Insights
8 June 2012, Issue 1

In this issue:
• Migrating kiwis in for a rude surprise | Luke Malpass
• Budget 2012 - National's discouraging war of attrition | Bryce Wilkinson
• Aristotle in Dunedin | Oliver Hartwich
• All things considered ...
• On the record

Welcome to the first edition of Insights. Each Friday we'll send you our take on the week along with links to stories and events that caught our attention.

We hope you'll find Insights an enjoyable read and would welcome your feedback.

Dr Oliver Hartwich
Executive Director

Migrating kiwis in for a rude surprise
Luke Malpass | Research Fellow |

Much is being made of the current exodus of New Zealanders to Australia – about a thousand a week at last count. As an indicator of confidence in New Zealand’s economic environment, it is damning. But confidence and perception are not fact, which raises the real question: To what sort of an economy is New Zealand losing people?

On the face of it, an extremely prosperous one: Australia’s GDP grew by 4.3% last year, a figure that would make Mr English weep with joy; Aussie unemployment is as a low as 5.1%, and wages are about a third higher than in New Zealand. However, paring these figures reveals all is not well across the ditch.

Although aggregate growth was high Australia-wide, there are stark regional disparities. Queensland grew by 7.5%, and Western Australia by a staggering 14.5% - almost twice the rate of China. However, NSW and Tasmania have been shrinking for some time, while Victoria and South Australia are treading water. In the past quarter even Queensland shrank.

The revenues these figures represent also tend to wash through the economy in indirect ways. The reality is that mining taxes from Western Australia are propping up federal revenues, much of which is spent on transfers and hand-outs in Melbourne and Sydney. The high Australian dollar also makes imports (mostly consumer goods) cheaper.

The low nationwide unemployment rate also masks the growing unemployment numbers, particularly hidden unemployment, on Australia’s eastern seaboard (NSW, Victoria, Queensland, and Tasmania). Economic growth is anaemic, with most of the eastern states in recession or growing very little. In Australia, they call it the two-speed economy.

For these reasons, the prospects are not actually that good for Kiwi jobseekers, unless they are moving north of Gladstone or to Western Australia. New Zealand’s growth rate is better, and there is no hungry resources sector forcing up interest rates and domestic prices. For all of Australia’s good fortune, more and more ‘for lease’ signs are turning up on shop fronts every day in the southeast.

It is often argued that Australia’s resources sector is an unassailable advantage over New Zealand. However, headline figures aside, the boom papers over the cracks of some serious structural economic problems.

Given all this, don’t be too surprised if you start seeing some Kiwi migrants return to New Zealand in the near future.
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Budget 2012 - National's discouraging war of attrition
Dr Bryce Wilkinson | Director of Capital Economics |

Budget 2012 continued National’s battle to control government spending by attrition rather than by ground-breaking reforms.

This battle will be lost eventually because mere attrition increasingly mobilises thwarted spending interests, while preserving both their privileged positions and the mechanisms they can use to increase spending when attrition fatigue has set in. The Yes, Minister TV series made the point best: entrenched interests and bureaucracies outlast politicians.

National’s biggest economic decision has been to sustain real government spending at the then record level it inherited from the Clark government in 2008. That decision forces the private sector to adjust to the new level.

Discount the emotive talk about public sector austerity. Even spending, excluding finance and unemployment costs, is projected to be higher in 2015-16 (inflation-adjusted) than in 2008-09, albeit marginally lower on a per capita basis and appreciably lower relative to incomes.

That major spending decision has forced National to rely on real revenue growth to close the deficits it inherited from the Clark government. The hope is that income growth will swell real revenue to new record highs.

However, this is a low growth strategy. On the budget forecasts, by 2016, GDP growth will be trending below 3% pa while labour productivity growth gravitates towards its assumed long-run trend of 1.4% pa.

Even those mediocre outcomes look optimistic. Between 2005-06 and 2010-11, average annual labour productivity growth was a mere 0.5% in the sectors of the economy where it can be most reliably measured. According to the OECD, annual labour productivity growth will not exceed 0.5% in 2012 and 13 - and will be lower than it was in 2004.

National does, however, deserve credit for its efforts to improve specific outcomes in major areas, such as welfare and education, and to improve the fiscal disciplines in the Public Finance Act.

Even so, it is discouraging to see a popular and determined government reduced to waging such a grim war of attrition with public spending for such lacklustre economic outcomes.

