How do we get our stubbornly low pay rates up so they compare better with those in Australia? David Chaston has an idea, one that may help fight asset price inflation too

$175 per week. That is how much less Kiwis get paid, on average, than Aussies.

Over a year, that mounts up - to more than $9,000.

But if there is one thing that unites the views of all political parties in New Zealand, it is that Kiwis are not paid enough.

All parties campaign on programs they think will rectify this issue.

So at the start of a new Government, it is timely to review the issue, and set a benchmark on how well they do fixing the intractable problem of low pay.

The base data is the average weekly earnings data released by Statistics NZ.

In the year to September 2017, this grew by +2.5%. That is better than inflation, so there were real gains, but not enough to close the gap with Australia.

(We are using Australia as the benchmark out of convenience and immediate relevance - to use the US or some European benchmarks seems a step too far at present.)

We compare that NZ data with equivalent Australian data from the Australian Bureau of Statistics (ABS), their 6302.0 series.

But as we all know, taxes are different in the two countries. So we have converted both series to take-home pay, deducting the PAYE withholdings from the gross weekly earnings series. In New Zealand, that is the income tax, plus the ACC levy. In Australia, it is also their income tax, plus their Medicare levy.

These are the tax rates we applied:

New Zealand (per IRD)  
Tax rates for the 2017-2018 tax year  
Annual taxable income (NZD) Tax rate
Up to $14,000 10.5%
Over $14,000 and up to $48,000 17.5%
Over $48,000 and up to $70,000 30.0%
Remaining income over $70,000 33.0%
plus the ACC earners levy of 1.39%

and

Australia (per ATO)  
Resident tax rates 2017–18  
Annual taxable income (AUD) Tax rate
0 – $18,200 Nil
$18,201 – $37,000 19.0%
$37,001 – $87,000 32.5%
$87,001 – $180,000 37.0%
$180,001 and over 45.0%
plus the Medicare levy of 2%.

After we applied these tax rates to get take-home pay, and after we applied the exchange rate (one that matched the NZ and AU time series), we can compare the two countries average after-tax take-home pays properly.

The most obvious thing revealed is how much the exchange rate affects the variations. Clearly the Aussie data on take-home pay does not move up and down over there; it is only when converted to our currency that it does.

In fact, as at the end of 2017, Kiwi take-home pay is as close to the Aussie level than at any time in the past 25 years.

We are gaining on them - slowly to be fair and still a long way to go, but gains never-the-less.

And that raises an interesting point. Much of that gain is due to the exchange rate.

A high exchange rate makes our wages higher. And a lower exchange rate makes them lower.

So for all the energy and angst put into public policy settings needed to close the gap, why don't we just run public policies that will raise the exchange rate?

That will do more, quicker, to raise effective compensation here than anything else.

It is not really possible to argue that a high exchange rate is bad for New Zealand. We have a relatively high rate now and we have the best economic growth rate in a long time, we have low and falling unemployment, we have very high levels of labour force participation, and we have low inflation - costs are not eating into pay gains. We even have a current account deficit that is falling in relation to GDP. What's not to like? By any measure, New Zealand is currently prosperous, even with a 'high' exchange rate.

And the impact could be won quickly. We have waited for generations to get a fix on the persistent low pay gap with the rest of the developed world, for marginal gains. True we are at a better place now than in the past, but we have a long way to go still.

In a different century, it used to be argued that a low exchange rate would boost exports and bring us wealth via an export boom. The problem with that is that we are now no longer as dependent on raw commodity exports. In fact, our exports, especially of processed and highly-transformed goods and services are at their highest level ever - with a relatively high exchange rate. A low exchange rate only benefits a few raw commodity producers, the very type of exports we are trying to move away from. (Actually, let's not forget that our wine industry - in fact the whole horticulture export industry - along with the seafood industry, and forestry, are all breaking export records even with a relatively high exchange rate.)

Even our tourism industry doesn't suffer from a higher exchange rate. Nor does our education industry.

A low exchange rate policy is a sign of backward-looking public policy ideas.

A high exchange rate policy would benefit most workers, most people, with purchasing power more like other first world countries.

New Zealand workers should celebrate a higher exchange rate. New Zealand business should focus on products and services that offer their customers value no matter what the exchange rate is.

The public policy attraction is, this is a change that can bring major benefits to most people, and quickly. Renewed focus on reducing our exposure to low-value commodity exports can make it sustainable.

  Take-home pay ...
  NZ AU in NZ$ diff NZ vs AU
September $ $ $ %
1992 413.49 556.04 -142.55 74.4%
1997 452.93 588.97 -136.04 76.9%
2002 518.04 712.49 -194.45 72.7%
2007 619.68 819.57 -199.89 75.6%
2012 738.84 1,091.81 -352.97 67.7%
2017 827.85 1,003.23 -175.38 82.5%

That might see Adrian Orr end the RBNZ fixation and angst over the low OCR setting in an attempt to keep the exchange rate from rising.

