Why New Zealand industries lag behind Australia

Business

Financial and insurance sectors identified as a major drag on New Zealand's productivity; 'Professional, scientific and technical services' sector one of our better ones

19th Dec 13, 5:30pm by David Chaston

Low investment in capital and inefficient use of both capital and labour contribute to the productivity shortfall in New Zealand industries compared to their Australian counterparts.

The New Zealand Productivity Commission has published a working paper by UK-based economist Geoff Mason that analyses productivity performance at an industry level across the two trans-Tasman economies.

“Average labour productivity in New Zealand has been losing ground to Australia since the 1970s, and is now almost a third lower than in our trans-Tasman neighbour” said Paul Conway, Director of Economics & Research at the Commission.

“This is important because differences in labour productivity – average output per hour worked – have a big impact on cross-country differences in living standards.”

The report also looked at the amount of capital (eg machinery, computers and other assets) available per hour worked and skill levels to estimate multi-factor productivity (how efficiently labour and capital are used).

Across the 24 industries analysed, multi-factor productivity levels in New Zealand are about 22% lower than in Australia, a smaller gap than found for labour productivity but still a very significant difference.

In a startling finding, one of the the worst identified sector is the financial one - banking and insurance.

The majority of New Zealand industries under-perform from a productivity perspective compared to the same industries in Australia, including mining, agriculture, most branches of manufacturing, construction, retail and wholesale trade and financial and insurance services.

In financial and insurance services, the Report shows (Table 17) that New Zealand's 'average labour productivity' is only 30% of Australia's; relative capital intensity is only 42%; skills are 93%. This gives a relative multi-factor productivity of only 48% of the Australian level.

Given the size of the financial and insurance sector in New Zealand, improvements here could become an important component in rebalancing the nation's overall productivity shortfall.

(Update: These findings come after the Commission found in a major October report that labour productivity grew +3.9% pa from 1990 to 2011 in this sector and that the multi-factor productivity growth over the same period was +2.2% pa. See Table 2. But it also reveals a fast tailing-off in improvements in the 2008-2011 period however.)

However, New Zealand has areas of relatively strong performance in food and drink manufacturing, utilities (electricity, gas and water supply) and arts and recreation services.

In 2009, capital invested per hour worked across total market industries in New Zealand was almost 40% below the Australian level. Australia is also 3% ahead in terms of skills – measured here using data on workforce qualifications and relative pay levels – but this gap is much narrower than that found for capital per hour worked and multi-factor productivity.

Some of the productivity gap at the overall economy level is because Australia employs more people in industries with higher value added per hour worked, such as mining, utilities (electricity, gas and water) and financial services.

New Zealand employs more people in comparatively low value added industries such as agriculture and food and drink manufacturing.

These differences have grown sharply since the late 1990s, due to changes in the New Zealand industrial base.

However, the majority of the gap is due to productivity differences in the same industry across the two countries.

The report provides useful information on the specific industry areas in which New Zealand underperforms from a productivity perspective and makes an important contribution to work on the ultimate causes of New Zealand’s poor productivity performance.

Concern over low productivity in service-based industries has led to the Commission’s inquiry into ways to boost the performance of the services sector.

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66 Comments

by Roger Witherspoon | 19th Dec 13, 6:04pm 1387429449

So is this principally due to low investment and gross incompetence and lack of skills in the high pay, high capital intensity, highly skilled, highly dangerous, high productivity industry of mining?

Isn't the report merely saying that mining has been a much more productive field of endeavour than finance companies and golf courses and ski lodges?

Whilst I think NZ missed out big time by being so anti mining over the last 30 years, it may be that mining suffers from gross worldwide overcapacity for the next 30. Who can say? I'm not sure quite what this report tells us.

by Snodgrass Thro… | 23rd Dec 13, 10:33am 1387748018

Post of the day award for you Roger. Ample evidence to support this. Ironically, and to the probable disappointment and embarassment of some regular commenters here, it will be the gas and petroleum mining industries that face the biggest balancing act due to oversupply. Peak demand will be a phrase we will be hearing more often in the next decade.

by PhilBest | 25th Dec 13, 2:26pm 1387934802

I second that nomination, and award a vote-up to SnodgrassThrog as well.....

by MikeM | 19th Dec 13, 10:41pm 1387446119

It basically tells us that the Aussies sold China a ton of dirt for more than NZ sold China a ton of butter.

by cowboy | 19th Dec 13, 10:51pm 1387446710

We can make more butter, can the Aussies make more dirt?

And we can certain make more movies....

by PhilBest | 25th Dec 13, 2:33pm 1387935217

Hmmmm, we can make more butter, but we are already making quite a lot, increases will be only incremental.

We have been helpless price takers on international markets for most of the last 70 years, the terms of trade have declined by a factor of 4 against primary products, hence our decline down OECD wealth rankings; there is no reason to think that a short term trend to higher dairy export incomes is a reversal in the long term trend.

I miss the late Prof. Sir Paul Callaghan very much, he was a fount of wisdom on stuff like this and absolutely showed up the economics specialists who never got his insights.

One of the best 45-minutes odd you can spend:

http://vimeo.com/24850332

IF you don’t have time to watch it, which would be a pity, at least read this:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10559030

by Roger Witherspoon | 25th Dec 13, 5:01pm 1387944087

We can make 10% more butter, but not, I think, 10x more.

by Jake Wiltshire | 20th Dec 13, 4:11am 1387465871

Economy of scale will have a large part to do with this too.

