NZ needs smarter and lighter regulation, not no regulation
It was great to see the coalition agreement come together last week, and it appears that the sometimes disparate policies of ACT, NZ First and National have all managed to be amalgamated and coalesce into something. Although there are lots of small issues that have been talked about and raised, it does appear to me to be a solid program. Though in my mind there is glaring silence on the most important topic of all, economic growth.
Over the past 60 years, New Zealand has gone from being one of the wealthiest countries in the world to being a solid mid-ranking country: according to the OECD, we currently rank 22nd in the world for GDP per capita. Back in 1960, we were second! Forget about all the waffly, frilly alternatives people put up against this measure – GDP per capita counts as “income” per person, essentially indicates what and how much goods and services can be accessed and, most importantly, essential services and basics. Note, low GDP per capita means poor access to healthcare, education, welfare, infrastructure etc. Big is better.
The fact that it looks as if we need to water-down smoking bans to afford tax cuts says a huge amount about how dire the state of our economy is. Unless we can find a way to improve productivity (i.e. produce more per hour of work) and therefore be able to lift real wages, we will never find a way to deliver the public services that we all expect, let alone start to fill the massive infrastructure deficit that we have here in New Zealand.
The new Government seems to understand this and is right to point out that everything comes back to the economy, though its only fix so far to improve growth is deregulation. In this quest for deregulation – with which I do agree – we need to be careful that our search for growth does not take us back to the world of leaky buildings, unswimmable rivers or campylobacter outbreaks. We need smarter and lighter regulation, not no regulation.
But lighter smarter regulation will not do too much on its own. The big thing that has been missing from New Zealand for a very long time, and is now needed more than ever, is a defined growth strategy. Through the election we heard lots of throw-away soundbite statements such as we want to be a high wage, low tax economy, we just need to follow the examples set by Ireland, Singapore and others. Unfortunately, New Zealand is very different, and we need to find our own way forward.
Singapore has thrived as a stable country with a good legal system and low taxes in the heart of the fastest growing part of the world. Its low tax status and focus on growth combined with its ability to leverage its unique geographic location is the rationale why Singapore has been able to grow.
Ireland’s location on the edge of Europe has driven her growth. Ireland has a very low corporate tax rate which enables companies to set up in Ireland and then sell into the European Union. This feature has driven massive growth in high tech jobs as the likes of Apple, Google and Meta have all set up their European headquarters in Dublin.
So where can New Zealand win and why? It is time that we developed a strategy for New Zealand inc, identifying where we have strategic opportunities and where we have a natural ability to win. At the moment, University research departments and Government departments like NZTE and Callaghan Innovation throw money at anything that looks kind of interesting. Brainstorming for suitable sectors might see some focus on the likes of Data Centres, Computer Gaming, elite Sports Coaching and Training, High-end Tourism (returning the helipad to Auckland Airport would be a good start!), anything to do with Sailing/Boats, expensive food and wine (think truffles) etc etc. I would be doing all possible to boost agricultural sector output!
By having a focused strategy, we could gear state funded research, export funding and even education systems toward a small number of high priority industries and areas. And for those of you that fear that this feels like Muldoonism all over again it is not. It is about focusing Government spending on areas that we believe New Zealand can build up scale and have a competitive advantage. Anyone that wants to build businesses outside of those strategic areas can do so, but won’t get the Government support that those inside the Government areas currently get.
The trick to getting this right is to make sure that the process of building a strategy is not beholden to lobbyists, but truly reflects where we might succeed and what we believe will drive higher wages. It will require difficult decisions and the need to give up on a whole lot of sacred cows. And of course, the process needs to be bipartisan, we can’t have the strategy changing and changing course with the outcome of each General Election.
So, Prime Minister Luxon, it’s time to bring your corporate thinking and experience to Government. Let’s stop pretending we can copy Ireland and Singapore. It’s time to be brave and build a real growth strategy for New Zealand based on our own unique advantages. Once the strategy is built, I know you have the ability to get New Zealand and the resources of your Government to deliver on it.