Higher interest rates will dampen asset price inflation, help make housing more affordable, reward savers, keep prices low, and most importantly, reward workers by making their real (after inflation) gains go further.

Higher interest rates will likely bring a higher exchange rate which will also speed the transition of our economy away from low-value commodity production, which also has to be a good thing.

There will be some minor dislocation for a few, but in return, major gains for most.

We have tinkered with higher exchange rates for a number of years. Not only did the world not end, we are now more prosperous that at any time in three generations (from when we just sold meat and wool to the UK and had the Korean War wool boom).

Higher exchange rates have worked out for us.

Let's make it an explicit public policy, and work to maximise the gains.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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110 Comments

Australia employers pay a lot more into their employees Super as well.
9.5% minim7m - and this is in addition to an employees gross salary.
17.5% for public sector, universities and some employers.
So if an employee is on a 100k salary - the Super deduction is, 9.5%, giving the employee another 9500 on top.
Over 10 years, the difference between Kiwisaver and Aus Super, just in terms of employer input, is a wide gulf.

Correct

Yes Australia's much more generous super contributions cannot be ignored.
Apart from housing, where there isn't much difference (apart from mental Sydney) the cost of living for many essential things is significantly lower in Aus.
Family support also extends higher up the income chain in Aus

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Even housing in the aussie state which is most attractive to kiwis -Queensland is cheaper than NZ. Compare Auckland versus Brisbane's prices and it is not surprising why there are hundreds of thousands of kiwi in Australia not the other way around.

NZ needs to get away from its housing capital gains obsessed economy and invest in something that is genuinely productive.

Then we might have some genuine boomtowns based on good economic fundamentals. Not on the artificial stimulus of mass immigration to NZ replacing mass emigration away from NZ.
https://medium.com/land-buildings-identity-and-values/why-is-it-hard-to-...

A good effort at making a comparison but by using the relative exchange rates between NZ and Oz and not taking into account where people buy their foreign stuff from (on average) is a bit simplistic.
Also the bills people have in the two countries will be very different eg house prices, rates, insurance etc.
However, its an interesting article.

Cost of Living is more expensive in NZ compared to AU

As a Aussie who lives in NZ , the grass is always greener on the other side , cost of living is expensive in AU ,a lot of hidden cost ie emergency levy’s on rates ,car rego power bills etc , But NZ gets shafted on fuel an coffee . NZ life style is far better

Yeah, hands up everyone paying $400+ a month to park their car in the city (Sydney).

Look at the road tolls (example living in Pennant Hills), $8 harbour bridge, plus Lan Cove Tunnel toll $$6.50, plus M2 $7.00 - total of $15 a day (all tolls rounded) or $75 a week to drive to work.

Sydney is still a great city
Your employer super $Contributions easily make up for tolls
If you work in a city you should live in the city as you save an enormous amount of time. Time is what we all have least of It’s the great leveller

Nice to visit but a terrible city to live in after you leave your twenties.

Sydney is the very model of urban dysfunction. Over a million people commute from west to east and back again every day because they can't afford to buy a house anywhere near a job that pays enough money to afford that house.

The Sydney train system drives up "house" prices around train stations so high you pay a kings ransom to live in something only slightly bigger than a walk in wardrobe.

The very definition of a rat race.

On average, people DO buy their stuff from overseas! That's the point and IS taken into account in this article.
Want cheaper meat at Countdown? Then lower the input prices of producing a local product(s) - from the cost of diesel for the tractor to the petrol in the delivery truck, and all the stages in between etc.
Just as a Nation can't ultimately devalue it's way to prosperity, neither can it revalue its way there either. There is a happy medium that is called - The Market, and what we have sought to do is meddle with parts of it ( interest rate policy being the worst offender) and yet we wonder why we are so vulnerable to outside influences.
In about 1985, New Zealand was 85% 'reliant' on hydropower. Today that figure is in the 50 %s. If this country has one abiding advantage - it is 'free' energy, and yet we have not used it well.
Forget interest rate tampering - it doesn't work in the longer term. We need to concentrate on what advantages we have, and lower exchange rates will tell us - we have failed...

I think your figures for renewable power generation is wrong as only Huntley is providing fossil fueled power and only a portion of the station is operational, I recall seeing a figure of close to 90% renew ables but I agree this advantage has been partially wasted by Govt insisting on a dividend rate higher than most industry sectors achieve on capital and then have not received good value for the taxpayer when spending those dividends.