Producing 5000 of something does not require 5 times as long as 1000 of the same. The time is spent in set up and clean up getting ready for the next item. It may only take twice as long in total time, obviously depending on the product.

As so often this can work in our favour too. With many products manufactured in Australia the minimum run requirements are much higher and often too high to consider until a product is well established. Or of course you never consider to manufacture a certain product in either country.

Sadly the freight costs weigh against us, it often costs as much to get it picked up in Auckland and to Sydney wharf as it does from Sydney wharf to 20 km further. Is that because of the high value added by Aus customs, dock workers and cartage companies or another form of protectionism? However this does reduce the advantage NZ may have being able to or willing to produce smaller runs of a product.

I can understand the retail difference, per person they sell more in $ terms and items over the year. But then they would have to, there is hardly a staff member in a store and most retail markets are 6 times the NZ one due to a higher replacement rate. But NZ can probably do with less staff, not to mention fewer malls, in many retail situations.

While life insurance is cheaper there, many other insurance products are much more expensive. So on a pure revenue comparison one does need to sell more policies in NZ to reach the same, more policies is more work is more people required, lowering productivity per dollar sold.

Lawyers in Aus are often twice the price for the same sort of advise. Not sure if they are twice as smart though.

Then of course a bigger market makes machinery inverstments more cost effective, leading to lower production costs and a report like this.

Still, the report is food for thought.

by cowboy | 20th Dec 13, 6:42am 1387474929

" But NZ can probably do with less staff, not to mention fewer malls, in many retail situations."

"Then of course a bigger market makes machinery inverstments more cost effective, leading to lower production costs and a report like this."

How are NZ people going to get incomes?

by PhilBest | 25th Dec 13, 2:36pm 1387935386

http://vimeo.com/24850332

IF you don’t have time to watch it, which would be a pity, at least read this:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10559030

"Value added" is the key. High-value low-freight-cost items. One planeload of stuff from Rakon or Tait or F&P healthcare is worth more than several container ships full of butter or carcases. And it only needs part of a city block to produce the stuff, not 40% of the total landmass of the country.

by Craig | 20th Dec 13, 9:32am 1387485129

I agree with you there, do well and we will punish you with higher rates and a higher NZD to follow.

Most businesses need to export to sell in any scale and get heavily punished.

What always gets overlooked is the effect of the high NZD, not in terms of sales, but lack of profits and killing the will to invest in R&D and equiment which would make a difference. Why invest when returns are so unpredictable?

by PhilBest | 25th Dec 13, 2:56pm 1387936596

"Bird's Eye View of OECD Housing Markets" January 2010

Para 55. "Another concern is about the ability of monetary policy to thwart the development of a housing bubble without causing widespread damage to the rest of the economy. In a house price boom, prices increase strongly – often at double digit rates – and expectations of future prices are similarly upbeat.

Under these conditions, large policy rate hikes would be necessary to cool housing markets. High interest rates would crowd out sound and socially useful investments. An additional difficulty for large countries and monetary unions is that housing market developments usually differ across regions or member countries. For example, during the latest housing boom, while prices were soaring in States like Florida or California, they were stagnating in many other parts of the United States. In the euro area, prices were skyrocketing in Spain and Ireland, but declining in Germany. Devising an appropriate monetary policy response to asset price developments under these conditions is not easy."

Don Brash (and Owen McShane) predicted all this when he was RBNZ Governor in the 1990's. He blamed the rise of "urban growth containment" planning. And he was right. 20 years ahead of his time.

by notaneconomist | 20th Dec 13, 10:06am 1387487180

Maybe it is also worth considering the 3 industries at the bottom of the table above and the effects these 3 have on the industries above in the table. Professional services, renting, hiring, real estate, electricity, gas, water and waste services are a cost on real production.

This report tells me that private enterprise is hamstrung by the bureaucracy/ public service! But I already knew that......

Why would anyone want to use GDP/hours worked formula? It is like using 24 hours /and a two year old having 5 tantrums per day.

"Never argue with stupid people

They will drag you down to their level

And then beat you with experience"

Mark Twain

by Ms de Meanour | 20th Dec 13, 11:01am 1387490516

Your first paragraph is a good point. Your second doesn't really follow from your first, you need an additional step in between to show that the reason for low productivity in "professional services, renting, hiring, real estate, electricity, gas, water and waste services" is "bureaucracy and the public service". Most of these activities aren't carried out exclusively, mainly or at all by the public sector and it's not obvious that they suffer from more "bureaucracy", whatever that means, than other more productive sectors do.

I don't understand your objection to using GDP/hours worked as a measure of productivity, it's a pretty standard approach internationally. How exactly is it like using "24 hours/and a two year old having 5 tantrums a day"?

Perhaps you could set out what you think would be a better measure?

by scarfie | 20th Dec 13, 4:04pm 1387508663

Energy consumption per hour worked.

by Ms de Meanour | 20th Dec 13, 4:33pm 1387510425

That's not a measure of productivity, and won't tell you anything meaningful. If you are interested in energy efficiency, which is a perfectly reasonable thing to be interested in, you should look at energy consumption per unit of output. An hour of work is not an output, it is an input, as are energy and capital.

by steven | 20th Dec 13, 6:23pm 1387517031

Actually it does tell you something interesting.

