce advises him = note how Bryce is silent on the oligopolies, as is David. Most of economics tells us monopolies need more forceful anti Trust regulation to weaken them and lower the cost of living, but David & Bryce dont want them touched by tough rules = last time David visited my economics class he defended the Big Banks & Big Supermarkets. I dont trust ACT anymore and I once helped them to survive. It has now been captured by lobby groups and even ACTs founders are shocked at what it has become = namely anti consumer.
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