Your figures are wrong, too.
Huntly, Stratford, McKee are all over 100MW and all run as baseload and peaking generators.
Heaps of smaller ones (sub 100MW) too which sometimes inject at peak, depending on nodal pricing.

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I disagree in two ways. First I don’t think currency appreciation raises wages, it just negatively impacts growth. Second, what policies exactly would lead to a rise in the exchange rate were this desireable?

You highlight tourism as a industry that can thrive with a higher wage rate but isn’t tourism part of the problem given it’s very low wage rates? Is an industry that pays very low wages a help or a hinderance to national prosperity?

The global problem seems to be that there are industries - let’s say tourism and others that are notoriously low payers. In fact the state has to subsidise these industries through the progress tax system and other benefits - e.g. working for families. When there is a shortage of low wage workers we bring more in.

Clearly there needs to be a sorting whereby non-essential industries and ones that can raise their prices are forced to raise wages or not continue at all. If that means less tourism suppliers so be it.

Now you might say what about the export dollars we are missing out on? True. But the economy will respond, the exchange rate will go down and some other industry will become more competitive. It might be IT or movie making, industries NZ has long sought - remember the knowledge economy.

One of the reasons our wages are low is that we believe deeply they must be low for businesses to thrive. When labour starts to be scarce and there are wage pressures that industry cries out and the government opens the immigration spigot. We should be an open country that allows diverse groups of people to come here. But let’s stop using immigration to supress wages so that businesses don’t have to grapple with raising wages and or investing in productivity.

Here is a thought - if tourists aren’t price sensitive as you assert - then why don’t we just charge them 25% in NZ $$ terms and pay higher wage rates. Or another question. Presumably hotel rates have increased significantly in the last few years due to the tourism boom and the shortage of hotel beds. Has this resulted in an increase in wages for people working in hotels or just increased income for people owning hotels? If it hasn’t been passed through why? Scarcity drives wage increases and without scarcity there will be no increase.

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The National government policy of mass low qualified/skilled, uneducated immigration over their nine years at the helm, will hurt this country for decades.

True but the counter argument is always 'we need Filipino nurses to look after our elderly and we need Mandarin speakers as tourist guides' and so on. It is hard to decide what is low qualified and what is skilled/unskilled and even if you insist on a decent wage then there are all manner of rorts and frauds where the employee pays the employer to lie about the wage rate. Solution ought to be simple - a fixed rate for employing foreigners. If you really need a Fijian bus driver (and we do) or a junior chef then you should pay for the privilege - the funds raised can subsidise training locals. Surely it is embarrassing to have all manner of jobs that are only filled by immigrants?

and the policies of not printing money - addressing the horrific structural deficits it inherited are the things that led to the increased strength of the currency - translating to the highest relevant wage comparison in decades

watch that curve start to change direction as surpluses turn to deficits again and the $ drops - if only we could have some balance!

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NZ has two paths, 1) big increase in wages and everything that involves human capital (massive inflation), or 2) reset house prices and rents downwards by a lot. Depending on what camp your in either option resonates.

I suggest increasing wages is ultimatly more destructive and futile. Example.. the recent increase in student allowances being destroyed by landlords (dunedin was reported) putting up rents to capture most of it. Impact for students...almost nil. Would also add that wage boost and resulting inflation would ruin people retired living off their savings, as those saving will become increasingly worth less. This is a big demographic.

One option effects everyone, one options only effects the property ponzi and banks.

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I agree, lowering house prices and rents would be a massive improvement in people’s well-being. This should be the priority over everything else.

Just think of how much wealth is siphoned out of the country and into foreign hands every week in mortgage repayments.

I’d rather not :) mortgages are a tax we inflicted on ourselves and as you say, the proceeds go to foreign owned banks and foreign lenders.

Yes, I'm in this camp. Lowering the cost of housing has to be the focus.

Turn off the migration tap, hit 2 birds with 1 stone. Easing of downwards pressure on wages and easing of upwards pressure on housing costs.

I would like to see immigration rate similar to other countries (say about 25% of current level) but not sure your solution works for housing costs. The majority of our recent immigrants are low paid and unable to buy houses and the minority who are well paid are roughly the ones we actually need (say Doctors, experienced engineers, etc).

They put pressure on the rental market, which then puts pressure on the housing market. Technically buying by proxy.

Regardless the house prices and rents MUST NOT come down as too many people and our economy are at stake. It is what it is, we just need to work around it.

TTP would agree with me - where are you TTP?

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Stage 3 - Anger & Bargaining.

I personally 'Think" that only those in debt, will lose out.

For others it may be "wishful thinking." ...but...then it always was.

Plus some Banks......over leveraged, I think they often....frequently....Call it....."False economy."..maybe.

Maybe "Savers" will then become....the "Norm"....again.

