Revealing the Economic Myths

By   /   December 16, 2016  /   16 Comments

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The charade of this government’s sound economic management is unravelling. Misleading GDP figures, pumped up by property speculation and high immigration, have given the impression that all is well, masking our continued economic decline compared to OECD countries.

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The charade of this government’s sound economic management is unravelling. Misleading GDP figures, pumped up by property speculation and high immigration, have given the impression that all is well, masking our continued economic decline compared to OECD countries.

In fact, we are near the top of the OECD in hours worked, but near the bottom in terms of productivity. We’re working harder and working longer hours, but not working smarter. The result is that we’re getting more stressed, with less time for families and each other, while losing ground economically.

The latest analysis of labour productivity comes from the Productivity Commission, showing a cluster of related problems that are contributing to our low productivity. Firstly, there is low investment per worker. The Productivity Commission shows low investment in workers skills in 19 out of 24 industries, compared to Australia. With relatively low wage rates and more short term contracts, there is low investment in upgrading worker skills and improving technology. This is made worse by our education system failing to provide a decent education to kids in low decile schools and under-investing in vocational education and training opportunities.

Secondly, the Productivity Commission report shows that, instead of investing in productive enterprise, investment is going into tax-free speculation, such as residential housing. New Zealand’s diversion of capital into residential housing is far above the OECD average.

As a result, productive enterprises aren’t getting access to capital, or if they are, they are paying high real interest rates compared to OECD countries. It doesn’t help that light regulation of the banking sector has allowed banks to widen the spread between their cost of capital and interest rates, thereby boosting bank profits but acting as a drag on the economy. This flows through into artificially high exchange rates, further penalising exporters.

This provides a strong argument for shifting the tax burden away from speculation towards the productive economy through the Green Party’s proposal for a capital gains tax, as well as stronger competition in the banking sector and the development of a savings culture. We need to ensure that New Zealand manufacturing and the productive services businesses are not penalised by high interest costs and over-valued exchange rates.

Thirdly, the Productivity Commission in successive reports has documented how consumers pay high prices for non-traded goods and services in New Zealand. This is partly a result of high housing costs that contribute to high cost of living, but also due to a lack of competition in non-traded sectors and domination by a few companies. The last three decades of ‘light regulation’ have resulted in a high cost economy and high costs to vulnerable people and the economy through failures like Pike River, finance companies and leaky homes.

Deregulation comes with a high personal cost, as shown in a recent report on the tertiary education sector, on student visa fraud. A lack of regulation has allowed New Zealand to become a destination for low-grade diplomas with the likelihood of a getting a visa to live in New Zealand as part of the package. Scams and evidence of organised criminal activity by agents have left students vulnerable and New Zealand’s reputation in tatters. Our fourth biggest foreign income sector is at risk.

Further examples of migration fueling exploitation of migrant workers comes  from a University of Auckland report, with cases across agriculture, horticulture, construction and hospitality, building on previous investigations of slave labour in the fishing industry. The report shows migrant workers being paid for half the hours they work and paying their own salary to “buy” permanent residency.

The government would like to lock in this deregulation so governments could not reverse it. They are trying to do that through trade agreements. They failed with the Trans-Pacific Partnership Agreement (TPPA), as they have in previous attempts, because of the strong New Zealand and international campaign. But the new Minister of Trade, Todd McClay isn’t giving up. We will need to mobilise against the Trade in Services Agreement TiSA and the Regional Comprehensive Economic Partnership RCEP.

This research reveals the story of an economy being driven by increased government and private sector debt, speculation, immigration and poorly-regulated, low-productivity services such as education for foreign students. It is a long way from the pretence that the economy is doing well, a myth endlessly repeated by the new Prime Minister and the National Party. We can do better.

Barry Coates MP is a Green Party list MP, based in Auckland.

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16 Comments

  1. Jono says:

    Its ironic Barry isn’t it look at the airports no railway line etc etc. Working all these hours at low productivity. You would think with all this work we would have had a railway line years ago to the airport… So where is the money disappearing???? Offshore of course to corporates who masquerade as caring but of course pay as low pay rates that they can get away with – but shovel as fast as they can profits overseas. Its only time before nothing is left here.
    It also feels out on the street no one has respect for the person below there social status. Which i think comes from the corporate attitude which encourages selfishness. Thats my opinion…
    Merry Xmas!

