This Government’s most important minister isn’t Christopher Luxon or Nicola Willis - Matthew Hooton

OPINION

National Party high-flyer Erica Stanford is probably the most important minister in the new Government.

Finance Minister Nicola Willis’ December 20 mini-Budget will reveal whether we pay $20 a week more or less to the IRD next year and – far more important – how much more we’ll have to pay to the banks in interest. But in the long run, whatever Willis decides will come out in the wash.

In contrast, Stanford’s combination of education and immigration makes her New Zealand’s long-term productivity czar.

The Government is probably right to abolish the Productivity Commission. Its reports, while well-researched, tell us little we don’t already know about the symptoms, diagnosis and prognosis of our half-century productivity disease.

Its most recent missive in July again outlined the story of how New Zealand went, in less than a century, from one of the OECD’s most productive economies to among its worst.

New Zealanders aren’t lazy, as we discover when working overseas. On average, we put in more hours each week than workers in most other developed countries.

But for 50 years we’ve been achieving less per hour relative to others, and dropping ever-further behind, despite less-developed countries joining the OECD league tables over the same time.

Low growth in the 1970s and 1980s left us poorer when measured by GDP per capita, the only statistic that matters. Higher growth since the Douglas-Richardson reforms has helped us stand still, but not catch up.

In any case, the main driver of our higher growth since the reforms has been more of us entering the workforce and putting in longer hours.

The reason New Zealanders don’t produce as much as others when we’re at work is because our capital per worker has been among the worst in the OECD for 50 years.

It remains so. Investment per worker in machinery and equipment is lower than in most OECD countries – although, interestingly, about the same as Australia and Canada. That may be why construction costs in New Zealand and Australia are higher than in most of the developed world.

Low capital investment is partly because our public and private equity markets are so weak, with firms relying more on bank debt but facing interest rates that are usually higher than in similar countries.

We’re propped up by high foreign direct investment, although that has also been stagnant this century, but do woefully in outward direct investment, suggesting our businesses have much weaker control of value chains than their OECD competitors.

R&D investment remains low, and corporate-welfare machines like Callaghan Innovation and NZTE have made no real difference, being more likely to transfer tax paid by productive enterprises to those better at lobbying for grant applications.

Like the doomed Māori Health Authority, few would miss either were Willis to abolish them on December 20, but the economy would immediately be better off.

On average, New Zealanders appear as well-educated as elsewhere, with the percentage holding an undergraduate degree around the OECD mean.

Yet our postgraduate rates are poor.

National's Erica Stanford. Photo / Alex Burton

It suggests too many Weet-Bix undergraduate degrees are being handed out, making the data look better, but with very few students then moving on to become world-class.

Those with higher qualifications and skills are hugely overrepresented in our brain drain, with one in seven New Zealanders already having left, about the same as in small former communist states in eastern Europe.

While the top New Zealanders do very well from our education system – especially if they leave – a vast underclass fails almost completely in maths, science and literacy, as confirmed again by this week’s OECD Pisa results.

All this makes it unsurprising that World Bank data suggests GDP per capita has mostly been stagnant for over a decade. Under neither John Key and Bill English nor Jacinda Ardern and Chris Hipkins has there been a “step change”, “brighter future” or even “this”. The new Government’s 49-point, 100-day plan won’t make any difference either.

Successive governments have hidden New Zealand’s stagnant GDP per capita by keeping net immigration at among the highest rates in the developed world.

That is, as each New Zealand family gets relatively poorer, governments have kept massively increasing the number of New Zealanders each year so headline GDP looks better on the TV news.

That overburdens our infrastructure, schools and hospitals, drives house prices ever-higher, fuels inflation generally and means interest rates are higher than elsewhere.

The Reserve Bank couldn’t have been more explicit last week. Its Monetary Policy Statement reported that Kiwi households have responded to the inflation crisis exactly as we were asked to, by lowering consumption per capita.

That would have driven down inflation and allowed interest-rate cuts except, as the bank reported, aggregate demand and consumption have kept rising because of strong population growth, despite the brain drain.

Once again, highly educated and more productive citizens are leaving, those who stay have been asked to cut back their spending and have complied, but the Government has undermined our sacrifices by maintaining one of the world’s fastest inflows of often unskilled new immigrants to keep headline GDP high.

To put it into perspective, in net terms, nearly five immigrants arrive in New Zealand each year for every 1000 existing residents, compared with three or fewer in the United States and most of Europe.

Of similar countries, only Australia and Canada, also with poor rates of machinery and equipment per worker, have similarly massive net immigration to keep headline GDP artificially high.

As Immigration Minister, Stanford has the option of continuing her predecessors’ practice of keeping the doors wide open, with tales of how the 200,000 work visas Immigration NZ issues each year go only to highly skilled workers and those in industries with critical labour shortages. But if she believes that, she’ll believe Callaghan Innovation drives innovation and NZTE increases trade.

As productivity czar, Stanford would be better to temporarily shut the door with only the rarest exceptions, while encouraging Willis to talk about GDP per capita alone on December 20 and in May’s Budget.

At least for a while, that would force businesses to invest in capital, not cheap labour, in order to grow. It would reduce how much extra money Willis needs immediately for health and education and ease pressure on existing infrastructure.

Then, through radically rigorous curriculum reform, Act’s charter-school policy, butchering the Ministry of Education, abolishing the Tertiary Education Commission and fixing the polytechnic disaster, it will be Stanford who will be responsible for whether productivity and GDP per capita finally recover in the 2030s or continue to fall behind.

No pressure.

- Matthew Hooton has over 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties and Auckland Mayor Wayne Brown.