Short for Normal....Short for lots of things.....

Debt never used to mean "Money".....Maybe we are returning to backwards thinking....not "arse about face".

Try looking for 'Urgent Sale" on Trademe.....

Try looking for "Reduced' in France, Real Estate... where "Houses" are now falling heavily in price.....to the '''"""""""""""""Norm""""""""""""""" even though "Better Value" than our crap over priced houses'

The economy is pop pop Popping along.........Cash...up....Houses...down.

Bit coin....NAH...spread yer risk....yes....not yer behind the scenes ...scenario.

Unless you can take it like a Man.

People here are always plotting how to get money off those that own property.

The bankers are highly talented in that regard.

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No different from the people who own the property plotting to get money off those who don't/can't, and they don't stop there, dipping into the public purse to top up their unaffordable rents.

Any crash would be short term pain and long term gain.

DGZ, as you know policy makers have kept house prices aloft using the "too big to fail" approach. Surely smaller less damaging corrections are better than catastrophic ones such as what happened in Ireland - right?

You remind me of my Chinese neighbour who said those in power will never let house prices collapse - so they never will - hmmmmm.

They never will. It is what it is.

Saying house prices will never collapse in the future is like forecasting they never have in the past - lol!

DGZ, now's a good time to diversify and reduce debt.

FYI I no longer have a mortgage and no debt to reduce. I am not even waiting to sell coz there is no need to. While I'm keeping my Mon-Fri job in downtown Auckland, I'm also receiving rents and benefiting from capital gain at the same time - life's good LOL!!

If you have no debts, and aren't selling, how are you actually benefitting from capital gain? Other than a perceived value on paper?

Coz I bought a couple of my rentals in the 90s and I don't believe there's even a chance house prices will fall back to that level lol!!

DGZ, my advice to reduce debt and diversify was to anyone who cared to listen, not specifically you. Good to see you are out of debt to reduce exposure to what is now a riskier asset class ;-) Its a nice position to be in.

I'm also puzzled how you benefit from capital gains. Does a farmer benefit from capital gains other than being allowed access to additional capital for day to day operations? According to your comments, you don't.

If your comments are accurate then life you is equally as good if your house drops in value.

Actually, DGZ is way ahead of the game if/when property priced drop. The further and faster the better for them, because when The Bottom is in ( whenever each decides that is!) the assets acquired with taking on with fresh debt will far better value, on any metric one cares to use. As is noted above, the Net Present Value of what is in their portfolio today is irrelevant given they are a buy-and-hold for income affair.....

bw, this strategy makes good sense but for one thing, DGZ comments say house prices will never collapse. Its like I read his comments but the full picture is not actually there ;-) I get the impression he knows deep down they will drop and wants to come across to others that he stands to benefit if and when they do.....

Predictable effect unseen by our Govt - coalition of losers with no leadership or skills beyond working in a fish & chip shop or in some left wing touchy feely organization spending tax dollars.

Yada, yada

Managing up the exchange rate would create as many problems as it solves. A more obvious way to raise New Zealand take-home wages would be to adopt the Australian tax rates, with zero tax on the first $18,000, and for most people 19% thereafter. but, Uh oh, I forgot, Labour has forbidden its tax working group to entertain raising taxes for the rich.

Why the hell do you have to raise taxes on the better paid in order to reduce taxes on the less well off? Isn't that exactly the same as enforcing speed limits on safe drivers who are 5 kph over the limit when accidents are caused by hoons doing 50kph over the limit?

Simply because enormously too many of them are paid too much.

Separate problem.

Yes, I know, it is a galling one, especially when it is the least productive who seem to get overpaid the most, take your pick of favourite overpaid incompetents really. Let me see now, politicians, civil servants, lawyers, bank executives, real estate agents, the list goes on....

The point I was trying to make was there is no reason not to address the overtaxing of the bottom half of society. Just get on with it and stop buggering about.

Separate the problem into its component parts and destroy them one by one.

Everybody needs their first $50k before their second and third.

Maybe we should simply do what we know works as per policy settings ex Singapore.

Target the exchange rate - not interest rates.

Interest rates have decoupled from fundamentals - exchange rates used to be a function of current account surplus / deficits - today just interest rate differentials.

Low interest rates have created gross distortions in resource allocations to unproductive assets as illustrated by the fact that ~ 50% of mortgages are interest only.

Compulsory savings in Singapore from the individual plus employer but then used to buy subsidised first home in an apt built under Govt contract ahead of future demand. Net effect house prices have been stable for years. Inflation is low. Current account is US $ 60 Billion surplus.

One of the wealthiest nations on earth - my wife lived her teenage years there when they lived in Kampons. All achieved in a generation starting from near nothing.