National is probably not getting more support for its budget from its sympathisers because of valid fears that its 2015 or 2016 spending targets will not be achieved. But there is a deeper problem in that the measures are limited and the projected outcomes are neither aspirational nor inspirational.
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Aristotle in Dunedin
Dr Oliver Hartwich | Executive Director |

“A great city is not to be confounded with a populous one.” That’s not a new research finding but a quote by Aristotle (384-322 BC). It opened an event on Dunedin’s Economic Development Strategy on Tuesday, which I attended as a guest speaker.

How ironic to bring in an ancient Greek philosopher to present-day Otago, not least because classical Athens had almost exactly the same number of inhabitants as modern Dunedin. But unlike Athens back then, Dunedin today cannot quite claim to be a ‘great’ city.

For too long, Dunedin has lagged behind New Zealand’s economic growth; it suffers higher unemployment than the national average, and it lost jobs when big manufacturers quit their local operations.

Dunedin’s draft ‘Economic Development Strategy’ aims to change all that. The document, put together by a group that includes the City Council, the University, and the Chamber of Commerce, leaves no doubt about its ambitions. It wants to see Dunedin as “one of the world’s great small cities”.

The strategy aims to create 10,000 new jobs and lift per capita incomes by $10,000 over a decade by creating a welcoming business environment, attracting and retaining skilled migrants, and connecting the city internationally, both through better transport links and an exchange of ideas.

I have read many similar strategy documents over the years but found Dunedin’s outstanding. The language was clear and the analysis stringent. This was indeed a well thought through approach.

However, my initial enthusiasm waned upon attending Tuesday’s meeting. Far from applauding their leaders’ ambitions and enthusiasm, the locals vied to outdo each other in pessimism, mockery and outright cynicism.

The list of objections was endless: Why extend the airport’s runway when rising sea levels are going to inundate it anyway? Why consider oil and gas exploration when natural resources have failed to lift Nigeria out of poverty? Why build new and better homes when nobody wants to live in them? Why help manufacturing when it will always be cheaper to mass-produce in China?

Aristotle was right. A great city does not need a big population. It can even be as small as Dunedin’s. But every great city needs a population that is passionate about itself, ambitious for its future, and optimistic about its outlook.

Perhaps Dunedin does not need a new strategy but a new mentality. Or, to quote Aristotle once again, “Happiness depends upon ourselves.”
All things considered ...
• Is this really the country of Sir Francis Drake and Evelyn Waugh? The British Health and Safety Police tried to ban bunting and decorations for Her Majesty’s Diamond Jubilee celebrations. At least Chancellor George Osborne kept common sense alive by ordering public servants to ignore the ban.
• Meanwhile, the United Nations continues the long, slow descent into farce by appointing Zimbabwe’s President Robert Mugabe as a special tourism ambassador. Well, he does know a thing or two about spending money on trips abroad.
• Back home, human rights commissioner Dr Judy McGregor has discovered modern-day slavery: earning $13-$14 an hour. Precisely when did paying the legislated minimum wage become a human rights issue?
• Not surprisingly, the head of the IMF, Christine Lagarde, blames the Greeks for Europe’s woes – they don’t pay enough tax, you see. Ms Lagarde should know: her NZD$720,000 salary is tax free.
• Globalisation may be a reality but beauty still knows bounds. At least that’s what the organisers of the local Miss Universe contest discovered when their chosen Miss New Zealand turned out to be from South Africa.
• And finally, Aussie politicians are so afraid of being spied upon that they won’t take their phones or laptops to China for security reasons.Fair enough, but does leaving them in Hong Kong make any difference?
On the record
• Introducing The New Zealand Initiative, The Nation, 5 May 2012
• Are Germans rejecting austerity?, ABC Radio National, 14 May 2012
• A Greek exit - How would it work?, ABC News, 18 May 2012
• Oliver Hartwich: New business think tank head, The Listener, 19 May 2012
• Preparing for 'Grexit', ABC News 24, 19 May 2012
• Left vs right? that's really so 18th century, Oliver Hartwich, The Dominion Post, 21 May 2012
• NZ budget holds spending in place, Luke Malpass, Australian Financial Review, 25 May 2012
• Oliver Hartwich on welfare reform, Rhema Radio, 29 May 2012
• Feature Guest - Oliver Hartwich, RadioNZ National, 31 May 2012
• German guilt won't save Europe, Oliver Hartwich, Business Spectator, 31 May 2012
• I'll go to the ends of the Earth to argue against the EU, The Telegraph, 6 June 2012
• Why 'saving' spain could destroy it, Oliver Hartwich, Business Spectator, 7 June 2012

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