New Zealand’s low labour productivity growth in the recent past is often identified as a problem. But if we had enjoyed stronger productivity growth our society may look quite different today, and not necessarily better. Labour productivity measures the value of final goods and services (or gross domestic product) produced in the economy for each hour worked. Low labour productivity growth means that we are producing little more for each hour’s work today than ten or fifteen years ago.
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The Reserve Bank of New Zealand wishes to reduce immigration to ease inflationary pressures. But blaming immigrants for inflation when we have a tight labour market makes as much sense as thanking the horde of New Zealanders moving to Australia for reducing inflationary pressure. Although migrants increase demand for goods, they also bring with them a number of types of capital (physical, intellectual, and financial) that can increase the economy’s capacity and thereby ease inflationary pressure.
As a nation, we like to think of ourselves as honest and pretty self-sufficient, and we certainly used to believe in helping those less fortunate than ourselves. But a paternalistic government congenitally opposed to reducing taxes and awash with revenue is producing polices that persuade many to latch very firmly on to the government teat wherever it is available. For a growing proportion of people, milking the system is the only way they see of getting back the excess taxes they have been paying.
Like it or not, New Zealand has ratified the Kyoto Protocol,which means that we need to either reduce our net emissions of greenhouse gases(primarily carbon dioxide, methane and nitrous oxides) back to 1990 levels, orpurchase emission permits from another country under an international emissionstrading scheme. It seems likely that the latter scenario will eventuate.
The government announced in the budget anintention to investigate the feasibility of introducing a shared equity housingscheme to assist low-income individuals and families to purchase a house. Theapproach follows overseas examples where the government purchases the housewith you, ie a shared equity arrangement where the government could own say 30%of the house. The house is co-owned between you and the government, but youget to live in the house. The government shares in the capital gain, but thereis no obligation for you to repay the government until the property is sold.
The rampant Kiwi dollar is likely to encourage more manufacturers to relocate production to low cost Asian countries. In fact, several manufacturers had already announced plans to move production before the latest Kiwi dollar rally. This will mean more job losses in an industry that has been shedding jobs over the past few years. In April our iconic whiteware producer Fisher and Paykel signalled their intention to relocate 350 jobs to Thailand. Next was Sleepyhead with a possible 250 jobs, followed by Dynamic Controls with another 200 jobs, both to China.
With the New Zealand dollar surging tonew post-float highs on a regular basis, the viability of exporting is underthreat for those outside the dairy sector. The pressure on exporters has seen US professor Steve Hanke recently assert that our economy is in a "death spiral". Hestated that "you get a flood of capital coming in chasing the high interestrates, and the flood of capital, of course, aggravates the inflation problem"leading to even higher interest rates.
The Reserve Bank’s recent intervention inthe currency clearly signals their belief that the current New Zealand dollar exchange rate is unjustified by economic fundamentals. But how much confidence can we store in the statement that the kiwi is "overvalued"?
Alan Bollard’s recent reappointment asgovernor of the Reserve Bank for another five years saw Michael Cullen lauding"his integrity and outstanding general management skills". Those qualities maynot be in question, but in terms of actually doing his job and keeping acredible rein on inflation, Dr Bollard’s results have been unimpressive. Nevertheless, this year’s interest rate rises have shown a steelier side to theReserve Bank governor, and imply little hope of relief for mortgage holders inthe foreseeable future.
Michael Cullen has delivered his eighthout of a likely nine budgets. Although we expect to only have to endure onemore, we are likely to face the consequences of his complex and prescriptiveinterference in the economy for many years to come.