Surely there is something we can learn from such a demonstrable success story for such a small country with similar population to NZ.

Oh god.
Not this crazy argument, again.

"Surely there is something we can learn from such a demonstrable success story for such a small country with similar population to NZ."
That is about the only thing the Singaporean economy has in common with New Zealand.

Singapore house prices stable for years? Ha! Kiwi friend bought an apartment in 2007 for $ SGD 400,000. In 2015 it was valued at over a million. Now it's down to under $800,000. Singaporeans not on the property ladder have been screaming in recent times about property values soaring.

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Beginning to have serious doubts about the benefits of tourism - just who are the beneficiaries of tourism

There are 3½ million overseas tourists coming into New Zealand annually - our holiday and tourism facilities are full up most of the time with overseas tourists, it is nigh on impossible for domestic holiday-makers to book facilities internally and do the domestic tourism thing

So much so, in order to take a holiday, locals are having to travel overseas

There are 2½ million outbound local travellers going overseas - every year - because they can't get into the NZ tourist areas. 2½ million is half our total population going overseas for a break - every year

So here we have the ridiculous situation where we are screwing ourselves into the ground in order to provide cheap services to overseas tourists - why - what's the benefit

Time to wake up and smell the puha

Maybe tourism is the ultimate con?
We go 'there' in our millions and they come here, to see pretty much the same as where we have all come from! - the inside of a hotel room and that chance to see in real-life what we can see far better on a TV documentary any day of the week. But it keeps GDP ticking along, doesn't it, for all our economies.
We spend $X dollars on outbound tourism and inbound tourists spend it right back. What for?
The days of wondering what Venice looks like ( Donald might have an apt description of it there these days!) or the Pyramids ( ditto) are long gone. Tourism? We've all fallen for the myth that it's greener over there, and by and large - it isn't.

A huge amount of resources seem to be wasted with tourism. People jetting back and forth to see things of which they have little or no understanding or appreciation. Just a way of passing the time.
It would be far better, long term, if this energy could be put into building inter-planetary spaceships. Currently we just seem to be burning it all up in idle pursuits.

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Tourism has created some of the lowest paid jobs in NZ so any volume increase just makes us all poorer by definition.

The only way to increase our wages is to make more of what consumers want and more importantly are prepared to pay for.

Apple's gross margins are greater than the next 6 competitors combined - why is that ? - simply because people world wide see them as superior products and are prepared to pay more.

Maybe we should focus only on upmarket tourism and like Apple charge a premium to come to our shores.

I see no reason why we should not change a substantial $ amount - maybe $ 200 / visit simply as an insurance premium to cover the vast benefits of free ACC and free hospital care provided for visitors. Would need to sell the benefits - no health / accident travel insurance required.

Yet we seem besotted with the prize winning bottom feeders via the Jucy's freedom campers of this world. They deliver very little incremental value and make no contribution to the pollution they cause.

The issue is that to compete in these high tech markets needs very high skill levels. The Googles, Facebooks, Intel & ARMS and AMD's of this world pretty much require a PhD in physics to get into their design teams.

We focus on churning out soft degrees of very dubious value in subjects that have no relation to what high value markets require and not surprisingly students prefer these because the STEM degrees are HARD.

Maybe we should make STEM degrees free and double the charges for the others at no net cost to the crown.

Intelligent pricing policies are almost certainly the optimal approach to altering our tourism targets from volume to a value focus.

Who owns Jucy Rentals and who owns the Hotels and who owns Hertz and Avis

JB
I agree New Zealand should charge a premium for tourism
Also the ownership model of allowing Japanese Chinese & other Asian tour bus operators and their associated tourist stores should be addressed as profits bleed out of NZs economy much like the multi millions in mortgage interest ends up overseas in Australia & China.
As for PhDs in physics there is paradigm change occurring with machine learning. I attach a simple explanation ;https://www.wired.com/2017/01/move-coders-physicists-will-soon-rule-sili...

Overdoing inbound tourism is a race to the bottom with NZ wages, and spoils our own country, while ignoring our need to start smart companies. Europeans are now pushing back on overcrowding tourism in their cities
http://www.traveller.com.au/go-home-overcrowding-causes-angry-backlash-a...

There is an irony here given many young Kiwis worked their way around Europe living in overcrowded London flats, yet went on to become affluent travelllers that often return to those destinations in later years and spend $$$

Zachary thinks he’s still in 1960s flying around in the Jupiter 2

I have to stay in character!
For anyone interested there are some fantastic videos on YouTube done by Isaac Arthur about space exploration. He has an odd speech impediment although I really like listening to him.

Outward Bound: Colonizing the Sun

Thought that was Icarus

Building inter-planetary spaceships – why on earth?
Perhaps it was the technology of the time – but all the thing did was get lost.
Waste of space.

