John Gascoigne: How New Zealand can gain rich-nation status

A Milford Sound scenic flight. Tourism and agriculture are New Zealand's economic mainstays. The country also needs to develop entirely new areas of advantage.

Opinion

About 25 years ago I wrote a booklet called National Superannuation; What the Government and New Right have Concealed from the Public.

It was a candid statement about our economic performance and future prospects.

Inevitably, it cast our political masters in a very bad light.

Intended for a wide audience, it sold few copies. However, one copy did end up in official circles where by all accounts it was extremely ill-received; an affront to humble, well-meaning political gentlefolk.

The argument, based on demographic projections at the time, was that National Superannuation’s projected $40 billion cost (around $35b net cost after tax) by 2050 would easily be affordable for a nation of five million with a $500b economy or national income.

But achieving rich-nation status (very high per capita income) would require economic regime change from neoliberal lite to an export-led, developmental mixed economy combined with a drastic curtailment of immigration, two prescriptions challenging deep-set beliefs and cast-iron ideological convictions.

The Leader of the Opposition, Christopher Luxon, recently indicated that, if elected, a National government would lift the retirement age from 65 to 67 because, he argues, other countries have adopted 67 as a retirement age and it would be “the right thing to do” for the country.

But Luxon’s thinking is gravely flawed.

First, superannuation in tiny, high-income nations is a very different concept from our own glum situation.

Retirees in those countries typically receive a superannuation package that comprises a very generous retirement income, all manner of top-ups and add-ons, world-class, “wrap-around” dental and medical care and equally generous concessions on a wide range of goods and services.

Quite simply, those tiny nations, unlike New Zealand, can easily afford such largesse. By contrast, our low-wage status - by developed world standards - restricts our superannuitants to a barely adequate level of retirement income.

The net result is that superannuitants without alternative income are consigned to a fairly drab, spartan existence.

Second, Luxon has overlooked New Zealand’s enormous development potential.

We are a nation in long-term economic decline and societal disintegration. But we can turn our untenable situation around. Our predicament is far from unalterable.

Our world-leading National Superannuation scheme will always be sustainable.

That is not the issue. The real issue will be the living standards our superannuitants will experience at the peak of the demographic bulge 30 years from now.

And that will entirely depend on our economic ranking - low-wage agricultural export nation or rich-nation status - in 2050.

A nation’s living standards are determined by its national income and the number of people sharing the national income.

For example, as a nation with a $500b economy equitably shared by five million people New Zealand would rank in the top five nations on the planet in per capita income.

Under that scenario all New Zealanders could reasonably anticipate a very comfortable retirement because it would easily be affordable.

New Zealand will not achieve rich-nation status through economic growth alone.

For example, if our GDP were to grow to $350b by 2050 but our population were to increase to around seven million (as some advocate) our per capita income would be far lower than at present.

It cannot be overstated that in economic development population growth is the negative factor.

New Zealand will only achieve rich-nation status by becoming an export powerhouse.

That will require a massive expansion of our productive sector based on the development of entirely new areas of dynamic comparative advantage.

Agriculture and tourism simply will not cut it.

If Luxon is genuinely concerned to do the right thing for the country he should exhort New Zealanders to think big and plug into the world to raise our living standards, not the retirement age.

• John Gascoigne is a Cambridge-based economic commentator.