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Opinion by Richard Prebble
Richard Prebble is a former Labour Party minister and Act Party leader. He holds several directorships and is a member of the Waitangi Tribunal.
GDP per capita fell 2.7% in 2024 and is forecast to fall 0.6% in 2025.
Labour productivity measured by GDP per hour worked grew by 1.4% a year from 1993 to 2013.
But it slowed to about zero from 2014 to 2019.
The coalition Government needs to make some New Year resolutions. The country cannot have another year where the average Kiwi is poorer and debt grows higher. The Government cannot continue with the same policies and expect a different outcome.
Economists agree the way to increase prosperity is to improve productivity.
“Improving productivity is the single biggest thing that we can do to raise our collective standard of living,” Christopher Luxon said in his maiden speech. Photo / Mark Mitchell
Prime Minister Christopher Luxon in his maiden speech said: “Improving productivity is the single biggest thing that we can do to raise our collective standard of living.” His solution: education, upskilling, increased R&D and “investing in world-class infrastructure”.
Grant Robertson’s Budgets emphasised the same solutions.
The problem is the result is almost no productivity improvement.
While these policies are important, the trigger for productivity improvement is competition.
When I became Minister of Civil Aviation, Air New Zealand’s domestic services were awful. Airfares were expensive. Strikes were frequent. .
I appointed new directors and approved new aircraft. Nothing changed.
Then I allowed Ansett to compete. Even before the first Ansett flight, facilities were improved, service standards lifted and 90% of flights were on time. Air New Zealand reduced fares. More people flew. Tourism boomed.
The first resolution should be to increase competition. Break up monopolies and oligopolies. Get competition in the supermarket sector. Open banking to allow internet providers to offer innovative new products.
All departments should be required to cut red tape.
Government spending is a third of the economy.
Health blew out last year by over a billion dollars. We are spending more to achieve similar outcomes. In education, absenteeism and declining international test results are evidence productivity is negative.
Competition in the government sector would trigger significant productivity improvements, making the provision of services affordable.
Economics professor Robert MacCulloch has outlined the way to trigger productivity. Fund health, retirement and education by individual compulsory savings accounts.
The professor noted New Zealanders who migrate are valued as very innovative. This indicates we have not lost our ability to be productive.
Put simply, productivity is labour times capital. If our labour is as smart as ever, then the reason for our poor productivity must be lack of capital.
New Zealand’s productivity is about 30% below that of Australia, yet New Zealanders resident in Australia on average have a higher income than Australians.
Australia has an estimated A$3.5 trillion ($3.87t) in its compulsory retirement scheme. An explanation as to why Kiwis in Australia are more productive is they have access to more capital.
If New Zealand politicians had not cancelled the Norman Kirk Super scheme, this country would have had over $350 billion in it. Enough to fund the infrastructure deficit, boost productivity and make superannuation sustainable.
The claim by politicians that we can fund superannuation out of tax was not true when politicians cancelled the Kirk scheme and it still is a falsehood today.
The added advantage of establishing individual savings accounts is it promotes personal responsibility and competition. Account holders would make their own choice of provider.
Providers no longer having captive customers must improve productivity to be competitive.
Hospitals and schools do not need a centralised bureaucracy. They can manage themselves. Like Air New Zealand, faced with competition, hospitals and schools would immediately improve their services.
The demand for a free service is infinite. When account holders are spending their own money there will be less waste.
Singapore, which funds health through individual savings accounts, has in my lifetime gone from having a Third World health service to world leading.
Sir Roger Douglas, the architect of the Kirk scheme, has published with Professor MacCulloch how to handle transitional issues. One solution is that the first $6000 of income tax be diverted into individual savings accounts. The poor would have their accounts topped up.
It will take decades before savings-based superannuation is fully self-funding, but the productivity improvement from introducing competition will be immediate.
National, New Zealand First and Act need to remember politics is competitive.
The Greens and Te Pāti Māori, who want voters to be dependent on politicians, will continue to claim “the rich can pay”.
The Kirk Super scheme and KiwiSaver were Labour Party policies.
Labour’s New Year resolution should be to campaign to fund welfare by savings, not taxation. Then Labour would have a credible plan for retirement being affordable, healthcare available and education standards lifted. A practical, workable manifesto for a more prosperous country by increasing productivity.