...in order to take a holiday, locals are having to travel overseas"
Com'on give us a break, ever considered that with flights and/or rental an overseas holiday is more ecpensive ??? Your post is nonsense. If more Kiwis travel overseas, which is more expendive, it's because more Kiwis are better off

"There are 3½ million overseas tourists coming into New Zealand annually - our holiday and tourism facilities are full up most of the time with overseas tourists, it is nigh on impossible for domestic holiday-makers to book facilities internally and do the domestic tourism thing."

Partisan myth there, Iconoclast.

The data says otherwise. (The data is from Statistics NZ Tourism series.)

In the year to October 2017 (the latest available) domestic visitors rented 22.1 mln "guest nights" at local tourist accommodation. International visitors rented 17.0 mln "guest nights". It has never, since records began in 1996, been the case when international visitors booked most of the holiday facilities. 

So, if there are an average of 4.785 mln Kiwis, they are on holiday in NZ for an average of just under 5 nights per year. 

The thing about the growth in Kiwis touring NZ is that it never declines. It may be growing a little slower than for overseas visitors in 2017, but overseas visitor numbers went into decline from 2008 to 2012.

And you are wrong about outbound travellers. The 2.8 miln numbers you note are trips, not people. (I visit my daughter & family in Sydney a number of times per year, others regularly flip back-and-forth to various destinations overseas regularly. There is a lot of that sort of non-vacation travel going on.) The numbers of Kiwis actually travelling will be a lot less, even less for vacations.

What is also interesting is that based on those tax rates the lower income brackets pay far less tax in Australia. In fact you have to earn over about NZ$110,000 before you pay less tax in NZ. Thereafter it starts getting very favourable for the super wealthy. At NZ $10 million you pay over 26% less tax in NZ. Added to all this Australia also has all the sorts of income supplements that we have plus they seem to have far more extensive income tax deductions.

Chris-M: At NZ $10 million you pay over 26% less tax in NZ .. should read:

At NZ $10 million you pay over 26% less income tax in NZ but then pay GST at over 50% higher rates. [ Their 10 % with many exemptions vs our 15 % no exemptions ]

We also need to consider state taxes such as the land tax in QLD many are unaware of.

Overall we need to remember that by any definition Australia is one of the worlds most successful economies with no recession for I recall over 25 years having just overtaken The Netherlands as the world's longest recession free economy ? Must be doing something right !

Plus the fact that anyone who earns NZ$10 mio in New Zealand (or anywhere else to be fair!) probably doesn't get it paid here! No tax planner worth their salt would have a difficulty in reducing that amount on-shore to, say, Base Salary of NZ$1 mio...If you get NZ$10 on-shore, your 'Total Cost to Company' will be a lot higher....

Easy, just cut taxes as follows:
0-$25000 pa tax rate 10%
$25000 - $50000 tax rate 25%
%50000+ tax rate 30%

The government books will take a short term hit and then recover as wages rise and we all start paying a bit of the next rate up and a bit more GST when we spend it. The resulting wage inflation (hooray) will allow the RBNZ to put up interest rates and make house prices affordable again.

Rents will go up with wages and house price to income ratio will come right.

It is really very simple, can't see the problem people have with it.

National got booted out for timidity and tardiness in this regard, relying on foreign money pushing up house prices as some sort of alternative doomed apology for a strategy.

When everyone is working then the better off businesses have to pay up to attract the better skilled from the other businesses in town. It sets off a virtuous circle.

Have you any examples where decreasing tax rates does not lower tax take? Even over the medium to long term? I believe the idea is simply a tool of those wanting "smaller government". The higher wages never actually appear, at least no where near enough to make up for the tax hole, and the government has a structural defect so needs to slash services and cut infrastructure maintenance etc..

Why is it that everyone worries so much about The Government Debt when times are bad and tax cuts are needed to allow everyone to get back to work? National stuffed up by not cutting taxes years ago when the increased money in people's pockets would have done the most good. Instead they gave priority to Balancing the Books above full employment. Then they gave priority to Auckland house prices and immigrants over people who already live here.

If National had cut taxes in 2009/10 then the country would have recovered far more rapidly and the RBNZ could have restored interest rates earlier and the Auckland house price bubble / Aussie bank enrichment scheme would not have taken off.

Because "Government" Debt is Public Debt - Our Debt, and we don't collectively need anymore?
By all means, balance the Debt equation and restrict Private Debt and allocate the change to Public Debt, but until we have the courage to do that, perhaps no more debt is the way to go?

The last Labour government paid off $30 billion of government debt by policies that "helped" households to borrow an extra $100 billion, causing nationwide house prices to go up 100%. They thought they were very clever.

