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Doing nothin’: The gap with Australia

Written By: - Date published: 12:00 pm, November 4th, 2010 - 24 comments
Categories: Economy - Tags: ,

September Quarter unemployment numbers are out today. It will be an indictment on National if there is not a good sized drop. So how is this government doing on its flagship policy of closing the gap with Australia by 2025? No Right Turn has been trying to find out what work they’re doing to achieve that goal. Answer: Nothing.

Back in August, Labour spent a lot of time trying to get a straight answer from Gerry Brownlee about the milestones and targets the government had set to show it was on the path to closing the gap by 2025. Finally Brownlee gave this answer:

  • to remove the millstones from around the neck of the New Zealand economy placed on it by the previous Labour Government; [“millstones” like zero net crown debt, structural surpluses and record low unemployment – I/S]
  • to assist the Government’s programme to undertake comprehensive economic reform of the New Zealand economy; and
  • to rebalance the economy towards export-led growth.

It is my view that if we are successful in achieving these targets, we will achieve the Government’s milestone of achieving income parity with Australia by 2025.

I/S at No Right Turn points out the obvious: those aren’t targets or milestones, they’re vague statements of National’s economic policy. I/S didn’t think that answer was good enough from a senior minister of the Crown describing his government’s core policy. Like the terrier he is, he keep digging. He OIA-ed the documents that laid out the supposed targets and milestones Brownlee had refered to.

Eventually, the government handed over a Cabinet paper. I/S explains:

It makes no mention of Brownlee’s “targets”, or indeed of any interim targets or milestones at all. Instead, its full of the usual bureacratese, recommending that Ministers take “a targeted and structured approach” to economic growth and inviting them to consider actions in their portfolios which could be the subject of further papers. A lot of wheel-spinning, but no formal targets or milestones.

Attached to that Cabinet Paper was a powerpoint presentation to the Cabinet Strategy Committee, Achieving New Zealand’s Economic Potential: Exploiting International Opportunities by Harnessing our Strengths (15 September 2009). It likewise does not contain any targets or milestones. But it does contain lots of information on the sorts of things which should be targets. For example, it notes that NZ’s GDP per-capita growth rate must be 1.5% higher than Australia’s on average over the next 15 years if we are to close the gap. The Government has already admitted that it does not expect to meet that target for the next five years. Real exports/capita needs to grow 2.2% faster than their historic average of 3.1%. There’s no sign of that happening. Exports need to grow to $150 billion. But even the government’s “stretch” targets show them coming to only $116 billion or $137 billion if we discover oil (which seems to be their plan, BTW: “discover oil”). And that is why the government will not publish proper benchmarks: because by any assessment, their grand project would be judged a failure, an impossible dream.

Yesterday, I/S reported he had been contacted by a government source who said:

I can confirm that during the period you are referring to – roughly speaking, the winter and fall of 2009 – there was no discussion of or advice given on targets for closing the income gap with Australia. The 15 Sept Cabinet paper, which details the growth paths of GDP and exports needed to achieve the Government’s goals, is the closest thing that exists. In short, Minister Brownlee did not ask for advice on specific targets or milestones.

If it’s not clear by now, let me put it plainly: the Government has done no work at all on achieving its stated target of catching Australia within 15 years. They are lying to Parliament and to us when they claim to have any targets or milestones for getting there.

But what if it did have a target that would actually get us there? What if it was to grow the economy 1.5% per capita per year faster than Australia? How are they doing?

Not so good. 4% behind target after a year and a half, and going to get worse as we experience the second dip in the recession. Expect a whole lot more spin and no results. They can’t admit there’s a problem with achieving their own policy, let alone do anything about it.

24 comments on “Doing nothin’: The gap with Australia ”

  1. Jim Nald 1

    Warning: Next time Key opens his gap*, think about his credibility gap.

    *The reference here is to the gap above his chin and below his nose, although another interpretation possible.

  2. Hamish Gray 2

    So unemployment fell from 6.9% to 6.4%. Does this mean the Nats are doing something right?

    • Marty G 2.1

      There’s something wrong with the seasonally-adjusted unemployment series (that’s the one you see in the headlines). It has jumped around like mad the last year: 7.1%, 6.0%, 6.9%, 6.4%. There have been significant revisions of past numbers each quarter. All of which is causing economists to view the numbers with some suspicion.

      But the consensus, which matches with the trend series, is that unemployment peaked earlier this year and is edging down at about 0.1-0.2% per quarter. Hardly breakneck speed considering it rose 2.5% in National’s first year. We’ll be waiting four years just to undo that damage at this rate.

