Research puts New Zealand’s disadvantage in the productivity race into stark perspective when compared to Singapore. Photo / Singapore Tourism Board
OPINION
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If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Q: Although you [last week] highlighted the most recent part of the productivity graph where it dropped, the long-run trend looks strongly positive even though that appearance is amplified by where the X-axis starts. We are frequently told our productivity is well below our neighbours and competitors but don’t see this level of data detail.
How are we doing really on balance?
- John C
A: Hi John, I also noticed the growth curve (in the long-run productivity data Stats NZ released this month) looked pretty healthy (until last year).
For the year to March 2023, labour productivity went backwards by 0.9 per cent, Stats NZ figures showed. In other words, we produced 0.9 per cent less output for the same hours worked. It was the largest fall since 2009 and followed a rise of 1 per cent in the year ended March 2022.
But it was good to see that productivity had improved steadily since 1996. Yes, the curve does look steeper because of a truncated X axis but there is no doubt that the rise of computing and the internet have added some value to our labour productivity. I guess the real question is how we are doing relative to the countries we typically compare ourselves to.
Not well is the answer! To put it in sporting terms, if the world productivity rankings were an Olympic medal table there would be a national outcry.
Using international labour productivity Stats to 2019 (avoiding any pandemic weirdness) New Zealand ranks 23rd in terms of GDP output per worker per hour. We are just above Turkey and just below Taiwan. The UK is at 20 and Australia is at 14 on the list. The US is at number six and the top three are Ireland, (1) Norway (2) and Switzerland (3).
There are many reasons that we could point to for our lacklustre showing. We get into them on The Front Page podcast this week. Over-regulation (too much red tape) is a popular theme with the new Government right now. I agree it can hamper productivity, although couldn’t help but notice Italy (18) and France (9) both rank well above us. Anyone who has lived or worked in those countries can tell you the regulation and red tape is next level.
The Economist Intelligence Unit produces annual rankings for the best places to business and New Zealand consistently ranks in the top 10. The latest ranking has us at 8, up with more productive nations like Switzerland, Germany and the US. There are multiple factors at play in New Zealand’s poor performance.
Q: Aren’t we focused too much on labour productivity, while ignoring the impact of other drags on the economy such as failed markets - especially the deadweight drag of our offshore-owned, oligopolistic, avaricious banking sector?
I suspect the impact of this feeds into our productivity figures alongside labour costs. So the economic benefits to the country of any improvement in labour productivity is offset by the finance sector charging monopoly rates and exporting the profits to Australia. The costs are incurred in New Zealand but much of the benefits flow into the Aussie productivity figures - thus flattering their apparent performance at our expense.
So when politicians inferentially decry our workforce as inefficient or lazy they may be flogging the wrong horse - giving the Commerce Commission the resources and social mandate to respond to the real issue might be a more “productive” course.
- Ernie Newman
A: Thanks, Ernie I appreciate your experience and the work you put in for over a decade as Telecommunications Users Association chief executive. I’m sympathetic to this view and I know others - such as Simplicity founder Sam Stubbs - feel very strongly that this is a fundamental issue for our economy.
Bank profits do represent a big drain on our current account. I think the banks are just one (very large) symptom of a bigger problem in New Zealand. We simply don’t save and invest enough as a nation, at least if you remove housing from the equation.
I made that point in my Sunday column last week, which looked at Kiwis departing for Australia in near-record numbers. After post-pandemic border closures and with the pull of higher wages our wealthier neighbour is proving more alluring to young Kiwis than it has at any time since at least the 1970s.
I riled a few people by raising the spectre of capital gains tax again. Australia has one and we don’t. But I think the bigger difference is the lack of a compulsory superannuation scheme.
Australia’s scheme - started in 1992 by PM Paul Keating - is worth $3.7 trillion now. That money gets invited into Australian business and helps keep profits in the country, instead of flowing out as most of our bank profits do.
But it doesn’t have to be a nationalistic thing. The money is invested worldwide, ensuring capital flows into Australian ownership - not out into foreign accounts. I do think it is staggering that the Commerce Commission allowed ANZ to buy the National Bank back in 2003. But I am wary of the risks around heavy Commerce Commission regulation (or even breaking up) of banks. We’d probably pay a big price in borrowing costs.
I’d like to see government policies and incentives to turbo-change New Zealand savings - compulsory KiwiSaver anyone? Then eventually we’d start taking more ownership of our assets through shareholdings.
In response to my last column, economic analyst Leonard Hong touched base with some research he has done comparing New Zealand’s savings record with Singapore. Hong is a New Zealand Prime Minister’s Scholar for Asia, studying for a Master’s degree in International Political Economy at Nanyang Technological University, Singapore.
