I am a blogger who posts regularly on New Zealand politics and economic policy with a polemic centre Right approach. I posted on the subject of productivity trends in New Zealand a while ago and have just seen David Skillings Presentation. to Wayne Mapps Innovation forum online. I wondered about the level of analysis extended to current productivity trends. It seems that a country working harder and harder to stand still is not achieving much in a work life balance.
Increase Business Depreciation rates to match Germany. ie 100% in Year One.
Germany has a very high rate of business investment in new equipment. One reason for this is the 100% tax depreciation rate allowed by the German tax system. New Zealand attempts to match depreciation rates to useful lives and ensures it is more costly to invest in capital than to make labour more productive. The cost of this would have a high initial one off cost but would effectively mean no difference to long term nominal tax to the state. The method has been in use for many years with regard to forest expenditure. I have always been at a loss to understand why manufacturing is not offered the same breaks.
Investment of the New Zealand Super fund onshore
- The logic of diversifying investment by the NZ Super Fund internationally is intellectually impeccable. However New Zealands biggest problem is local equity investment. A policy of allocating say 50% of the funds to New Zealand would provide a vastly larger local pool. This would have the impact of increasing prices for NZ equities and would also make it a more attractive place to raise capital. The risk is that New Zealand will underperform. But that seems a circular argument. The following table shows less than 9% of investment is in New Zealand. Investment within New Zealand will have a multiplier effect on GDP. Thus the threshold rate for an investment in New Zealand should be substantially lower than for an equivalent overseas investment that will not have the GDP multiplier.
| NZ Super Fund Investment | ||
| Total NZ Bn | % | |
| USA | 2,188.2 | 41.8% |
| Other Countries | 978.8 | 18.7% |
| New_Zealand | 467.3 | 8.9% |
| Japan | 428.5 | 8.2% |
| United_Kingdom | 398.7 | 7.6% |
| Australia | 268.7 | 5.1% |
| Switzerland | 144.5 | 2.8% |
| France | 141.3 | 2.7% |
| Canada | 118.1 | 2.3% |
| Spain | 103.4 | 2.0% |
| Grand Total | 5,237.5 | 100.0% |
Reduce high marginal tax rates for middle income earners by restructuring tax system.
This would require a new government as Cullen is ideologically incapable of understanding the business dynamics and there is little point in discussing those changes here. Raising the threshold at which no tax is paid and raising the minimum wage would go a long way to forcing business to increase productivity. Obviously this can only be contemplated in a high employment environment such as we have now. Consider that something around 12% more of the workforce is employed than in France and average hours are around 50% higher. That is a big difference in leisure time & workforce participation that allows some flexibility in forcing low end incomes to rise.
Increase low end cost of employment
- The Employment Contracts Act made employing people easier and Labour changes have not yet reversed all the changes towards the basic flexibility of labour. Wayne Mapps 90 day bill is a sensible move towards an increase in flexibility and away from litigation.
- Maryland has determined that WalMart free rides on state health care provision by not providing health benefits to its own employees and relying on them being eligible for extra state benefits. It is effectively subsidised by other taxpayers.
- Labour tax credits towards low end employees are effectively subsidising the labour market and creating distortions.
- Raising the minimum wage steadily would ensure that the price for labour at the bottom marginal end would encourage marginal employers to invest in machinery to make their production more efficient rather than relying on a constant turnover of taxpayer subsidised low paid unskilled untrained labour. This will eliminate some jobs and force the production offshore. However other employers will choose to replace cheap labour with more efficient machinery and pay skilled labour more to operate equipment. Those jobs that cannot be moved offshore will actually have the effect of boosting GDP.
Reverse the changes in employment compliance cost that have reduced productivity.
The Productivity Statistics (1988–2005). show the true reality of the damage helengrad has done to the New Zealand Economy. They inherited a steadily growing economy with excellent growth in productivity and they have broken it. Multifactor productivity has reduced from trend 2.7% to a mere 1.1%. Their only success has been to increase the number of people in work.
This will not be simply a short sharp recession as Cullen spins, it is a deterioration with long term consequences. Labour have milked high commodity prices and increased worked hours for the growth in the Economy over the last 5 years. The benefit of increased working hours can only increase growth once. The next government will struggle to keep that high nominal level of employment. International Commodity prices cannot be relied on to keep increasing exponentially. Evidence shows they have tanked.
The only way that the people of New Zealand can become wealthier in the long term is to work more productively.
The following table shows the Compound Annual Growth Rates of various productivity factors. Labour have had power since Nov 99, effectively March 2000 on being the closest year before they got organised to start breaking things.
