In the last few weeks, there have been lots of indications that the economy is slowing down – with business confidence as measured by the Institute of Economic Research at its lowest level in 35 years being the clearest indication. Yes, the official projection is that economic growth in the year to March 2007 will bottom out at 1.7%, but the Institute announced early in March that their latest estimate for that year is only 0.7%. This sharp slowdown will see thousands of people lose their jobs and scores of companies report losses.
And the slowdown has been made worse by the Labour Government’s insistence on increasing its own spending at a rate which is entirely inappropriate in an economy which, until this slowdown, has been struggling to meet the spending demands of consumers and businesses. Rapid growth in government spending has been a significant factor in forcing the Reserve Bank to increase interest rates over the last 18 months, thereby putting upwards pressure on the exchange rate and hurting all those trying to make a living in the international market place – farmers, horticulturalists, foresters, fishing companies, manufacturers, tourist operators, and all the rest.
But painful though this slowdown will be for those directly affected – and let’s face it, most people will be affected to some degree – there is a more serious issue facing the economy and indeed facing us all.
The Labour Government likes to boast that economic growth has been pretty good in recent years, and it is certainly true that total growth in the five years to September 2005 (the latest data to hand at date of writing) averaged 3.6% per annum. Sounds pretty good!
But when we break that down a bit, we discover something very sobering. Roughly three-quarters of that 3.6% average growth was a result of people working more hours in paid employment – the combination of a modest reduction in the rate of unemployment, a small increase in what economists call the “participation rate” (more people entering the workforce from unpaid work at home, for example), and a significant increase in the workforce as a result of the strong immigration which followed September 11.
Only one-quarter of the growth over the last five years came from an increase in output per hour worked – in other words, from improved productivity.
And the reason that that is so worrying is that we have nearly run out of additional people to employ (not much prospect of unemployment going down further and a serious possibility of it rising from here). That means that future growth will depend heavily on the extent to which we can produce more with the same number of people.
Growth in productivity in New Zealand is markedly lower than growth in productivity in Australia, and that means that, if present trends continue, there is not the slightest chance of narrowing the gap between income levels here and those in Australia.
In 1999, when Labour came to office, after-tax incomes in Australia were on average 20% higher than those in New Zealand. That was about the same margin as in 1984, 15 years earlier – the reforms of the late eighties and early nineties had enabled us to keep pace with Australia, but not to gain ground.
But by last year, just six years after Labour came to office, after-tax Australian incomes were 33% above those in New Zealand, and with income tax cuts promised in Australia and an economic slowdown likely in New Zealand, the prospect is that that gap between incomes in Australia and those in New Zealand will widen further over the next three years.
The immediate consequence of this widening gap is an increase in the number of Kiwis leaving for greener pastures in Australia. In the year to January 2004, a net 10,000 New Zealanders left for Australia; in the year to January 2005, the net outflow increased to 15,000; and in the year to January 2006, the net outflow was over 21,000 – in other words, the net outflow had more than doubled in just two years.
The longer-term consequence is that this outflow will continue to accelerate, eventually bleeding us of the talent, experience, and enterprise we need to keep New Zealand the kind of place where we and our children want to live.
There are other issues we face as a country of course, one of the most important being our steady drift to racial separatism – the view that Maori and non-Maori are totally different and distinct people, separate “partners” who have some kind of obligation to negotiate important matters as “equals”, instead of the National Party’s view that all New Zealanders, whatever their race, should have equal status before the law.
But this gradually widening gap between our incomes and the country to which New Zealanders can most easily move is arguably the most serious.
I have not the slightest doubt that New Zealanders are inherently every bit as able as Australians. We have produced plenty of world-beaters, in science, sport, music, film-making, business and much more. One only needs to think of Ernest Rutherford, Ed Hillary, Kiri Te Kanawa, Peter Jackson and Douglas Myers to get the point.
But the enormous latent talent of New Zealanders is never going to blossom to the fullest extent while the Labour Government pursues its present policies – policies which discourage Kiwis from getting ahead under their own steam, which fail to provide us with the transport infrastructure we need, which hinder investment at every turn through excessive red tape and bureaucracy, which allow 300,000 working age adults to languish in dependency at the peak of the economic cycle, and which have far too many of our children coming out of school barely able to read, write or do basic arithmetic.
I am absolutely convinced that we can do much better, and that is why I am totally committed to the National Party. National is the only political party willing and able to free New Zealand from the bureaucratic shackles which currently impede our growth and threaten our future.
Copyright © 2024 Don Brash.