      Put it another way: the number of unemployed doubled in less than two years, with about 80,000 more Kiwis out of work. Over the past six months, the number of extra unemployed is down about 10,000.

      It’s not exactly time for dancing in the streets.

      • Hamish Gray 2.1.1

        No one said it was time for dancing in the streets, but you yourself said “It will be an indictment on National if there is not a good sized drop.” Sure enough ,it was a sizable drop and as expected, no matter what the figure was, you couldn’t concede that things were improving.

        New Zealand went into recession at the end of 2007. National took over at the end of 2008. Given employment trends lag economic performance (including in recovery), how can you blame rising unemployment in the first year of a first term government on that government? The “damage done” was already set in stone. From there it was a question of how bad it would get and compared to the the US, Europe and the UK, New Zealand came out ok (or more accurately, less worse-off).

        whenever employment figures worsen, the Government gets blamed. So, given the numbers have apparently improved, will you be giving credit to the Government?

        • lprent

          Personally I won’t be. The improvement if there is one apart from statistical blipping has happened despite the governments efforts to avoid doing anything.

          The criticism of the government here hasn’t been about having rising unemployment, it has largely been about the government doing nothing to constrain it apart from ineffective measures like the cycleway, the fire at will act, and tax changes – none of which have had any significant effect on the economy or the unemployment symptom.

          If they’d acted more like the aussie labour government then nz wouldn’t be pottering along in the economic doldrums

          • Hamish Gray

            Acted more like the Australians? You mean, dig up every mineral they can find and flick it off to the Chinese? I thought National tried that and was rebuked by… Robyn Malcolm.

            And doing “nothing” is an interesting take on things. Arguably, choosing to do “nothing” is a strategy in itself, enabling the market to correct itself and protecting public finances. I suppose that’s really the debate then, but to frame it in such a way that it makes it look like the government was standing around picking its nose while the world went to hell is sort of unfair, in my opinion.

            • prism

              Scornful reply HG Australians do more than mine though it is a major part of their economy.

            • Colonial Viper

              choosing to do “nothing” is a strategy in itself, enabling the market to correct itself

              So, who still believes in the invisible hand of market self correction?

              Nah, after US$4T of capital destruction in the last 2 years, I didn’t think so.

              And which has been the only economic superpower with year on year growth over the last ten years? China. And China definitely does not believe in the invisible hand of market self correction.

            • lprent

              Or in NZ’s case, convert all farmland into dairy producing regardless of how suitable it is for the purpose? Your point is? Quite frankly both countries exploit their resources in an unsustainable extractive mining process. We just mine soil and water rather than minerals, but there is little difference once the resources have been depleted. Moreover neither extractive process actually employ that many people either directly or indirectly.

              However I was referring the people intensive industries. This is where NACT have done nothing significant to support our IP industries either in the present or in the future, and have instead actually harmed them by pissing around with the research and development incentives and idling around on infrastructure development. This is the exact opposite of the approach taken by the aussies. The effects are pretty obvious when you look at the relative states of those sectors between the two countries.

              Getting industries off the ground like that requires a great deal of effective support from the government in the infrastructure, laws, and skill development, because the free market operates on too short a time scale. Governments have an incentive to operate strategically for the whole economy, companies and the ‘market’ don’t.

              So yeah, this do-nothing government is bloody useless and it is fair to call them on it…

  3. SHG 3

    to rebalance the economy towards export-led growth

    Of course, because that’s where NZ has such an obvious advantage over Australia.

    • Well it could at least hold its own if they came up with a policy that drove capital toward new ventures (particularly), the private equity market and, to a lesser extent, the sharemarket instead of policies which serve to price a home out of the reach of most young NZers.

      There’s a wealth of phenomenal ideas out there that could be developed into exports. Not that any one – or 100 – would come close to matching the kind of amounts for which Australia can sell it’s minerals. But NZ, being smaller in every sense (population, land mass, economy…), doesn’t need that much money.

      Australians do a little better (particularly in encouraging R&D) but fall well short in terms of rebalancing investment flows to favour business and not property development. But they don’t have to.

    • KJT 3.2

      No country has done well in non-commodity exports that has not had a somewhat protected and functioning internal economy. Businesses need to learn baby steps before expanding.

      This means the country needs to have a sufficiently advanced and PAID internal economy to buy the products of local business. The reason why many people, including myself, will no longer invest in a business in NZ is that too few here are paid enough to buy our products. The RBA, lack of capital and higher interest rates than overseas competitors preclude going to exporting only.

      The “free trade” advocates tend to fudge over how protectionist the UK and USA were during their periods of greatest prosperity.

