It’s about productivity

I had hoped to write positively for my first column of 2025. But since my last in early December, there hasn’t been much positive economic news.

Peter Nicholl

The data for GPD in the year to September 2024 showed New Zealand  had its worst recession (except for the Covid-induced slump) in over 30 years. GDP per capita fell 2.7 per cent. Some other countries, like the US and Australia, seem to be having ‘soft landings’ – they are getting inflation under control without totally stifling economic growth. We are not landing so softly.

I think the reason is that New Zealand’s most significant economic problem isn’t inflation. The big problems we have is a lack of competition in many key sectors, poor productivity, and regulations that impose significant costs on farms, industries and financial institutions.

Our productivity levels have been poor for a long time and in recent years have fallen further. Productivity is now about 30 per cent below the level in Australia. That’s all you need to know to understand why many New Zealanders are shifting to Australia. There are only two ways a country can increase the prosperity of its citizens. It can create or find a scarce asset everybody else wants. We are probably going to have to rely on the second way – which is to increase productivity.

Treasury’s recent set of forecasts for the next several years made gloomy reading. It identified poor productivity as one of the main causes of the gloomy outlook. It said “several factors are likely to have contributed to this productivity slowdown, including poor diffusion of innovation, weak investment and a slowdown in international trade and connections”.  Really? These things are not the causes, they are the channels through which poor productivity spreads. The causes are much more fundamental. They are a lack of competition in many key sectors and the crippling impact of New Zealand’s web of costly regulations on the costs of doing business for farmers and companies.

Until organisations like the Treasury start focusing on the fundamental causes of poor productivity we will make little progress. I was encouraged by the focus the government gave to eliminating unnecessary regulations in their initial plans. But about the only story of action in this area I have noticed referred to the hairdressing industry. There has been little sense of urgency given to the task. When I was working in Bosnia and Herzegovina, the High Representative, Paddy Ashdown, set up a Bulldozer Committee with the sole task of identifying and eliminating regulations that imposed more costs than benefits. New Zealand needs to adopt a bulldozer approach too.

One of the few public organisations the Government eliminated in its first year was the Productivity Commission. That could have been a good thing as I was sceptical of the value of its work. But it does have a degree of irony given our biggest and most long-lasting economic problem is low and falling productivity levels.

Peter Nicholl

More Recent News

It’s great to create

Lori Neels describes quilting as “cheaper than therapy.” The award-winning quilter is part of the Cambridge Patchwork and Craft group which meet every fortnight at the Taylor Made Community Space. Members displayed the results of…

Scout’s honour for Riley

Riley Willmoth is a prize-winning tramper. The 14-year-old Cambridge Scout Group member and Cambridge High School pupil walked away from this year’s Scouts Aotearoa Waikato Zone Velocity Venturer Programme Course with a prize for an…

Taut on the recruiting front

A Waipā principal says schools are struggling to recruit teachers and the fields of applicants is as thin as he has seen in 25 years in the role. “High quality experienced teachers are increasingly difficult…

Catherine’s horses and pet projects

Cambridge may be small by international standards, but a surprising number of artists with global reach call the town home. The extent of that talent will be on display this weekend at the Passion for…