31 March 2006

This week’s example of political correctness Has it gone too far?

So much of political correctness is about absurd levels of compliance. The micro-chipping of dogs has been the obvious example this week, but farmers are already facing excessive levels of intrusion in their day-to-day lives. In many cases this excessive bureaucracy is forcing farmers to “get-in-behind” or risk losing the tools of their trade.

Private farmland can be declared a “significant natural area”. This means that farmers must get resource consent before they alter the land. There is no compensation for the loss of land, or for legal costs of gaining resource consent.

Farmers must obtain a permit to use agrichemicals. Apparently they need to become “approved handlers” if they want to keep buying and using agrichemicals.

Gelignite is often used by farmers to blast postholes and remove stumps. Regardless of safety record, farmers must now undertake a course and obtain yet another licence if they want to continue buying and using gelignite.

The ERMA now require farmers with cyanide licences (often used in the control of possums) to fill in a nine-page application form. Even when the farmer has had a licence for many years, only uses the cyanide on their farm, and has a perfect safety record!

Farmers are not unreasonable people. They realise that there must be some regulation. What is unreasonable are the intrusive and excessive demands being placed upon farmers by bureaucrats that do not understand the day-to-day running of a farm. Next they will be proposing that farmers are micro-chipped before they can visit the annual A and P show!

Productivity - Who Has It Better, Australia or New Zealand?

This week Statistics New Zealand has published a new series on productivity for 1988 to 2005. They purported to show that New Zealand’s labour productivity has been higher than Australia’s labour productivity. The question that arises is whether this is in fact true – and just as importantly, has it been true for the whole period?

After all, since 2000 when Labour was first elected, after tax average incomes in Australia have risen much faster than in New Zealand. This apparent contradiction requires explanation. The OECD has consistently said that New Zealand’s labour productivity lags behind Australia. So how can Statistics NZ come up with an opposite view? Statistics NZ does accept that “the OECD has developed an OECD Productivity Database, based on data that are considered to be as comparable and consistent across countries as possible.”

It is this OECD database which shows New Zealand productivity growth averages 1.2 % per annum and 2.2 % per annum in Australia. Statistics NZ says their analysis is better, even though it has an opposite conclusion to the OECD. They do provide reasons for this – mostly around the fact they are dealing with a subset of the economy, whereas the OECD series covers the total economy. One of the most significant aspects of the Statistics NZ work is the period of the series.

They cover 1988 to 2005, a total of 18 years. If this is broken into two periods, that of the National Government from 1990 to 1999 and the Labour Government since 1999, it shows two distinct trends. There has been relatively higher labour productivity under National from 1990 to 2000 at 2.8% per annum, whereas during the Labour period 2000 to 2005, the growth rate of labour productivity is 1.5% per annum.

This difference tells us two things; first that Labour’s policies have held back productivity potential, and second it probably explains why Australia’s incomes have grown faster in the last five years than New Zealand incomes. This second proposition can be tested by examining Statistics NZ’s data which compares productivity in the two countries.

This shows that from 1998 to 2002, labour productivity growth in Australia was faster than in New Zealand. Since 2002, labour productivity growth in the two countries appear quite similar. However, capital inputs into Australia have grown at a much faster rate than in New Zealand since 1997. This trend has been rapidly accelerating in recent years. The real world effect of these two productivity measures taken together (labour and capital) is higher personal income growth in Australia than in New Zealand.

In short, the wealth and income gap between the two countries has got larger due to higher total productivity in Australia. The real usefulness of Statistics NZ’s work is what it tells us about future trends. It appears that for most of the 18 years labour productivity in New Zealand has been lower or the same as in Australia.

For three years, productivity was sharply higher, leading to slightly higher productivity when averaged over the whole period. However, capital productivity in Australia is substantially higher for the bulk of the period, and under current trends is accelerating away from New Zealand. There has been greater labour force participation in New Zealand in recent years, but this is likely to be a one-off effect.

Once people are in work they can only increase their income by becoming more productive. Increasing labour force productivity remains a critical challenge for New Zealand since it is such an important part of total productivity. The only way to catch up with Australia is to have higher overall productivity than in Australia.

We have not been achieving this in recent years. We need to make the critical steps which will achieve this goal. It means boosting skills in the New Zealand workforce. It means lower compliance costs. It means lower taxes, both to provide incentives for workers and also to provide more investment capital. Doing all of these things will boost New Zealand’s total productivity, and give us the best chance to close the income gap.
Dr Wayne Mapp

Visit my website for more information at: www.waynemapp.co.nz

ENDS

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