How energy intense your workforce/economy is.

regards

by cowboy | 21st Dec 13, 10:49am 1387576175

Also it indicates the amount of resources consumed, and when collated also tells you environmental impacts, waste created, and a good outline for overall total humanhours consumed in producing the outcome.

There's a good reason "important" people don't use it...

by scarfie | 22nd Dec 13, 2:41pm 1387676467

Interesting little journey taking a closer look at Australia's energy balance. While they import a shed load of fossil fuel they are, unlike New Zealand, a net exporter of energy. Actually quite a considerable percentage. Bloody fools really, it is like New Zealand exporting unprocessed logs. Relying on exporting commodities for you main income will lead to an Egypt or Syria scenario.

by steven | 22nd Dec 13, 10:13pm 1387703639

Renewable exports is fine, eg logs fine.

regards

by scarfie | 23rd Dec 13, 8:28am 1387740485

Sort of, monocropping isn't really a sustainable practice and the timber grade gets worse with each generation.

by steven | 23rd Dec 13, 9:12am 1387743174

URL?

by scarfie | 23rd Dec 13, 9:59am 1387745987

You will have to google that, it is just something I have known and accepted for 20 years. Monocropping is quite straight forward, you the same crop uses the same minerals so drains the soil of them if used repeatedly in the same ground. Artificial fertilisers have a simliar effect when you only replace the NPK elements.

But that is a side issue to me. The real story here that is being missed is that with a net positive energy equation how much energy Australia is exporting but Geoff Mason (and David) have completely missed that effect on the economy compared to us, a net importer of energy.

by cowboy | 25th Dec 13, 7:29pm 1387952941

there are ways to nuture the soil, and also crop rotation can (and is) being done. monocropping is necessary for efficiency of harvest (not all crops come ready at the same time!). Constant monocropping the same imported crop is what gets a lot of people in difficulties - no so bad with natural varieties is they have resistances to most local pest (in order to evole/survive to be in that niche already). Specialist crops with fancy brochures full of promises, repeatedly done in the same ground, (monocrop or not), is asking for trouble.

by PhilBest | 25th Dec 13, 3:02pm 1387936944

Scarfie, I am really impressed with that insight. I have been arguing the same for a long time. For example, just a couple of days ago I said on a US forum:

It is a major missed opportunity for Australia, that it has not emulated those States of the USA that have significant private sector freedom to extract resources; freedom to do urban development without being submitted to urban planning shakedowns (and hence very low urban land costs and house prices); "right to work" laws and business-friendly local taxes. This is what Joel Kotkin calls the USA's "growth corridors", primarily comprising the South and the rural heartland up as far as ND. If that was a separate economy, it would be the world's strongest right now; and if Australia had those policies rather than California or UK policies, IT would probably be the world's strongest economy right now.

I think it entirely plausible that if Airbus can build a factory in Alabama because of the local attractor factors, Australia never needed to kill its tradables sector. This is entirely a matter of bad choices, not bad luck.

by notaneconomist | 22nd Dec 13, 7:50am 1387651851

MDM - The cost of bureaucracy, public service, regulation etc falls heavily on the first industries in the list.

GDP/hours worked is meaningless when there is no consideration given to the input costs above. Each sector will have a ratio split of actual costs to produce and compliance costs. The splits could be e.g. 70/30 50/50 etc.

There is a time factor and a cost factor involved which is a drag on productivity.

GDP doesn't measure quality.

by PhilBest | 25th Dec 13, 3:13pm 1387937594

Especially where government spending is concerned. "Keynesianism" (actually, Keynes would disagree with what his name is being put to) is a fraud. It is a "success" by definition, because in the statistics, government spending is simply added to GDP, dollar for dollar.

“25 percent [of GDP] as the maximum tolerable proportion of taxation may be exceedingly near the truth.”

- John Maynard Keynes

by cowboy | 25th Dec 13, 7:25pm 1387952739

You can't actually win at a ponzi scheme buy buying back in at the bottom, and doing so 25% more each time, which is what that formula advocates.

What he is describing adds inflation (rising cost of money), not value of money. As the ponzi scheme increases the cash flow through government, it decreases everyone elses wealth to do so, result in net loss de to the ineeficiency in collection (the moeny paid to collection people in the system, is recollected, but they spend it in trival consumer costs, not adding value.

As this process inflations the value of money away, those not in on the game have problems keeping up with what the collection people/government are paying themselves, because of the forced effect of a government legally powered ponzi. as the purchasing power of everyone money shrinks, people, especially the poor find it hard to buy, economy falters as the cost of wages due to inflation has risen (but the value of what is got has not). The mob push for ways to make sure they can afford life essentials, in the meantime the GDP (value, not numbers) has effectively shrunk, while the cost has gone up, leaving the tax collectors scraping to pay their targets, to meet the spending commitment they already created (with inflation & leverage).

If that's success, I'd hate to see the failure...

by cowboy | 20th Dec 13, 10:24am 1387488291

"In 2009, capital invested per hour worked across total market industries in New Zealand was almost 40% below the Australian level"

And just where is that NZ capital supposed to come from?