The last National government only managed to goose house prices by 63% nationwide by increased household debt of $80 billion and increased government debt of $50 billion. They also thought they were very clever.

How does this repetition of stupidity occur? Is it the politicians or their advisors and staff? Who should be sacked?

That, to me, was the wrong re-balancing - transferring the Public Debt to the Private balance Sheet, plus some. But at some stage, the combined mass of debt becomes a problem.
I voted for Key, first up, thinking he had the background and courage to do what was necessary ( basically, what he campaigned on!), and was proven wrong - your second paragraph.
Last time around I voted for Morgan, in exasperation and protest - your last paragraph.
Ardern got the gig and I'm hoping she will take on board your whole post and 'do what has to be done', but time will tell...and I sadly have to agree with your sentiment - they are all the same.

After GFC and QE, it has become a fact of life in all economies that all Debts are Public Debts. Only thing is the poor and less well off carry a more heavy load/cost of those 'Public Debts' than the 1% who had already skimmed off ...

WFF can be seen as a subsidy for employers, keeping wage rates lower.
Why pay more when the Govt keeps giving the Topup?
And is it only childless couples earning 60k + that pay tax now?

I pay a lot of tax and my recent payments almost hurt. I'm also constantly increasing my income. As such I take the view that because I pay a very large amount of net tax that my opinion on how it should be spent is more relevant than those that don't pay net tax. I think that the poorest 50% should be benefiting more than they pay in tax. If they only received health care, education and superannuation to what they could afford to pay New Zealand would be a terrible place.

It would be interesting to do the same analysis on the median income (50% below, 50% above) given income distribution is not normally distributed and the average income is well above what 50% of people earn.

Ok, general consensus is in – the higher interest and exchange rates solution appears to be an idea whose time has not yet come.
However, all is not lost, as it seems we made some nice gains around the end of the last commodities super cycle.
Thus I suggest the following - it was not that NZ jumped ahead to any great degree, it was that in a relative sense OZ fell behind.
And there is the solution – we simply require that OZ be good enough to suffer some sort of economic misfortune on a more regular and consistent basis.
As extra insurance I also suggest we offer to deploy Nick Smith on a consultative basis to our good neighbours. I think Robert Muldoon had a simple explanation for this strategy.

I love it. Made me larf anyway.

Wow. The lengths people will go to in order to avoid paying workers what they deserve. The reason Australian wages are higher is largely to do with their strong union system which enables them to bargain for a larger share of production compared with New Zealand where gains instead form those attractive dividend yields we hear so much about.

Wow paper-net, I well remember the NZ of those days that you seem to pine for again when we had a “strong union system”. They were misery arse days of trouble and strife that even the complaining Millenial FHBs wouldn’t want to swap to for a cheaper house if they really understood those days. Be careful what you wish for.

Gosh – your comment certainly brings back some memories – there were some pretty bleak times.
Do or die ideology on both sides of the spectrum brought about some pretty negative and unpleasant outcomes, and I think also stifled NZ for years.
Unions, when used and guided constructively, can I think be a positive force – and I think that is more the space that we thankfully find ourselves in these days.
Probably still not perfect for some – but definitely better than it was.

Unions back then were very badly organised and managed. They got that way due to the fear of communism which held back the manipulation and powers of our elites. Since then we have gone far too much the other way, Well run RESPONSIBLE unions are very important for workers.

Exchange rate would matter a lot less if Kiwi's switched to electric vehicles and got back to using more renewable energy. How much would it cost to subsidise that do you reckon? More wind, hydro and solar, utilise new tech in energy storage, subsidise the electric vehicles for purchase and incentivise people and businesses to buy them instead of the pollution machines. Free NZ from the necessity of importing oil. Sweet sweet oil free dreams.

Oh dear, I find myself agreeing with you to some extent. Freeing ourselves from the tyranny of oil, and clean air to boot, now there's a thought.

How to encourage it via government means without achieving the opposite though? Therein lies the problem, the general incompetence of government bureaucracy. Their ability to delay and stuff up any good idea is not to be underestimated.

"Ah yes minister, excellent idea, minister. Let me see now, we would need some extra staff to explore the idea further and investigate its intereaction with other parts of the economy, in particular the loss of tax revenue which would be considerable. Some extra staff to plan and implement the strategy in detail and a budget for that of course. A public enquiry. A grand sounding name and so forth. However, I can't see why it should cost more than a few billion, certainly less than 10. Should be ready to go by 2025."

I remember flying over the Maui platform when I was a teenager with an exec from BP. He mentioned how crazy it was that we were not running all our vehicles on gas, he thought 20-30 years of free energy was in that field. However think big and the profiteers turned up and the rest is history.

http://www.bechtel.com/about-us/engineering-the-future/

https://www.amazon.co.uk/Profiteers-Bechtel-Men-Built-World/dp/147670646...