    • Barry Coates says:

      Thanks Jono. It’s a case of private affluence and public squalor – cut taxes and public spending, sell off assets and run down the infrastructure. It’s short term and selfish. It leaves debt and problems to future generations. Merry Xmas to you.

  2. saveNZ says:

    Good post. However I love the way (sarc) the productivity commission fails to mention that we are also losing huge amounts through company ghost profits.

    Apparently the largest 20 multinational companies in NZ paid just 0.00018% in tax on their annual turnovers. (1.8m on 10 billion turnover), http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11767619

    Rather than Greens constantly trying to fight for a capital gains taxes which as well as being very easy to avoid for foreign nationals and super rich, it scares the hell out of voters and stops the left from getting into power, the Greens might like to concentrate on where some to the richest are able to make the most out of tax avoidance as above.

    A Robin Hood or transaction tax or a easy way to tax company turnover. Homeowners ALREADY pay a yearly capital gains tax of rates of approx .05% on every dollar their house is worth , I would like to see companies be forced to do the same with their turnover.

    And if you are really keen to tax property then Greens should use a stamp duty and it brings in instant taxes because it is very hard to evade unlike capital gains tax.

    Remember when Cunliffe was asked if trusts were exempt from capital gains tax last election and he paused before saying yes….. he pretty much said that only the middle were going to pay capital gains and those with tax avoidance measures and multiple entities in place were exempt.

    The biggest problem we have in NZ politics seems to be an inability to get away from group think… or being able to change.

  3. Geoff Lye says:

    “Firstly, there is low investment per worker. The Productivity Commission shows low investment in workers skills in 19 out of 24 industries, compared to Australia. With relatively low wage rates and more short term contracts, there is low investment in upgrading worker skills and improving technology. This is made worse by our education system failing to provide a decent education to kids in low decile schools and under-investing in vocational education and training opportunities.”

    With so many skilled workers employed through temp agencies is it any wonder the above applies. Where do workers get the necessary upgrade in skills when they are flicked on every couple of weeks or so on bullshit wages.

    It is time a “the general wage order” like in Rob Muldoon’s time was brought back so everyone gets a wage rise not just those who are on Minimum wage or lucky enough to work for a boss who does give a yearly wage rise.

  4. Stuart Munro says:

    It has taken about three and a half decades to wreck NZ’s housing sector – and thereby the economy – because no productive or service business produces comparable returns or security to real estate. Economists have known real estate speculation is a curse for hundreds of years, if not thousands. Biarritz was one of many famous bubbles.

    NZ is unusual it not taxing capital sharemarket gains also. Bring these into line with other income and the speculative sector’s advantage over the productive sector will gradually erode. It will take several decades however, and for a large proportion of NZers the economy doesn’t work at all. They will need something significant well before 2040.

  5. Nick says:

    Tax changes are net-neutral from a vote point of view, particularly complex ones like this. Some think they love it others hate it, but few people actually understand it. Better to say we will review to make it fairer, giving examples of unfairness that everyone will agree on. The problem of taxing assets, and avoiding inter-generational developing inequality, can be left for more cerebral consideration than you will ever get in the red-hot political-electoral debates.

    Productivity is one thing that needs elucidation, though. For the majority, low productivity equals lazy workers, where it is more likely to mean the opposite! In a low productivity economy, each worker has to work longer (and harder) to produce the same output. Consequently they are paid less to ensure the share holders get a competitive return on investment, and have to work even more to make up the difference. They are going to have fewer public holidays and usually worse working conditions.

    Failure in productivity is not partially, it is entirely the fault and responsibility of the business owners.

    The true level of productivity will be disguised by immigration or an earthquake pay-out, because new money when factored into productivity, looks like trading profit, when it is just an injection into the money-go-round.

    For most purposes, raw productivity data is too blunt an instrument to base much on. All we can say is that the situation locally is likely to be worse than it appears. And to say that the only real way to improve “productivity” is to make massive investment in high-value output activities.