Borrowing from banks? What with the OCR dangling over our head if we do well? With some of the highest interest rates in the world?

Lets take a look at wages vs revenue ratios? (a productivity per person metric).

NZ Government has been promoting "Foreign investment in NZ". Not by providing cheap credit (self-limiting expiration) but by putting the foreign businesses at an advantage to local business owners (tax on profit vs "consulting fees", PAYE costs vs tax-free foreign "advisors") So even should workers in NZ do well the profits go offshore anyway, leaving your average kiwi scrambling in the dirt for crumbs. (just check out those median wage tables - use the net take home pay - preferrably with rental and electric adjustments. Hows THAT for a productivity metric of scary proportions!!)

What Xaio missed on his (1) kiwis going overseas, (2) foreigners coming into NZ, was (4) treat the local kiwi families like illiterate peasants.

How do you expect such people, with no resources, and their own government acting to keep them dumb and broke, to be able to invest in capital in productivity - they can't even afford to bid for their own power stations!!!

by PhilBest | 25th Dec 13, 3:16pm 1387937791

It would help if the investment money sunk into a Ponzi scheme in urban dirt, had been invested productively.

This is one of the secrets behind the success of "America's Growth Corridors", as Joel Kotkin calls the South and the rural heartland up to ND.

No urban dirt Ponzi, very low local costs, maximum returns on productive investments, maximum stimulus effect from low interest rates.

by cowboy | 20th Dec 13, 10:24am 1387488293

by Ralph | 20th Dec 13, 1:19pm 1387498746

You're supposed to save it.

by cowboy | 21st Dec 13, 10:47am 1387576076

save what?

by Ralph | 23rd Dec 13, 12:10pm 1387753826

And just where is that NZ capital supposed to come from?

You're supposed to save it.

by cowboy | 23rd Dec 13, 2:12pm 1387761152

What I'm asking is where are these funds coming from to be saving.

by Ralph | 24th Dec 13, 10:50am 1387835426

The usual, well proven and practiced model for centuries has been to spend less than you earn.

I suspect now might be a good time to point out that in the broad sweep of the last 2000 years of history we live in the most prosperous age of plenty that ever there has been.

We are histories 1%.

by KH | 24th Dec 13, 11:05am 1387836311

Cowboy. Your argument is a fail. Ralph rules.

by PhilBest | 25th Dec 13, 3:28pm 1387938523

Hmmmm, Uni Prof. Elizabeth Warren became a YouTube sensation and got elected to the US Senate by pointing out the fact that while global capitalism has brought down the cost of food, clothing, appliances, cars and mobility, and a lot of discretionary items, somehow "housing" now swallows a higher proportion of double incomes than it swallowed of a single breadwinner's income in 1970.

I think she is dead from the neck upwards about the role that urban planning has played in this, but she makes a LOT of good points about the consequences:

“The Coming Collapse of the Middle Class”

http://www.youtube.com/watch?v=akVL7QY0S8A

The “savings” (in food, clothing, appliances) have been in low-proportion and “discretionary” spending items. The big increases have been in “basic” and unavoidable expenses. In fact, I would like to inform her that when there is a successful closed-loop land-rent-exctraction effect at work in the urban economy, savings made in other areas will be sucked up in increased cost of urban land.

Single income families in the 1970’s made less money, BUT “big basic expenses” absorbed 50% of their income, while the 2-income household now needs 75% of their combined income to meet these costs, and have less discretionary income.

The typical household now is at HIGHER risk – if one earner loses their income or some of it. The 1 earner household had the chance of the non-working spouse adding a little income in times of stress; or even becoming the main breadwinner (as many widowed and separated women did). But now? Both adults are already fully committed and there is no slack able to be taken up.

Elizabeth Warren presents some very interesting breakdowns of data. Income volatility is higher for everyone now than it used to be, but is highest of all for two income families.

Housing cost for families with no children, is up 50%; for families with children, it is up 100%, obviously representing the need for more space.

There are more children in bankrupt households, than in divorced households.

85% of bankrupt households successfully hide the fact.

The households who are fortunate enough to get through life without suffering a reversal (health, accident, job loss) will probably “make it” without dropping out of the middle class. but even so, will never get security, and are always on the treadmill, in contrast to their parents (1 income earner) generation.

Everyone who does suffer even one significant reversal drops, most likeley permanently, into the bottom class.

As Hugh Pavletich calls it: the bankers benefit scheme; women becoming mortgage slaves along with their husbands. Pity about the collateral damage, eh?

by cowboy | 25th Dec 13, 7:38pm 1387953482

Your methodology does not examine why the cost of housing has risen.

Likewise the double income rate has gone up...but why has the disposable (purchasing power) gone down - even in houses where the double-income had already paid off the mortgage. (ie the cost isn't from housing, it's creating rising housing prices!!!!)

by PhilBest | 30th Dec 13, 3:23pm 1388370202

Ah, you are obviously not familiar with my position on Interest.Co.NZ for the last few years. The cause of the inflated urban land prices is urban planning, land rationing, and speculative Ponzi in urban land and housing (which last is endogenous to the distortions introduced in the first instance by the planners).