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Is it really take home pay that matters, or is it the income remaining after the housing vampires and the rest have sucked the kiwi worker dry?

If we really wanted to improve pay and productivity what we would do is slash low skilled immigration from its current damaging levels.

Employers can choose between paying more to get workers or investing in productivity improvements (or both).

Higher interest rates will be coming on their own, no need to worry about that.

Australia is just a much better place to live. NZ has family, is clean green and safe but you pay a huge premium for all that. The daily grind in NZ is terrible compared to Australia.

If you zero the tax on the first $20,000 or so of everybody's income, that rising tide lifts all boats. But hospitals, schools, roads, jails, and all the other parts of the state still have to be paid for. Okay, if you don't increase tax on higher incomes, does a tax on wealth appeal?

We have a low wage economy because we have the highest immigration rate in the world! Studies in both the US and UK have proven that for every 10% increase in immigrants employed in a industry, wages fall by 2-4%. While its so easy for employers to import people to fill jobs, they will not raise wages or invest in training or upskilling their staff for better jobs.

That is rubbish.
Our low wage economy isn't because of immigration. Our low wage economy is because of our inability to produce anything of high value. High low skilled immigration is a symptom of this, not the cause.

Given that we have a relatively high minimum wage and the majority of our imports are low skilled, there is also no way that our wage elasticity is that high for native workers.

As well as your high value problem, there is in fact downwards pressure on wages in NZ via low skilled immigrant and students, who are happy to work long hours at low pay, just for the privilege of living in a country which is not ruined by corruption, poor human rights, and poor management.

My point above is that the wage pressure is nowhere near the problem the OP makes it out to be. (Officially)

OP said elasticity was between -0.2 and -0.4 which is exceptionally high. My point was that we have lots of competition at the lower end of the pay scale, with a price floor. There is no way the (negative) elasticity can be that high.

Hmm, why don't we become the money printing centre of the world. Money is the highest perceived value is it not? Shutdown the Tiwai smelter and convert the available energy into cryptocurrency mining - the second highest perceived value.

It's obvious that food has no value to a back assward society.

Have you ever thought about a career in politics?

Wonder how many from the affluent western countries would like to migrate here and work for the low wages ?
The work holiday visa also attracts transient young people who take jobs in tourism etc for low wages.
There are not enough smart/advanced high tech businesses/industries here to attract high skilled migrants...

My understanding was that the RBNZ were not raising rates so as not to stall the economy in a general sense, as opposed to specifically targeting the exchange rate. Regarding property, my understanding was that they would have loved to raise rates in order to slow the property market, but couldn't in case it affected the economy, hence the decision to introduce LVR restrictions to tackle the property problem by itself.

As I read this,I thought it must be an April 1st spoof. What I am asked to believe is that the answer to our chronically poor productivity rate,is not to invest in better employee training and/or more efficient production methods,but simply to artificially boost our exchange rate. Really?
So,if Australia-and other countries-then boost their own productivity rates,we must again see that our exchange rate rises,"as an explicit public policy". What a great idea and why has nobody thought of it before. How about doubling the OCR overnight? Wouldn't that produce a flood of overseas cash? The effect on House prices? who cares?

No, I think what is being argued is to refrain from lowering the exchange rate (via the OCR).

Why should a geographically isolated country with one fifth of the population of Australia be paid the same as Australia? Apples and oranges much?

It's only natural that Australians should work for Kiwis and we should be profiting at their expense. We should have far more than any Australian but we aren't taking our rightful place.

Why not. Probably per capita we have more natural wealth than they. Certainly in food production etc. and they are far more exposed to climate change than we are.

Food production is hardly a game changer - we already have to import cheap labour, presumably so that our food is competitively priced on the global market. Stuff costs more as we have to ship it further and have a relatively small market with little competition in areas. Nothing wrong in benchmarking and tracking change for better or worse, but it seems a little unrealistic to expect parity.

As to being geographically isolated; perhaps it is high time we turned it to our advantage. Why cannot we become a reservoir for vital data. Stores of seed or actual crops/populations of human important plant and animal species. We become neutral from all wars so that whatever resources we have are protected for all of humanity. Of course institutions and their facilities must be protected from natural hazards which actually present less dangers than human folly.

Great idea, but I fear we have let far too many greeblies into the country for it to have much credence now.

Great idea if only humans will cease to bring war upon one another!! Our only survival is too ether suck it up to other big players and pay a protection fee or perhaps doing a wild card play by forcefully educating and allocating our population to high end production and military capabilities like what Japan did prior to the world wars. But why pick the hard choice when there is a easy way out??? Kiwi thinking... chill bro~~~