    The new industries don’t have to be IT. They could be organic farming or nut plantations or international shipping or enhanced tourism. The only thing they have in common is a high investment component.

    New Zealanders aren’t greedy, or ambitious. Our business owners are doing fine screwing us the way they are now. Why waste money when they are already doing fine?

  6. Andrea says:

    People who work are Good. Virtuous.

    Long hours demonstrate Loyalty and Taking Several for The Team.

    Productivity ratings show our True Competitive Spirit. Punching above our weight. Strutting it on the next stage to karoshi. Dying if we can’t join the Glorious Toil for the Good of the Country.

    Would someone please tell the piano player to stop tinkling so we can get out of this mindless circling of the few, then fewer, ‘jobs’?

    This stance is a smell lingering from the nineteenth century. The endless citing of the propaganda to get people to toil for others for very little reward, followed by a rip-off at pension time.

    It is past time when this must be taken outside and shaken, not stirred. And it’s not a task for the short termism of politicians or business people.

    If you’re paid to think – get started. Soon.

  7. Mike in Auckland says:

    Hah, nothing new to me, Barry, I have been going on about this for years. I have also since of recent got a new flatmate, an overseas student, oh yeah, one of those signed up with one of those private education service providers, you know what I mean.

    He is not with IANZ, but with another outfit, and what he told me was the same I was told years ago by a young Korean student, attending a similar institute, again, privately run.

    I have learned through people like these, what rip off stuff is happening, I know from first hand experiences, as these people tell me, they do actually learn nothing new through attending these “business” courses, they feel cheated and bull shitted all along. The only reason they play the game is, that the same institutes give them prospect and hope to get a work visa, once they get their actually rather useless “certificate”, and there is the real intention and business behind it.

    They all work with overseas agents, who are paid big money to try and get these overseas students into whatever courses, to get whatever useless “certificate”, and then to try and get them jobs here, competing with our local workers, which drives down wages and salaries.

    That was one snake oil salesman’s trick, to get more “students” come here, feathering the nests of agents, operators, accommodation providers and employers seeking cheap labour. The other snake oil salesman’s trick was to fool the average Kiwi that the economy is booming, while much of it was based on guess what? IMMIGRATION and little else.

    So that is like telling mothers, have more babies, as the country and economy must grow, so we get more people, more workers, more consumers and more turnover, nothing less or more.

    But instead of expecting Kiwi women to pump out more consumers and workers from their own wombs, who then may need school and further education and training, the government took the easy way, to import lots of people, to do the same trick, more quickly.

    We now have a shortage of housing, of teachers, of ECE workers, of health service providers, of infrastructure like roads, buses, trains, and Auckland is bursting at its seams, I watched it again this afternoon.

    Tourism is another trick, as boosting visitor numbers is like increasing exports, selling stuff and services to them, but it is not all clear cut. We have Chinese and other smell of the oily rag operators here, who siphon off their share of the market. Thousands of “tour guides” get imported on work visas, and they run their own schemes.

    Then we have back packers, we have temporary workers, and students, exploited to do menial seasonal and other work, for pittance, and being ripped off with high accommodation costs and so forth.

    NO wonder some wineries, horticulture and hospitality businesses are doing so well, there is a huge pool of desperate, willing and compromised imported workers, working at levels most Kiwis have no idea about. My new flatmate works at least two jobs, and during the holidays, he tells me, there is no limit to hours worked and money earned, so having a month over Christmas and New Year, he is out there, slaving away, to make Kiwi bosses, big and small very happy, and trying to earn a bit extra, to finance his high fees for rip off studies here.

    We have had dairy boom and bust, now back up again, but many are in for the farm sales, that earn more money. The Auckland housing market is slowing now, but the prices are still astronomical, there are just not enough willing to sell now, while still a fair bit of demand exists.

    I sense though a change in the wind, the bubble is near bursting now, and real estate agents are getting worried, after months of gold rush mentality.

    The country continues with mostly low level value added economic activity, where we are nothing but a slightly more advanced third world country, and pretend we belong to the upper end club, the OECD.