There have been lengthy debates on here about this. I believe I have successfully seen off all the red herring excuses that attempt to get the urban planners off the hook. Try me.

by cowboy | 25th Dec 13, 5:39pm 1387946357

Speaking as one of those well under the local Palmerston North median wage, I think your "spend less than you earn" needs revision. Most costs are fixed or controlled and a increasing number of people are having less left over, and government (local & central) is inventing more ways to force us to part with it. Many a time in my life I have been in the "butter or jam, but not both and sometimes neither" situation and like a large number of others having to go without just to put a roof over a families head.

Considering the progress and income even of the poor...such situations are ridiculous but I can guarantee you "saving" to get out of them is not an option.

(eg when I was on $115/wk, that got roof, power, food, phone, net ($105 fixed). $10/wk was child support, fuel, save for doctors visits, and other misc (clothes, car repairs).

When I enrolled for a paper at university, they insisted that I join the "student union", which cost as much as the paper I want to student - so other students could have subsidised gym and perks. That's where your "savings" go...

by Ralph | 28th Dec 13, 10:33am 1388180003

This isn't any kind of argument against the existence of injustice, or a guarantee of outcome to every circumstance, it is simply a statement to the truth of the obvious (not a criticism or saying you don't understand that).

To put around the other way, nobody who spent more than they earned ever saved anything.

by cowboy | 29th Dec 13, 4:49pm 1388288994

It's not about injustice, it's pointing out that the obvious is impractical for those who need it most.

To put it the other way around; those who need to save don't have the money to do so in the first place.

Thus we move "saving" off the table, as a possible option. Which takes us back to the original question of where are those resources going to come from....

by cowboy | 30th Dec 13, 12:50am 1388317829

We already have "compulsory superannuation fo employers" (which remember, the cost MUST be passed on to the consumer for the employer to stay in business of employing people). It's called PAYE. any compulsory charge by government is simply a tax, by whatever name it's given.

voluntary superannuation, has always been there for employees. Those who can afford it, those wise enough to use it (who expect to live long enough), can easily privately invest.

the initial question was this:

"How do you expect such people, with no resources, and their own government acting to keep them dumb and broke, to be able to invest in capital in productivity - they can't even afford to bid for their own power stations!!!"

It's not about how to give the government or brokers money for big business to spend and renege on, in order for 50% of the population to receive a pie in the sky one day maybe (if the age doesn't get pushed back further).

It's about developing any sort of invest/passive return, it's about NZ business owning their own factories space (thus not paying banks and foreigners a % for the privilege). And if the business doesn't own the land & factory space, their _customers_ do - thus we get the money-go-round. Either we have cheap production from low cost ownership, or NZer's have income from asset ownership which they can spend. Both are win cases for NZ business and NZ people.

But that requires not bidding against foreigners with cheap beads&blankets. Requires not swapping real assets for fake instantly inflated to nothing paper. Requires not putting every blockage and cost under the sun to make NZ a parkland paradise...but with no-one but the foreign accounts being able to live here.

At the moment we are fast tracking to being the next Fiji, or other Pacific island tourist economy. Our local economic base being destroyed and sold from under us.

The reason for looking directly at the poor, is that they have the least room for leakage. Their are no margins for error. Any upsets in the system and we see it taking root there first, and all the bandaids in the world won't hide it if a true fix isn't taken on.

I hear someone claiming were at the top 1% in history. Yet I know people who only have a handful of change to survive on from week to week, yet who have to pay for the "worlds' best drinking water" through their rent, and a bunch of other similar expensive claims. A handful of change that 20, 50, 100 years ago that would have a weeks food for a family of 6. And yet they're paying 20+% on their childs compulsory school uniform, in a country where basic education is "free" and also compulsory. Where they learn the latest foreign owner computer software and graphics design, and nothing about economic budgetting. Where they learn about brands, but not about the cost of business.

by Ralph | 6th Jan 14, 9:18pm 1388996317

None of that changes the truth that everyone, poor included, must either earn more or spend less. There are no other moral alternatives and ever it has been this way.

Nothing is free, somebody had to pay in some form.

Nobody owes a living to anybody else.

it's hard to know what else to tell you.

by cowboy | 8th Jan 14, 1:00pm 1389139246

Someone has to pay, yes.

No-one owes anyone a living...

yet...

The "earn more or spend less" is the crunch that I'm paint in big white Elephant paint for everyone to see.

The costs that are killing the economy, killing businesses and destroying poor people aren't optional spending - which means the people involved CAN'T spend less.

Living somewhere isn't an option. Buying is expensive huge chunck of cash (made worse with LVR changes), so for the "trigger signal" crowd ie the poor, renting is the only option.

The landlord must pass on all charges, lest she ends up in the poorhouse herself (hard to get caring tenants if the proerty starts to get rundown*)

Council charges, Food costs, building improvements, legislation updates, compliance costs, monitoring, makework committees scraping to find relivance for their continued existance and ongoing paychecks,

Nothing for free, someone has to pay, WHO OWES the clowns that do these things a living??? apparently according to Society (ie THEM) everyone does owe them their living.

The rich can pass on the costs....

the poor are unable to pass on the costs, are unable to build core investment, AREN'T ABLE TO BUILD ENOUGH __DISCRETIONARY__ INCOME TO SAVE.

and it gets worse, as the parasite crowd "improve product" more and more the costs rise higher and faster, yet why? Did we not survive and prosper with less fantastic products and services?

