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Low-growth policies will spur Kiwi exodus to Australia

Wednesday 3rd November 2010 1 Comment

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New Zealand risks losing up to 10% of its current population to Australia in the next 15 years, unless bold action is taken sooner rather than later to arrest the country’s decline, relative to its trans-Tasman rival, says the second 2025 Taskforce report, issued today.

Chaired by former National Party leader and Reserve Bank governor Don Brash, the taskforce says that, far from catching Australian income levels by 2025, New Zealand incomes appear likely to slide relative to Australians’.

OECD projections suggested Australians would be earning 42% more than New Zealanders in 15 years, compared with the 35% head-start prevailing today.

“Based on current projections of the income gap and its impact on emigration, a net 412,000 New Zealanders could leave over the next 15 years,” the taskforce says. “That is almost one in every 10 people living in New Zealand today.

“The skills and enterprise of these emigrants would be a huge loss to the economy, especially given that taxpayers would have spent perhaps $30 billion educating and providing medical care for them.”

While new migrants might make up the numbers, “they are not a perfect substitute for the rapid loss of so many people born and raised in New Zealand.”

The taskforce unapologetically offers much the same prescription as it did last year, advocating a higher pension entitlement age, cuts to “middle class welfare” payments that recycle tax to the people who paid it in the first place, lower tax rates, lower government spending as a proportion of the economy, privatisation, regulatory reform, and resisting the temptation to “pick winners”.

It also shows that, compared not only with Australia but also with other developed economies, New Zealand’s moves since 2006 to control foreign direct investment have moved it quickly to be one of the most restrictive environment for foreign investors in the OECD, while other countries have been reducing such barriers.

“To close the income gap with Australia, New Zealand must create a stronger presumption for acceptance of foreign investment, subject to the same regulatory provisions as domestic investors,” the report says.

In apparent jibes at both the Ultra-Fast Broadband Initiative and the announcement of increased subsidies for The Hobbit movie project, the taskforce says governments for too long have been trying to come up with “clever ideas” to overcome shortcomings in the New Zealand business environment, and were not using appropriately rigorous tests to assess infrastructure investments.

“The contemporary global economy is complex, but the fundamental sources of economic growth have not changed.

“Government policy should focus on minimising the barriers to the productivity improvements, innovation and private investment that are the sources of economic growth, rather than on searching for new ways to identify the appropriate recipients of subsidies.”

However, the current government has introduced policies that both help and hinder its stated goal of “catching Australia by 2025”, with the current policy mix “a long way” from the settings that would produce the necessary 2% a year higher growth rates that New Zealand would need to achieve that goal.

The taskforce also comprises former Labour deputy Prime Minister David Caygill, Business Roundtable economist Bryce Wilkinson, and Judith Sloan, a member of the Australian Productivity Commission.  Knitwear entrepreneur Jeremy Moon, founder of the Icebreaker clothing label, quietly left the taskforce earlier this year, citing work commitments.  It was set up as part of the National Party’s supply and confidence agreement with the Act Party.

Partial privatisation is also an urgent requirement, the taskforce says.  While government debt levels did not require asset sales, the loss of economic opportunity created by having some of New Zealand’s largest corporations operating under state ownership was huge.

They could “potentially contribute much more to the economy if they were wholly or partially privatised.”

Such a step-change in economic growth rates could be achieved without social upheaval, although “to have the choice to introduce change incrementally, substantial changes in public policy must be implemented very soon.”

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Comments from our readers

On 5 November 2010 at 1:41 pm Kay said:
According to the latest World Bank report, NZ is the 3rd easiest place in the world to do business. We don't need to change rules to increase foreign business activity here. The Taskforce push for more foreign ownership of NZ assets and resources wouldn't result in higher incomes for NZers. Judging by current practices foreign owned companies operating here pay lower wages than their home bases whenever possible e.g. Progressive, Harvey Norman etc. NZ's Govt should look at economic policies that are working in Australia like investing in more training and tertiary education rather than cutting NZ's education investments. We need to upskill the workforce and deliver on quality not push NZ to compete on low wages because we can't undercut China, India and Korea.
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