New Zealand has slipped further behind the goal of catching up with the living standards of Australia by 2025, according to the recently released 2025 Taskforce Second Report.
The Taskforce, chaired by (former Reserve Bank of New Zealand Governor and National Party Leader) Dr Don Brash, provided updated and more in-depth analysis of the major problems that prevent New Zealanders from earning incomes that match their counterparts in Australia.
The Report noted that since Australia endured the global financial crisis relatively well and hence New Zealand’s economy show grow “more than 2% faster than Australia” to reach the 2025 target.
Negative reaction
Some commentators have not received the warnings positively and the Government is hesitant to endorse the Taskforce’s calls for urgent change.
Why is the Taskforce’s message not connecting?
It is perhaps because the problems are daunting and some perceive the necessary measures as painful.
Reaching Australia’s living standards by 2025 is a massive undertaking.
As the Taskforce noted, the major issue is to boost productivity growth by getting the optimum value from our capital and the workforce.
Among other things, this will require reducing the costs of unnecessary government regulation and ease taxes that impede firms and entrepreneurs from being more innovative.
Another necessary change is to reduce the government’s ill-targeted and unproductive expenditure, such as the KiwiSaver, interest free student loans and Working for Families.
However, because these measures will require broad and deep changes to the way our country works and people’s expectations about what the state pays for, it is easier to either put-off the hard decisions or hide from the problems.
Another reason why the Taskforce is not getting its message across is that many of us are not convinced that closing the gap is possible.
We tend to think Australia is wealthy because of its mineral wealth and other resources. But as the Taskforce Report explained, this is not the main reason for the country’s wealth.
Australia’s mineral sector is only as big as our agricultural sector (about 7% of GDP). Its mineral boom began in the 1960s, but it was only in the last 20 years that the economy really shot ahead of New Zealand.
The gap in wealth is better explained, at least in part, by different government policies. While Australia ushered in economic reforms to increase productivity, New Zealand adopted less growth-friendly measures, like allowing the public sector to grow to over 40% of GDP.
Policy Change
These policies can be changed and New Zealand can thrive economically.
The Taskforce advocated economic and public policies to stimulate productivity and growth. But generally, people do not think about policymakers.
In order to make these changes, we must confront our economic naivety and develop a vision to maximise our potential.
One hopes that the new Productivity Commission can take the good work done by the Taskforce and find ways to make it connect with the understanding and aspiration of New Zealanders.
