Over the last few weeks, the media have been full of stories about finance companies in trouble, with questions about what the Government is going to do about the situation. A month or two ago, the exchange rate was all the talk, and again everybody wanted to know what the Government was going to do about it.
Late last month (August), the Government Statistician announced that during the 12 months to July, over 73,000 New Zealanders left this country permanently, and most people simply yawned. Certainly, nobody seemed to be asking what the Government was going to do about it.
And why did 73,000 New Zealanders leave in a single year – roughly the equivalent of all the people in Ashburton, Timaru, Queenstown, Wanaka, Westport, Greymouth and Hokitika? Well, of course, people leave for a whole host of reasons but overwhelmingly the most important reason is the desire to get a higher standard of living.
There is more to life than financial wellbeing, and in many areas of life New Zealand is very hard to beat.
But there is no getting over the fact that there are now a number of countries where people can enjoy a higher standard of living than we do in New Zealand.
At the beginning of the seventies, after-tax incomes in Australia, for example, were, on average, closely similar to those in New Zealand. By 1984, after-tax incomes in Australia were 20% above those in New Zealand. They were still 20% above those in New Zealand 15 years later in 1999: in other words, the economic reforms of the late eighties and early nineties had enabled New Zealand to roughly keep pace with Australia but hadn’t enabled us to narrow the gap.
But alas today, just eight years later, Australian after-tax incomes are estimated to be about 35% higher than those in New Zealand. And that means that most New Zealanders, be they tradesmen, doctors, police officers, school teachers, factory workers, or radio announcers, can make a much higher income for themselves and their families by moving to Australia.
It’d be nice to think we could solve the problem by simply voting ourselves higher wages and salaries, but of course we can’t. The fundamental issue is that growth in production per person employed in New Zealand (productivity growth) is too low, and in recent years has been getting lower.
In the nineties, productivity growth in New Zealand roughly matched that in Australia. Since 2000, productivity growth has roughly halved, and seems to have been falling further in the last year or two.
That is the real economic challenge facing the country because, unless we raise productivity growth to at least the level in Australia, the gap between living standards here and living standards in Australia will continue to widen. And recent emigration statistics show us what that means.
Copyright © 2024 Don Brash.