FOR HOW MUCH LONGER WILL OUR KIDS STICK AROUND?

elocal Magazine, ed. 251. 2 March 2022

In a great many ways, New Zealand is an enormously attractive country to live in.  We have a temperate climate, largely free of extremes of either heat or cold.  We have magnificent mountains, and beautiful and uncrowded beaches.  We produce enough food to feed ourselves many times over.  In a water-short world, we have more fresh water, per person, than all but two countries in the world.  We have abundant open spaces, with just five million people spread across an area larger than the United Kingdom.  We have a robust democracy, with never the slightest suggestion that either the armed forces or a mob might try to overturn an election result.


But abstracting altogether from the immediate issues relating to the pandemic and the health and economic consequences of that, there are four major issues which threaten our future – five if we include climate change, but I don’t propose to discuss that given that nothing we do in New Zealand will have any measurable effect on the global climate.  All of the other four issues are within our own ability to resolve if only we have the political will to do so.


The most urgent of the four issues within our control is surely the crisis of housing affordability.  I have written about this issue often in these columns.  The utterly absurd level to which house prices have risen in all our major cities is without question the biggest source of social distress in our community – far too many people struggling to service enormous mortgages, far too many people struggling to pay the rent, far too many people who know they can never aspire to own their home, or provide a stable environment for their children.


And it has been clear to people as different as Phil Twyford and Don Brash for years that while speeding up local government consent processes and improving the competitiveness of the building materials industry might help at the margin, the fundamental issue is removing the artificial boundaries which push up land prices within those boundaries to utterly absurd levels.  A house costing $300,000 on a $100,000 section costs a reasonable $400,000.  A house costing $300,000 on a $1 million section (as 400 square metre sections in Papakura do at the moment), costs an absurd $1.3 million, and is wildly beyond the reach of all but those earning a very high income or those who have parents who bought into the housing market three decades ago.


The second issue is clearly the rapidly growing racial divide in New Zealand, between those who chance to have a Maori ancestor (always with ancestors of other ethnicities now of course) and those who don’t.  This divide has been growing for years, perhaps even decades.  But it is accelerating at an extraordinary pace under the present Government’s aggressive drive to divide us along racial grounds.   All over the country we see moves to have separate Maori wards in local government; a separate Maori health system; a new Maori Education Oversight Group; assertion by the courts that Maori customary law can over-ride statute law; a proposal that the Three Waters infrastructure paid for by ratepayers over decades should be handed over to four enormous entities with half of their boards appointed by Maori.  The He Puapua report, prepared at the request of the Labour-New Zealand First Government in 2019, envisages separate Parliamentary chambers based on race by 2040, the bicentenary of the signing of the Treaty of Waitangi.


The third issue is the very slow growth in the average income of New Zealanders.  For those lucky enough to own their own debt-free homes, this doesn’t seem an issue: life is pretty good – no rent to pay, no mortgage to service, largely free education for the kids, free or reasonably affordable healthcare.  But for the rest of us, life is pretty hard and compared with people in other developed economies we continue to drift backwards.  Why?  Because for many years, indeed decades, growth in productivity – what we can produce for given inputs of labour, capital and technology – has been among the very slowest in the developed world.


 There are lots of theories about why this is the case.  One for which I have some sympathy is that propounded by Wellington economist Michael Reddell.  He argues that New Zealand’s very high rate of immigration (one of the highest in the world relative to our population) has obliged us to spend too much of our limited savings in domestic sectors of the economy where productivity growth is low in almost all countries – building more houses, more roads, more schools, more hospitals – rather than in export sectors, where productivity growth is usually high.  The availability of imported labour has also reduced the incentive to invest in productivity-enhancing technology.


I would also want to blame local government planning rules, which distort investment incentives and, because of often interminable delays, discourage investment itself.  Our grossly excessive and growing bureaucracy has to be another factor, with the long-drawn out and cumbersome procedures of the Overseas Investment Office being a prime example.  Our education system is also failing far too many of our kids, as international surveys show: we have some of the worst results for maths and science of any developed country, and encouraging schools to believe that matauranga Maori is equivalent to science, or that being able to say a few words in te reo Maori will help get a well-paid job, only makes things worse.  And to make matters even more challenging, New Zealand is only a three-hour flight away from another English-speaking and much larger country where rewards for skill are much higher.
In the longer term, we have a fourth issue: the failure of successive governments to deal with the looming fiscal challenges of an aging population, as the recent OECD report on New Zealand made abundantly clear.  For years, indeed decades, the New Zealand Treasury and independent observers such as the OECD have warned that, while New Zealand’s government debt is relatively low at the moment, the aging of the population will cause a major blow-out in that debt as the cost of New Zealand Superannuation and the cost of taxpayer-funded healthcare both cause a huge increase in government spending unless some change is made to the age at which we all become eligible for New Zealand Super.  


Despite the age at which people become eligible for taxpayer-funded income support being progressively increased in most other developed countries, including in Australia, successive governments have flunked the challenge of explaining the situation to New Zealand voters.   To be fair, when he was Prime Minister Bill English said that a future National Government would gradually increase the age of eligibility for New Zealand Super from 65 to 67, but he promised that the gradual increase would not even start until 2037!  


Sometimes, politicians claim that we can avoid the need to increase the age of eligibility by “growing the economy”.  This is a total nonsense, and I suspect that most of those who make that claim know it.  Why is it a nonsense?  Because New Zealand Super is not a commitment to pay a fixed sum to those reaching 65, it is a commitment to pay a fixed proportion of average incomes so that as incomes in the community increase so also does the cost to the government of funding New Zealand Super.
Some countries face serious challenges which they can do little about – rapid depletion of water resources for example, or extreme political tensions arising from religious differences, or hostile neighbours.  We have none of those challenges, and have only ourselves to blame if we see more and more of our kids decide that they can have a better future somewhere else.

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Copyright © 2022 Don Brash.