He’s not a fan of Capital Gains Tax but he does see huge advantages in saving and investing more generally. His research puts New Zealand’s disadvantage in the productivity race into stark perspective.
He looks at sovereign wealth funds such as our New Zealand Super Fund (sometimes called the Cullen Fund) and Singapores Temasek and Government Investment Corporation (GIC). And he looks at state-sponsored superannuation savings schemes - our KiwiSaver and Singapore’s Central Provident Fund.
“Singapore’s sovereign wealth funds together comprise around 227 per cent of Singapore’s GDP and the CPF is 91 per cent of GDP,” he writes. By comparison despite the relative success of both NZ Super Funds and KiwiSaver, they represent just 18 per cent and 25 per cent of GDP.
Based on current policies our best shot at catching up, using that measure at least, might be continuing to shrink our GDP ... (sorry gallows humour). Let’s do something about our savings rate and grow our GDP per capita instead!
Hong concludes that the key to maintaining fiscal discipline, by reducing net debt-to-GDP ratios, “requires a new alternative approach towards the development of public assets comprising SWFs and PPFs – considering population ageing.”
It’s hard not to agree.
StatsNZ responded to my suggestion last week that they should be releasing Consumers Price Index inflation data monthly to give the RBNZ more up-to-date insight for rate setting.
Stats NZ is not currently funded nor resourced to do a full monthly CPI, notes general manager of economic and environment insights Jason Attewell.
“We previously produced monthly indexes for food (FPI) and rent (RPI) prices, which are two large parts of the CPI. We regularly meet with our customers to discuss development priorities. Based on the feedback we received from customers Stats NZ started producing a monthly Selected Price Index release (SPI),” he said.
“New Zealand, like the rest of the world, has been experiencing high inflation. Decision-makers had asked for more frequent information about price changes to understand the impact on New Zealand households. The monthly SPI release now provides additional, timely information needed by our customers.“
Stats NZ says it has received positive feedback from customers on the value that the SPI has added... “especially in forecasting quarterly CPI as there is more timely data available, which reduces potential surprises in the quarterly data.”
I agree but I still think it’s crazy we can’t find the funding for monthly CPI data - given how much the smallest lag in an OCR call can cost the country.
For the record, we only get two more sets of full CPI data this year. We’ll get the release for the second quarter on July 17 and the third quarter data drops on October 16.
That’s one of the reasons economists don’t see any chance of OCR cuts before November. The RBNZ just won’t get a clear view of the full numbers before then.
As a (currently broken down) long-distance runner I couldn’t let this dubious piece of economic correlation pass without a look.
A wealth of new data about British runners has found that, despite the relatively low bar to entry, running (or slow jogging in my case) is an affluent sport.
Financial Times columnist Soumaya Keynes writes that the growth of the Parkrun phenomenon in the UK (free 5km running events held every week around the country) has provided new insights into the socioeconomic status of runners.
“Exercise tends to be a rich person’s pursuit, but running skews even richer,” she writes.
“More generally, people with higher socio-economic status are likelier to see exercise as a way to challenge themselves. And the less affluent are more likely to be on their feet at work, sapping energy for other activities.”
Not only does the data show that it is a sport that skews towards the wealthy, but the large data set even allowed researchers to look at the correlation between running times and the state of the economy.
They found that when the economy is cooler the young get slower, while the old get faster.
“A hot economy is supposedly associated with the young getting faster, but not with a higher chance that they turn up to run. (This is measured by correlating the chance someone shows up for a second week in a row with local economic conditions.)”
For the record, the Financial Times piece cites data showing that running is the third-most affluent pastime (based on the percentage of participants in professional or managerial roles), topped by golf in second and tennis at number one.
Down goes retail spending as interest rates bite. Westpac senior economist Satish Ranchhod has crunched a bunch of retail spending data. The above graph shows a steady decline in the growth of spending as interest rates have risen. Interestingly the trend is the same pattern for those with or without mortgages. But those with home loans are definitely leading the decline.
Ranchhod notes that on average households with mortgages are now spending around 18 per cent of their disposable incomes on interest costs (up from around 10 per cent in 2022).
“These high debt servicing costs have seen spending by households with mortgages effectively stall,” he says. In contrast, spending by households without mortgages was still in the black, just, rising by 2 per cent.
“Over the coming months we will see some further increase in households’ interest costs as borrowers continue to roll off earlier lower fixed mortgage rates, and that will continue to be a brake on spending,” Ranchhod says. However, the good news is that the worst of the crunch might be behind us.
“Those increases in borrowing costs are likely to be much more modest than the very large increases that we saw over the past year,” he says.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
If you have a burning question about the quirks or intricacies of economics, send it to liam.dann@nzherald.co.nz ... or leave a message in the comments section. He’ll try to answer in Inside Economics, a new column published every Wednesday.
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