And most importantly... didn't most of the well off and powerful not make their money and position when compliance was cheaper and LESS COMPULSORY costs were involved????????? - and yet for some reason ,-now-, we have to have such perfect houses/food/services/infrastructure AT ANY COST!! What was that about not owing others their living? At what point do we stop kicking people off the hogs back to make sure we've got our stake? Especially since that very process is destroying the market place (which is only holding up because of inflation effects - for illustration observe second hand, esp vs new, housing market)

To save, to build equity, the compulsory costs MUST come down AND people MUST be educated from earliest schooling to manage their own finance, to protect their "nut"; and the system and society MUST move away from tax-it-to-death-at-any-cost (for government respending,) to making sure that investment vehicles for the poor (and above) exist and are functional (yield-wise).

(1) Teach basic buy/sell to budget to primary schools - you want food? someone has to grow it, someone has to work and buy farms&equipment to do it, that food must be harvested, clean, process, wholesale-distributed, retailed, taken home. I learnt this pre-primary school about a hen who baked some bread. I'm sure kids that master pokemon and transformers and who can identify tv celebrities can grasp it.

(2) Remove taxes and other excess handling costs on baseline essentials. bread, salad, potato, rice, fruit, meat cuts under $20/kg, (milk etc are good but not essentials of life - although perhaps yoghurts would also be worth getting to everyone, given their nutrient and storage value). Likewise electricity (esp for refrigeration) is a massive life saver and cost reducer remove the overhead.

(3) reduce council wastage on "public good" projects that don't pay for themselves. The costs get spread over "everyone" whether or not their budget can afford it. it becomes a hidden "sleeper" cost that destroys poor peoples' budgets.

This includes central government pushes for platinum quality water supplies for watering your lawn, showering, flushing down the toilet. Most households drink less than 2 litres per person, and wash food with less than that. The budgeted water supply is 100 liters per person... 97% wastage! We can save by lowering water quality and using basic filters (esp backwash ones) for potable water. If we can demand thousands of dollars worth of insulation in every home, then a simple water filter isn't a big ask. And that would reduce the need for fluoridation too (put in in tooth paste, or in the 2 litres off the water filter) - why we pay for 97% of what is a toxic agrichemical byproduct to be dumped directly to water (when reasonable agrichemicals are being restricted even more from land use or taboo for water spillover).

(4) bring down those costs will reduce the basic cost of living.

As it is said the people hocking off all that crap aren't owed a living, so remove their power to compulsory take the money/sale.

Then you will have money to save.

Then cost of living will be lower so minimum wage will go somewhere.

Then there will be opportunities to hire people cheaply, without pushing them under the breadline, and they can choose to invest.

And they will be investing, and working, and the hidden dangers of compulsory overspending will start being starved instead of being fat cats rorting the country.

and (5) make Student Union voluntary. Why should anyone else have to pay for a service that the users don't want to pay for themselves?

* a warning note to those who want to buy and rent out "do-uppers"

by Ralph | 8th Jan 14, 3:49pm 1389149382

The overall trend in western government remains to live beyond it's means. If this is true it follows the inflation adjusted cost of living will not decrease in the near future (10-29 years).

The obvious conclusion is to earn more.

The view from where I stand shows business opportunity in almost every direction I look.

Neither governments, nor councils, nor education, nor society can grasp that for you.

by cowboy | 9th Jan 14, 5:39pm 1389242345

Not where I've stood for the last twenty years.

What is there in that range that fits someone with no finished degree, 5000 debt from tax, and on the bottom 40% of their local wage bracket, and no significant assets for security (and no angel parent or mentor to fish them out) ?

I'm not talking making the rich richer, that's easy. It's that bootstrap to ante, in a manner than doesn't result in critical undercapitalisation, which is the killer factor. And without that, it's a slippery slope.

No wealth to invest,

No disposable income to save,

Nothing but bills to pay.

Personally I'd love to finish the NZCE...but they changed the course and won't cross-credit.

Personally I'd love to finish the Cert/Degree in Business Computing...but they changed the course and won't cross credit.

Personally I'd love to finish the Informations Systems/BSc degree...but I had to leave because of the costs, signing up full time wouldn't create wealth or disposable income.

Personally I'd love to finish the Finance papers...but much of it shows inferior data handling w/ compared to the BSc info w/ many of the facility staff have less clues about real world business than their adult students...and it's closer to finishing the BSc.

Or the BE, but it's been a while.

And I'm too old (and health) for sign-up as a trade/apprentice. and have dependents which makes such work schedules tricky.

And I'm not alone. Again, with a bit of cash...with less compulsory costs!!...then I could get that toe grip. But simple things such as paying car insurance wipes out most low earners or their measly savings.

by Ralph | 17th Jan 14, 3:32pm 1389925966

Sorry to hear that.

by Gummy Bear Hero | 17th Jan 14, 5:17pm 1389932276

... I'll get the violin .... and play a sad refrain .... fecking hell , Cowboy .... cheer up dude !!!! ...

by cowboy | 25th Dec 13, 8:02pm 1387954932

I think my personal case highlights things perfectly.

I was on 115/wk, 105 fixed outgoing, 10 for everything else. Budget Services did the numbers for me, because WINZ had pushed me into a mental breakdown where I freaked out if I tried to count past 3. At the end of the week, on a tight budget, I had $1.50 "to save".