    The debt is huge if you add private and public debt together, much “growth” was fueled on borrowing. 15 billion student debt we have, by just over 140 thousand students, some overseas, never wanting to come back, given the hopeless prospects.

    We are running out of GPs also, and doctors in hospital work horrendous hours, we are stressed to the limits in many areas.

    No wonder Mr Key took a swift runner, he knows, as prime market speculator and signals reader, the times they are a changing, better leave the crap hitting the fan to English, and if he does not manage, to Labour and Greens and perhaps Nz First to deal with.

    That man will become the greatest conman in New Zealand’s history, he shafted the people, who were ignorant and followed the pied piper, or whatever you call it.

    He is sweet now, got his booty in the dry and a safe haven, Max can enjoy his discos in the US mega cities, where he will travel and flirt with the wannabe one percenters.

    Now John Not the Baptist is enjoying the sun of Hawaii, soon NZers will feel the chilly wind of recession, it is around the corner, perhaps something worse.

    Trump will deal the cards in the US and force a poker session on the world, driving many into ruin. We do not even want to discuss the coming climate disaster, better batten up the hatches, dear friends, it will get damned hard and nasty, that is in the coming decades.

    I recommend to intending parents, do not go for it, do not have babies, the future will not be kind to future generations, better prepare now, and toughen up and stock up the emergency cupboards. Some seem to already prepare, the supermarkets, malls and so seem rather empty I note, quite unusual. Something worrying is in the air, now wonder John chose to swiftly run.

  8. earshot says:

    The nats went in the opposite direction of what an government wanting to improve real growth would have done.
    It’s all short term property speculation bubbles, and other fake growth through things like immigration.
    Most other intelligent countries do things to try to prevent all the immigrants going to one main city, but not the good old, we’ll never do anything that needs to be done nats.

  9. countryboy says:

    No Shit Sherlock’s.

  10. Helena says:

    jonkey did exactly what he was told and paid to do. Racked up as much debt against New Zealanders as he could get away with – until he was given his marching orders. Illustrious track record of jonkey, which will be laid bare soon for all to see:
    http://www.thevinnyeastwoodshow.com/vinny-mr-news-eastwoods-blog/john-keys-real-past-exposed-must-see-please-share-6mins
    NOW CAN I GIVE EVERYONE THE GOOD NEWS, PLEASE TDB:
    http://www.ascensionwithearth.com/2016/12/20-truths-nobody-dare-say-in-public.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ascensionwithearth%2FkRNq+%28Ascension+with+Mother+Earth+and+Current+State+of+Affairs%29
    I particularly like the bit of the Sovereign State of Palestine containing within it the Sovereign State of Israel (minus the Zionists, a given)

  11. Sally's Husband says:

    “This provides a strong argument for shifting the tax burden away from speculation towards the productive economy through the Green Party’s proposal for a capital gains tax, ”

    Which Labour has gutlessly abandoned as a policy.

  12. Sally's Husband says:

    “This provides a strong argument for shifting the tax burden away from speculation towards the productive economy through the Green Party’s proposal for a capital gains tax,”

    Labour was too gutless to pursue the CGT and abandoned it in favour of short-term electoral gain. They got neither in the end. Until a comprehensive CGT and wealth tax is implemented, we will have distortions throughout the economy and an economic crisis waiting to come crashing down on us.

    We already have debt of Greece-like proportions and Key’s regime made it much worse.

    People feel wealthy, until the party comes to a grinding stop. Then we’ll have to pay the piper but Key will be lounging on some Hawaiian beach, with not a care in the world.

    The greatest illusion isn’t our so-called “gdp growth”, it’s National’s unearned reputation as a sound fiscal manager. They are not just hopeless, they are DANGEROUS.

  13. Takere Takere says:

    Stamp Duty, CGT, get rid of GST, put tariffs on imports, no subsidies, IRD to reduce-eliminate company’s slow payments for tax, income tax ect …
    No longer fund corporates in the housing sector & start a government owned & run House Building program with NZ owned companies where capital/profit stays in NZ …. simple stuff really.



Authorised by Martyn Bradbury, The Editor, TheDailyBlog, 5 Victoria St East/Queen St, CBD, Auckland, New Zealand.