OECD ladder too steep for NZ to climb

One of the government’s top priorities was to return New Zealand incomes to the top half of the OECD rankings.

In response to this goal, the Treasury showed that “to reach the median OECD income per capita would require an unprecedented increase in the average annual rate of economic growth” and considered that New Zealand’s ranking was likely to slip further.

New Zealand’s ranking indeed fell from 20th highest income per capita in the OECD in 1999 to 21st by 2004 and 22nd by 2006.

That growth promise, which seemed to have been discarded in the light of New Zealand’s performance, was this week revived in the Labour Party’s election campaign.

How likely is this goal to be achieved?

In 2007, New Zealand’s GDP averaged $US26,600 per capita in purchasing power parity terms, ranking 22 out of 30 OECD countries.

Six out of the eight countries that rank below New Zealand were admitted during 1994-2000. Among older members, New Zealand only outperforms Portugal and Turkey.

Ranking the lowest in the top half of the OECD is Finland, with average income of $US35,300 per capita.

Over 2000-2007, New Zealand’s real GDP per capita grew at 2.1% per year, while the average growth rate for the rest of the OECD was 2.4% (or 1.8% if weighted by population).

If each country continued to grow at its average growth rate for the period 2000-2007, New Zealand would only reach the middle rung of the OECD ladder in 2170.

In the last three years, New Zealand’s growth performance was poorer than the rest of the OECD (1.5% vs 3.0% per year). If these growth rates were sustained, New Zealand would drop to 24th place in 2010 and continue to fall further later on.

Assuming that other countries maintain their average performance of the period 2000-2007, New Zealand’s GDP per capita will need to grow at 4.6% per year in the next decade to reach the top half of the OECD. That would mean an average growth rate of 5.9% in total GDP, assuming a population growth rate of 1.27% (average rate for 2000-2007).

A growth rate in GDP per capita of 7.4% is required for the goal to be achieved in five years. Since 1970, there has not been a single year when New Zealand recorded growth of at least 7.4%, let alone five years in a row. The highest average rates over 5- and 10-year periods were respectively 2.9% (1992-1997) and 2.6% (1992-2000).

Future growth prospects are not very positive, given labour productivity growth has been heading south since 2000.

It is striking to note that based on 2000-07 growth rates, China would have overtaken New Zealand by 2030 and would pass the median OECD country in 2034, when New Zealand would sit at 26th place.

This is far from being impossible. It was not long ago that countries such as Singapore, Hong Kong, Spain and Greece were much poorer than New Zealand. They have now surpassed New Zealand thanks to sound pro-growth policies.

Interest-free student loans, raising the top marginal tax rate and not indexing tax brackets to inflation, high effective marginal tax rates (through Working for Families), the Employment Relations Act, KiwiSaver, re-nationalisation of ACC and the railways, the Emissions Trading Scheme, and increasing government spending and regulation are some of the many growth-retarding policies that have been introduced in the last nine years.

Proposed policies such as universal student allowances, Home Ownership on the Public Estate, and more government spending are more of the same in this direction.

Getting back to the top half of the OECD is a commendable goal, but its achievement is highly unlikely under current policy settings. It would be a good thing if the need for substantial changes to policy settings informed public debate during this general election period.


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32 Comments & Questions

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perhaps nz 1st is right in keeping the profits here in nz,we lose so many billions to foreign interests that we cant grow.we are just a money cow being milked by these farmers of capitalism.

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It is hard to climb with the dead weight of Clarke and Cullen on our back.

For those that disagree and believe the economic management of Labour and bed fellows has been good check the productivity graph above and reach for a tissue to mourn the squandered opportunity the last 9 years offered.

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The real problem here is ...that nobody .but nobody ...cared about geographic New Zealand All the county's energy was focused on pretentious correctness.... interlaced with copious amounts of cultural slobbering,

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I don't think that many Nzers (even the Caucasian ones) would be that worried about this news story. My observations tell me they just can't be bothered reaching the top half this article mentions. If some of them do get ambitious they can always move across the ditch and come back to their snake free motherland when they've had enough.

I so often come across British, Americans, Germans, Swiss, Koreans, Singaporeans who moved to this country not because they wanted to get ahead but they just wanted to escape the ''pressure'' and stress of their own country. Over here they could finally enjoy the ''laid back'' lifestyle and say PHEW for once.

That's the truth and if you're still into the business of comparing yourself to other OECD nations, you better look in your own backyard and see what can (or cannot) be done about it.

Rajiv (Christchurch)

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Rajiv summarised very concisely why NZ is unlikely to move forwards in any significant way. This country revers "laid back" attitudes and lifestyles, despite having the second longest working hours in the OECD. I find it ironically amusing that the country with the longest working hours, Iceland, is now broke. Length of time spent at a desk doesn't equate to productivity. Especially when the country lacks a decent broadband infrastructure.

Those who are motivated leave, and the mediocre remain... there are a few exceptions but not enough.