I got by, by subletting my rented room and living in the garage (illegal today, because one can get ahead financially by reducing such costs.)

So that's "$1.50/wk" savings - if nothing goes wrong.

So after I started getting a bit better. I borrowed $120k. Paid cash for a house and repaired the roof, started other alterations, got in some paying friends (also now illegal as the state of the house was under repair, which is now considered illegal to rent out). 120k, over 25yrs, 7%, int only. I was then approached by someone offering to pay $170k for the house (as is).

That's a 50k increase (takes a lot of rents to get that much margin). My 25yrs still isn't up...

How long would it take for my to pay my $350 "student union fees" for that one university paper, at $1.50/wk savings?? 4.5 yrs and that's just the student union fee, not the couse.

How long does it take to "save" $50k, allowing for problems? 640 yrs, not allowing for problems.......

So how does this "savings" thing work for the lower income people (ie most of us)

by cowboy | 30th Dec 13, 1:04am 1388318640

OK, my basic point from this tread is one of basic (capitalist) economics.

If NZer's don't OWN their own stuff (land, assets, businesses) then any monies are going into offshore pockets. Via profits or via interest.

That is the basic capital rule. They put forward the right of ownership.

We rent it.

We pay for our own stuff.

The end product has to have that (foreign ownership) cost build into it.

We buy, we pay for the product, that profit goes offshore. only the portion marked labour comes back into NZ. Where does that labour wage get spent? buying products that have the foreign ownership cost into it...the profit goes off shore, only the small portion of labour remains for the same problem.

We add the interest cost (which again goes offshore & that does not get spend again in NZ) and the same thing happens. It can be the owner of the bareland passing on his interest cost, or anywhere along the production chain, recouping interest. If it doesn't end up as NZ wages, or spend again into NZ, then majority of it heads offshore, or into a select few pockets.

And the majority of NZ can never invest to get that return. Thus they can never build a core investment fund. Thus they can never develop a capital return. And thus they will _always_ be left behind by anyone who can develop a capital return (over their labour income).

To some people that sounds fine. or business as usual. or the difference between them and us. But what those people fail to grasp is that group is growing, and they are what is know as your "customers" (or your customers customers). Having a large group of your customers more steadily going broke while your costs (especially compliance and finance costs) are rising...... does not fair well for anyones' future.

But the poor do not have any resources to change their future. And their numbers are growing. Doesn't take much of a slip these days to end up amongst them.

by PhilBest | 30th Dec 13, 3:33pm 1388370828

Here is MY basic point for you to consider (and I think the famous Prof. Elizabeth Warren needs to consider it too).

What a DIFFERENCE it makes to everything when your housing market is like THIS one:

http://www.realtor.com/realestateandhomes-search/Houston_TX/type-single-family-home,condo-townhome-row-home-co-op/price-70000-175000/sby-1?pgsz=50

RE site search filters are great fun.

Here's million-dollar homes in an undistorted RE market:

http://www.realtor.com/realestateandhomes-search/Houston_TX/type-single-family-home,condo-townhome-row-home-co-op/price-800000-1000000/sby-1?pgsz=50

Here's Dorkland:

http://www.realestate.co.nz/residential/search/districts/225/prices_max/1200000/prices_min/1000000

If Kiwis won't get the point, they are truly beyond help.

by cowboy | 30th Dec 13, 5:01pm 1388376109

How much does it take to construct one of those properties (the 70k, 3bd, 2ba. with the usual double hotwater and storage of a NZ equiv residence)?

What is the median income, and non-employment rate in the area?

That is the crazy about Auckland. The prices are up because the prices are up.

If the rest of the place was 100k average, then no-one would bother bidding 200k+, let alone 400k-1.5m.

But the real reason isn't just the land control - that's the method, not ther reason.

What do you think would happen to the NZ asset book, the governments security for it's loans, and the banks' mortgages, if Auckland got reset to real global value?

And sadly that's what makes it an investment. Just like gold, worth sod all, but as long as rich people want to buy it off each other it's price is outrageous...and will stay that way, as long as they can get away with it.

But yes, you are correct on the method. But how to stop NZ taking the drug?

by two otherguys | 30th Dec 13, 6:37pm 1388381856

You two are talking hypothetical twaddle about an area of which you demonstrate you know little about the dynamics of the area - what's driving prices? - who are driving prices? - explain why new arrivals are coming to "dorkland" and buying properties within ½ day walk of the airport (you cant walk west) paying outrageous prices when they can go to houston texas and buy multi-level properties for much less - it's not the "dorklanders" doing it, it's "new intending wannabee dorklanders" with suitcases full of loot looking for el-dorado

by PhilBest | 30th Dec 13, 8:17pm 1388387837

Houston grew from 3.9 million population in 2000, to 5 million in 2010. It is still going at a similar rate.

LA grew twice as fast as this at times in the 1950's and 60's; the affordability of the housing was one of the drawcards.

Freedom to build = low, stable prices and real growth in population, businesses and the economy.

Absence of freedom to build = a Ponzi RE market that attracts specufestors from further and further afield the longer it lasts. It does not even necessarily involve any growth at all in population, production, productivity or incomes. In fact it is entirely typical for the "tradables" sector of the economy to shrink at the same time.