The first few years of National control in the early 90's were marked by measures taken to control serious fiscal problems inherited from the out of control last year of Labour. Statistics NZ marks 1993 as a change. The growth in productivity started then. At issue is what Labour has done to the trend they inherited from National. I have also shown the full 10 years of National for comparison.
So making the comparison of the last 5 years under Labour vs the previous 7 under National we see the damage done. Labour have achieved only 1.5% growth in Labour productivity and 1.1% in multifactor productivity. National achieved an exceptional 3.1% growth in Labour productivity and 2.7% in multifactor productivity.
| March year | Productivity indexes | ||
| Labour | Capital | Multifactor | |
| Index | |||
| 1988 | 786 | 1000 | 858 |
| 1990 | 863 | 928 | 886 |
| 2000 | 1136 | 1032 | 1094 |
| 2005 | 1224 | 1060 | 1155 |
| 2005 vs 2000 | 1.5% | 0.5% | 1.1% |
| 2000 vs 1990 | 2.8% | 1.1% | 2.1% |
| 2000 vs 1993 | 3.1% | 2.0% | 2.7% |
| 2005 vs 1988 | 2.6% | 0.3% | 1.8% |
These are damning statistics. The current recession, The blown out current account deficit and the sabotage of Productivity growth.
All the spin on riding the Growth wave is just meaningless twaddle.
The detailed data presented by NZ statistics over such a long time frame offered a genuine opporutnity to measure this governments performance. Measurement has got better. I challenge all those bloggers and commentators supporting this government to justify this appalling set of statistics.
Re the NZ Super Fund - as long as a lot of that is in Euro denominated assets we are safe.
Your thoughts regards min. wage are interesting.
Posted by: t selwyn | May 17, 2006 at 12:26 AM
What can be seen is as the undistributed middle has no incentive to invest or save,or even work harder.
The best way for capital appreciaiton here would be for a tax free incentive on savings interest.The cost is quite minimal around 1b$ for resident savers.This would lessen the diversification into property and would allow control of the individuals liquid assets.
If a price indexed interst income of say 10000 tax free there would be some movement from property to interest bearing instruments.
NZ will be too small for major investment capital from the NZ fund without distorting the market.If investment is to be increased it should be on infrastructure say the pension fund being a lender to say transpower for infrastructure development.This is relatively less risk then playing the derivatives market as they do now.
Posted by: maksimovich | May 18, 2006 at 01:01 AM
I do not disagree with that in the short to medium term maks. But the availability of capital will make it a better place to list. If the super fund took up to 30% of new placements it would become a desirable place to raise capital & invest.
The tax free incentive on savings is interesting. To some extent it would replace foriegn borrowing only. I am not sure whether there a re not better ways to use $1bn of tax cuts. I would certainly place it behind depreciation & restructuring marginal tax rates.
Posted by: sagenz | May 18, 2006 at 10:35 AM
I am not against the accelerated depreciation as per the FDR model it is without doubt why the FDR is the worlds largest exporter.
The RF model is based partially on the German but the depreciaiton is more targeted namely to efficiency and productivity,The levels are set by the improvement of output per imput not a carte blance approach.The reasoning is on falling demographics in the RF.
The savings incentive model was one oF the Illironov intiatives under the Putin Govt.Illironov is a libeterian who is a great follower of Lord Rees Mogg.His idea was for the Sovereign Individual,the possibility of the individual having a passive income rising to equal the individuals work income.
The incentive rewards were identified by changing the tax to 13% flat rate,Interest free income to moving levels,then 5% and tax amnesty on mattress money to bring money from the Black,Grey economy into the RF economy.Result 150bUS$ increase in the economy in 2 years and a budget surplus of 66bus$.
The self funding of capital in NZ would lessen the current account deficit by around 3.5bnz.Without incentive this will not happen.
Posted by: maksimovich | May 18, 2006 at 10:03 PM
The low flat tax is certainly an interesting idea. I think it is a reasonable long term objective for New Zealand but the political environment is just not conducive to bringing it in successfully. the intellectual arguments need to be expressed more forcefully and a lot more people convinced before it could become a reality. RF is not really a good comparator for NZ. Giving a successful small nation like Ireland or a growing nation like Slovakia a few more years to demonstrate that flat tax works is a requirement before the arguments can be made that would convinec enough people.
I think the savings incentive is a good idea. It would mainly help the elderly. Until their share of government monies through expensive super is reduced I find it difficult to argue that they should be rewarded. The two would need to combine and that w9uold be politically explosive
Posted by: sagenz | May 19, 2006 at 09:24 AM