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I'm a New Zealander who has lived a few years in some of these newly rich Asian countries you mention. I don't deny that socio-economic competition is high in these places but I don't agree with your comment that Kiwis are laid back. They may appear to be, but NZers are up to their eyeballs in mortgage and credit card debt trying to keep up with the Joneses. The changes that have occurred over the past 3 decades in all areas of life in NZ are incompatible with being laid back, especially in the cities. The effects have been profound and mostly negative. Compared with the people you've cited we may appear to be relaxed but if our grand parents and great grandparents came back from the dead they'd give a different answer. The friendly smile and casual demeanor of the Kiwi are misleading. Trust me, New Zealanders are NOT laid-back and relaxed!

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The motivated leave and the mediocre remain,
It's true everybody knows Lomu... Nobody knows Hayward.

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I'm always amazed when reading such articles. Wages in NZ died the moment the ECA was enacted. The Nats created a low wage economy, deliberately. When the ECA happened, none of the people I worked with in horticulture had any money to spare at all, that is the same today over sixteen years later.
At least the Australians have had the sense up till last year to resist such social engineering legisltation. Anybody who works for wages in this country and votes National need their head read

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Isn't in a coincidence how the highest growth period followed the economic reforms of Roger Douglas and Ruth Richardson the late 1980's early 1990's. Like them or not, they did what was absolutely needed.

Unfortunately the Labour government has returned NZ to low growth economy which we will never escape with high taxes and high government spending. Unfortunately Labour and indeed National to a lesser extent don't seem to understand this.

Thanks to Labour, we again need to undertake economic reforms, which is why we need a strong representation from ACT in Parliament to keep National on track, and give Roger Douglas back his job of returning NZ to a growth economy.

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So when do the peasants get their share of the economic cake?. To quote Bill English "We set out to create a low wage low cost economy, they got the first part right. As far as lifting productivity goes, there are only so many grape vines that can be pruned in a day, or so many boxes that can be lifted in 9 hours, ( try doing that for 12 hours every day). Quote Doug Kidd ex National MP in parliament 'Some jobs just aren't worth much" As long as he doesn't have to do them. I have it from the proverbial horses mouth that NZers are amongst the hardest working people on the planet, given the right incentives.

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Those who criticise profits going to foreign investors should stop and take stock of the value that these investments deliver to the NZ economy. We would be much poorer as a nation if it were not for the foreign owned banks, insurance companies, airlines, shipping companies etc. etc. providing capital, and making it possible for us to function as a western economy. It is this investment that sustains the mobility of our whole economy.
If a substantial amount of the foreign funds borrowed from foreign owned banks had been diverted to shares in said companies, than the lemming like orgy of house buying then maybe the critics could have solved the situation they cry so much about.

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If NZ'ers were any more laid back they would forget to breathe. This headline will read "NZ loses 'First World' status at some point.

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firstly its great that NZ is so laid back - I moved here from UK which is rapidly reverting to a third world country - just with more stress. Kiwi's do work hard and are pretty inventive - they are hobbled by a rubbish tax system !! Big incentives to invest in property ( dead investment as far as the country is concerned ) and high taxes which kill the incentive to do anything ( except try and invest in property !! ). Flat tax of 15 - 20% world level the field and tax profits on all but primary residences !!

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We are inclined to kill the entrepreneurial spirit with safety nets. John Key's just announced bale-out proposal of needy mortgagors is just another example.

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I think people deep down understand that New Zealand will never lift itself into the top half of the OECD. Only the ACT party offers the solutions to lift New Zealand's economic performance.

If ACT received a large party vote at the upcoming election then New Zealand's future might change for the better.

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The reason why Singapore was able to pull itself up the OECD rankings is because they are not a free country. So having to care what the electorate thinks about sound economic policy doesn't enter into it. NZers will never vote for a party that introduced capital gains tax on property. The winging would be huge, even if you did drop income tax to sensible low levels. The media would taint it as the devil, and the electorate wouldn't buy it.

Kiwisaver was a good start in setting us on the road to being savers and investors, but what needs to follow is further incentives in the tax system (all stick and no carrot that Dr. Cullen).

But with recession upon us and a world wide slump that could last 3 years or so, can the government turn on a dime and pull out of its big-spend policies that went without much scrutiny while the government posted surpluses?

No don't think so.

Government debt will rise, and rise, and rise. Our children will not be thanking us for voting Labour for so long.

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Man, who cares about this flaky number-crunching based on broad untested theory and not individual realities? There's a reason economics is called the 'dismal science'. I do not measure my life in terms of the things I own, that's the domain of the shallow and narcissistic. NZers are smarter than that. Enjoy life. Ride your bike. Read a book. And stop your moaning.

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the last time we were in the top half of the oecd was under muldoon. oecd ranking means nothing.

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Good post, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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Good site, admin.

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ly4weipp3k1pl2yf

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Reading this in 2011 is humorous...

This is far from being impossible. It was not long ago that countries such as [...] Greece were much poorer than New Zealand. They have now surpassed New Zealand thanks to sound pro-growth policies.

Yeah, let's do what Greece did. That works! And you wonder why it's so hard to tale economists seriously!

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Sorry, I meant "take" not "tale". And the middle paragraph is a quote from the article.

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