The argument that it is all about the attractiveness of the city; ignores that California was once affordable; and that "desert cities" like Pheonix AZ have bubbled furiously as soon as their land market was constrained. It also ignores that cities in Australia, Canada, and the UK that are all horrendously unaffordable, are certainly NOT "California".

As a proud (in some respects) Kiwi, I would say we have it pretty dam good and of course people wanna live here. But we had a systemically affordable housing market up till around 1996 even in Auckland, and up till around 2001 everywhere else. We have oodles and oodles of land relative to the size of our cities. Christchurch, for example, covers 180 square kms and Canterbury Province is 45,000 sq kms - bigger than the Netherlands which has 17 million people. And the Netherlands biggest cities are comparable in density, to Auckland. They are far less dense than the insanely dense cities of the UK. BTW, European cities average density is about what Amsterdam and Auckland are. Every urban area in France outside of Paris is less dense than that, as are half the urban areas in Germany. We are being told a load of cobblers about our evil "sprawling" cities.

by cowboy | 8th Jan 14, 12:25pm 1389137103

I don't know what the love affair with Houston is. Many of the houses about the same as NZ prices, there are a whole bunch that are really cheap.....

... yet a short distance away in Little Elm (where I know someone) the house prices are Wellington-like. So why is Houston so much cheaper? Is it a bunch of spec developments that haven't moved? What is it that reduces demand so much in Houston (and why is their crime rate so much higher than the rest of the State?)

by DonMac | 20th Dec 13, 10:36am 1387488989

I am surprised that there is no comment about who owns the poorest performing sectors.

Our banking and insurance sectors are dominated by Australian owned Companies. Since the demutualisation of insurance companies this sector has failed - I insure with FMG, still offer full house replacement policies and they are a mutual.

We have significant Australian Companies in our Construction, warehousing, transport sectors. Now if the Aussies are pulling the strings at Director level then we should be performing as well as they are in Aussie.

At the moment based on how others are looking at ourr two economies this comparison does not stack up.

by steven | 23rd Dec 13, 9:19am 1387743598

Interesting points.....so the Q is, why.

regards

by scarfie | 20th Dec 13, 4:07pm 1387508862

How can finance and insurance be less productive, isn't than an oxymoron? What is really meant is that they are a greater drain on production here than Australia. As interest will always cause a redistribution of wealth, then as some others have already noted this will cause New Zealand to lose ground to Australia.

by Snodgrass Thro… | 23rd Dec 13, 10:19am 1387747169

All the best for 2014 scarfie. It was good to see a Kiwi face in the Design Challenge. You were up against some truly awesome products.

by scarfie | 28th Dec 13, 11:15am 1388182535

Hey thanks for that, glad you joined the dots :-) The best news was a zero (or perfect) result but that couldn't be considered for various reasons. Still waiting on the official report for that.

by Signals | 23rd Dec 13, 11:49am 1387752571

The worst performance in this comparison is an industry sector dominated by Australian owned interests, who apparently see no reason to invest in NZ. Perhaps because they have control of the market anyway. Perhaps we all need to change banks to Kiwibank and TSB, who seem to rate highly in customer satisfaction surveys - which I am sure is merely a coincidence.

by Chris-M | 24th Dec 13, 12:08pm 1387840098

Maybe our productivity is too low because labour is a plentiful, cheap resource in NZ. If we had less people then there would be a powerful motivation for enterprises to be far more productive with their labour force and invest in more productive capital plant. If a few companies go broke because they can't cut the mustard in a higher productivity higher wage ecconoomy so what? That will release people to be employed by enterprises that can and the whole nation will be better off as a result.

Just flooding the country with immigrants to keep labour costs down, stimulate consumption and demand (not to mention keeping the property bubble going) is a pretty short sighted plan that has us on a downward spiral competing with low wage third world countries.

by steven | 24th Dec 13, 4:35pm 1387856143

I agree on the low cost impact, add in that because our market is so small and "controlled" by the vendors tools are too expensive relative to that low cost labour, certianly Ive found that in IT in the last decade.

regards

by cowboy | 30th Dec 13, 1:24am 1388319880

Chris was that sarcasm?

labour is NZ is an expensive, bureaucratic-nightmare with dodgy skills.

-=-

If "a few companies go broke" how are their employees going to pay their bills? They won't all be snapped up by higher paying companies (they could have gone earlier voluntarily if that were an option). If there are less working employees and less business owners, how does that keep the purchase level up? (not to mention the flow on costs from a failed business in regards to creditors out of pocket and some of them passing on costs)

Your "higher productivity higher wage economy" is 100% dependent on more units of production per person, and that those units be produce more cheaply so the higher wage can be paid. This means you must get more sales for the same number of people employed, or if the same sales you must cut the size of that sector (less employed people).

Clearly that is going to reduce the value of the economy.

Just check what happens when "a few companies go broke" in smaller towns! In some the property values were cut by 50%. Some places experience decades of crippling economic collapse that runs through the entire town.

-=-

To invest in capital plant requires capital.

Thing with capital plant is it cost money, which must come from sales AFTER TAX PROFIT. But it's damn hard to charge a decent margin when most of your customers are near broke, operating skeleton tight operations themselves.