Our productivity.
Other indicators are beginning a slow turn towards favourable, while the
economic recovery should also help reduce unemployment numbers and slow the skills flow to Australia. But the lag in New Zealand’s productivity growth, compared to the rest of the OECD, remains.
Our productivity continues to slowly but steadily fall. In fact, the only time New Zealand’s productivity reached the heights of the top half-dozen countries in the OECD was for a few years after 1991, following the implementation of the Employment Contracts Act.
That legislation scrapped the old, cumbersome centralised wage-bargaining system, replacing it with today’s more agile, decentralised enterprise wage-bargaining system. Views will differ, but that’s the only time New Zealand approached the top of the productivity graph.
The problems have been well-traversed by successive governments and the now-scrapped Productivity Commission. Issues that have been highlighted include our geographic isolation, as well as our slowness to adapt to, and adopt, new machinery, technology and digital tools.
But with our broadband network among the best in the world, geographical isolation is not the barrier it once was. In fact, a growing number of New Zealanders and international residents are showing the way by earning their salaries in pounds and US dollars while continuing to live here.
One tool the EMA would like to see introduced is a much-improved depreciation regime for investment by businesses in new technology and machinery.
Currently, it’s just in the low hundreds of thousands of dollars over an extended period of years, but we would like to see that increased to seven figures over a reduced timeframe – say, two to three years. It worked recently in Australia, where an enhanced depreciation regime encouraged rapid investment in smaller businesses, resulting in a subsequent productivity boost.
Manufacturing Minister Andrew Bayly is a supporter, while several other ministers like it, or at least are not opposed to the idea. While it would cost around $600-800 million in tax revenue at a time when money is tight, it’s one of those situations in which knowing the cost shouldn’t outweigh the value of making the change.
At the same time, our banking rules for business loans could be adjusted to provide more flexibility around risk weightings for businesses, particularly smaller businesses. Accessing KiwiSaver funds is another option.
Our minimalist depreciation regime encourages the ongoing application of New Zealand’s famed “number-eight wire” approach to extracting ongoing minimal gains from outdated or near-obsolete technology and machinery.
That mindset has spawned several outstanding, large-scale internationally renowned companies. But those businesses, after making their initial “backyard” breakthrough, also take, invent, adapt and adopt other components and technological advancements – and then apply them to their original ideas in order to grow.
Many smaller New Zealand businesses and manufacturers don’t invest, as they tinker with old machines for incremental gains. It’s why the EMA supports the Industry 4.0 programme that showcases new technology to our manufacturing community. The programme highlights the new tech investments and gains that the EMA would like to see supported by an accelerated depreciation regime.
The Digital Boost programme, rolled out near the end of Covid, also helped encourage many small and micro-sized businesses to adopt digital tools. We need to encourage more measures to make our workplaces more tech-savvy.
We also need to upskill our people.
If we are going to bring in an international workforce for major infrastructure projects, we need to ensure that the winning contracts include a commitment to train a specified number of New Zealanders with the skills needed to maintain the existing project, and to go on to build new ones. Our immigration settings should complement our skills and training programmes to fill acknowledged gaps in the workforce, satisfying short-term needs, while our own people are trained to fill those gaps long-term.
We must improve the work readiness of, and skills available to, our young workforce, while putting more emphasis and resources into retraining the existing and older workforce.
Only 30% of any school cohort goes to university, with 26% going to polytechs/private training/apprenticeships, and the remainder to the workplace. Around 60% of EMA members tell us this cohort isn’t ready for work. Poor literacy, numeracy and communication skills are the core issues and, surprisingly, given how much time they spend on phones and computers, a basic lack of computer literacy.
Micro-credentials can be effective in both training the young and retraining our ageing workforce. But our qualifications framework and funding institutions do not give these educational tools enough support or emphasis. It’s pleasing to see the education, immigration and social development ministers all working together to help resolve these long-standing problems.
With the exception of a change to depreciation rates, none of these are a quick fix. But it’s what we need in order to start moving back up the productivity tables.
