To close the gap with Australia, will Brash dare to follow the Australian example? Or will it be Rogernomics: the next chapter?

So Don Brash is our new Productivity Tsar, huh? Political ironies don't come much richer. It's almost as funny as this government going on about productivity being its number one priority while at the same time cutting contributions to the Super Fund and axing R&D tax incentives.

Brash is one of this country's great champions of the free market; an ideologue down to his hotel sink-washed socks. His hey day was during the Rogernomic years, and what this government seems to think we've all forgotten is that it was under those policies that the gap between Australia and New Zealand widened most substantially.

If it wasn't such an important area of policy, it would be hilarious. ACT and Roger Douglas, those behind the policies that did most to entrench our productivity and wage gap with Australia, are now relentlessly campaigning on closing the gap. If it was a political mea culpa you could just about forgive the irony (or downright deceit), but with the appointment of Brash to head their taskforce, it looks like more of the same.

Upon being appointed, Dr Brash said:

"It's a big gap. It has emerged over 30 or 40 years... But we either take on that task or accept that we gradually become a distant Tasmania to the Australian mainland."

Inasmuch as he's said, he's not wrong. He's just being disingenuous the ups and downs within that 30 to 40 years. The history's pretty clear. Productivity is generally measured as GDP per capita, and ours was ahead of Australia through the 1950s and much of the 1960s. But the 1966 wool crash slammed us hard. We were over-dependent on the sheep's back and that cost us (Douglas has always been right about one thing – the need to diversify the economy).

But as you can see in this 2002 analysis by economist Brian Easton, it was the late 80s and the early 90s when our productivity really suffered. Australia didn't follow us to the extremes in its monetary policy and employment law, and reaped the rewards of its moderation. We, on the other hand, took a hit in the pay packet, as these figures illustrate.

ACT leader Rodney Hide took a swipe at Labour last week, criticising it for never coming close to three percent productivity gains during its time in power. What he didn't say was that when the policies he supports were in favour the gap between New Zealand and Australia ballooned as our productivity sagged.

So what should we expect from Brash? He focused his early comments on savings, tax and government spending and said that nothing was "off the table". Forgive me if I feel nervous.

This is the man who as leader of the Opposition campaigned on weaker unions and employment rights and wanted to force people to work for the dole. Oh, there may have been productivity gains in that. But it would have meant lower wages; and that's the measure with Australia that really matters.

If we measure productivity as GDP per capita, that means each worker producing more in each hour or day that they work. You can achieve that by getting more out of that day's work or by putting less in. That is, you can invest in plant so that the worker has faster, better technology to work with. You can train that worker so he or she performs better. Or you can simply pay that worker less and get he or she to work longer hours and get the same "productivity gain" by default.

Remember when nurses, teachers and police finally got reasonable pay increases under the previous government? Well, that had a productivity cost because we were putting more money in and they weren't healing more patients/teaching more children/catching more crooks as a direct result. But who thought those pay increases weren't well overdue? Both of you can form a queue outside Rodney Hide's office door. You'll be welcome there.

No-one's pleased that an Australian worker creates close to a third more wealth every working day than you or I in New Zealand do. But Brash would have done better to say that the lower wage route was firmly "off the table". Instead, he should have slapped the hands of his business mates who have so often tucked their profits into their trousers and gone home (or overseas), rather than re-invest in this country and local business.

It'll be interesting to see whether Brash has the gumption to mimic some of the work being done by the Australian Productivity Commission. Yes, they're looking to cut red tape and all the things you'd imagine Brash will want to get his teeth into.

But it has also championed an 18 week paid parental leave scheme and is in the process of investigating whether executive pay rates and bonuses have encouraged too much risk. Will Brash dare to take on his business mates in such a fashion for the good of our national productivity? That's his greatest challenge. Let's hope Brash uses his undoubted knowledge of the markets and unparalleled access to this country's boardrooms to surprise us with wage-building, innovative ideas.




Comments (3)

by tussock on August 06, 2009

In regards the profit-taking bosses, I recall reading that it's relatively low income tax rates which encourage such behaviour. In essence, if one's company makes a million there's the choice of investing 70% of it or taking home 50%, people invest most of it. If both options are 67%, it all goes home, along with as much of the equity as the bank will allow. Borrowing for profit and all that.

Australia uses a 9% compulsory investment (super) scheme, making their top personal rate 54% for younger folk. As a result, they've much better capital funds lying around for everything, so better investment goes in everywhere, and more of it stays there to compound away under lower taxes within the business sector.

This government, meanwhile, makes it easier to sack staff and take more money out of your business, and harder to fund R&D or get training for your staff. While sacking rather many "bureaucrats" at a time of growing unemployment, which all drives down wages and conditions. It wouldn't seem to matter what Brash would suggest to them.

by Ryan Gray on August 07, 2009
Ryan Gray

Agreed, I did plenty of laughing over Don Brash and his short stint as leader of the opposition, now I'm having an uneasy laugh about this.

At least he isn't in charge of a committee to decrease the wages gap between Pakeha and Maori.....

To be honest, I don't really get the idea of bridging the productivity gap. Maybe it's because of a limited understanding of economics, but I think it's mostly that there are better things to be focusing on. Increasing productivity is all well and good but why do we have to compare ourselves with Australia. They have a greater resource base, more people, and have more large scale companies. They have greater scope for investment in R&D. My friend works in cancer research for example. She couldn't do that in NZ, because the money isn't here, and the expertise has already left.

Wouldn't it be better to focus on certain other areas to increase their productivity. How about making our Dairy industry the most environmentally friendly, most technologically brilliant in the world? I'm sure that would make NZ plenty of coin and kudos...

But wait, wasn't it the National Party that said we should be close followers rather than leaders?

Well we certainly won't lead anything with no decent research being funded. Not to say that New Zealand isn't making some ground in the treatment of sheep diseases, yet still has to send samples to Australia to get them tested for Swine Flu....

For me, the Treasury Department Head's speech a couple of weeks ago and the appointment of Brash is just the National Party just freeing things up for a nice privatisation shift. 80s mayhem be damned, 2010 is approaching it's time for a new decade of social and economic upheaval, mass unemployment, and all the unbelievers of neo-liberal policy will be cast down!!!

Well at least you know the Maori Party will vote against anything that Brash recommends....

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