      It is a problem many in States such as Saudi Arabia are well aware of. What to do when the oil bonanza runs out? What are we going to do when the dairy bubble bursts?
      Nauru was a prime example of what not to do.

      • Colonial Viper 3.2.1

        Spot on KJT.

        We’re in a low pay, high cost living environment.

        China will be interesting to look at; their next 5 year plan is likely to emphasise a rebalancing of their economy away from export led activity to internal consumer led activity.

  4. Vicky32 4

    What I heard this morning is that unemployment is down – by a fraction of 1% – but that within that, female unemployment is way up… (male unemployment has dropped – hence the overall drop.) I don’t think said drop will actually be noticeable by any of us!

  5. Carleen Harawira 5

    NZ will never close the wage gap with Australia: over here they are ripping resources out of the ground as fast as the giant tractors will go.
    It is the mining sector keeping the Lucky Country going: retail sales and housing data is about equal with NZ

    • Colonial Viper 5.1

      Agreed. Australia will keep going strong-ish as long as China has the billions to wire over for its rocks, oil and gas.

  6. Herodotus 6

    [“millstones” like zero net crown debt, Marty you are beciomming obsessed with this non achievement of Lab. Why because the likes of NZSF, ACC EQC are not able to be touched for general purposes. They are tagged so to include them in netting off figures is to somewhat misleading. What legacy was established by the golden years? Nothing that is able to be built upon. GPD was grown due to excessive borrowing by the country as a whole, and we are beginning to suffer from this now(ref many posts and comments on the subject neo lib/consumerism/ponzi scheme) . A building boom (Not to mention that many of these houses are rotting), high immigration that gives short term distortion to GDP figures as these new Kiwis become established, and a commodity boom in particular dairy and oil.
    If NZ grows at the rate required the Res Bank just srews us with OCR hikes, negating any growth. Our only chance is to sell of minerals, giving us “free” growth, which will not happen.
    Just like when Japan plays the AB’s there is always hope of victory, and it is something for the Jap rugby team to aspire. NZ = Aust is nice to aspire and to have some actual policies to direct us in the right direction. But if we are real to ourselves this will not happen in the short or med term. We are the little bro.
    p.s. Nat policy of catching up with Aussie = Labs knowledge economy. please to the ears Rhetoric.

    • Colonial Viper 6.1

      Although I should say that Labour’s knowledge economy has a $4.9B export basis and 24,000 high waged jobs as today’s starting point.

      Now, wondering what would it take to double that into a $9.8B export giant employing 48,000 NZ’ers?

      I think it could be done, and I think it could be done within 10 years.

      • Herodotus 6.1.1

        CV are you referring to the education of foreign students?
        From the 2000 (? unsure of the date)summit that was not what was being pushed. NZ was to be at the cutting edge in technologies. There were few policies or funding initiatives that followed up from this policy. Like many govt policies here is an idea now lets hope someone grabs it and runs with it. When we do have successes there are some out there to destroy what gains we make e.g. Rakon.

        • Colonial Viper

          Hi Herod.

          No, not referring to monies received from trying to teach foreign students basic English at our universities.

          Am referring to our multibillion dollar high tech industry as examined in the TIN100 report, and referred to by the NZ Herald


          Background on the report here


          NZ should grow this industry over the next one or two decades, tens of thousands of new high wage jobs are within this country’s grasp.

          • Herodotus

            Then as technology is sooo important why are we pushing out the like of Accountants & Lawyers? (Those mass produced degrees with only a very large lecture room, and tutorial room required + large ratio of students:lecture)
            NZ needs dooers
            I found Stephen Carden NZ Unleashed very thought provoking, and brought into his message to move NZ forward.

            • Greg

              Re Carden book, from that review and excerpt: meh. Creativity matters to economies the way mutation matters to evolution. Yes, it’s the underlying driver, but most of the action happens elsewhere.

              Rick Boven puts it well in the latest issue of Management magazine. There are three stages to making money from highly-differentiated products: invention, commercialization, and internationalization.

              We do quite well at the first two, but we suck at the last, and that’s where the payoff is. Let me say that again. The big money is in growing sales from $20M a year to $200M+ a year, not in growing them from nothing to $2M a year. Internationalization, not invention.

              So the same “meh” applies to TIN100. Look at the size of them.

              It’s quite telling that the same issue of Management magazine reports that our best “large” ($50M+) exporter is Pumpkin Patch. A clothing maker.

              The issues facing NZ are scale, distance/location, and connection. (Google “economic geography.”)

              Our big city needs to be much bigger and more densely populated. Our companies need to be much, much bigger, and to appear, from overseas, to be bigger and closer than they really are. We need better connections into our markets — and at the same time, we need to fight the attraction for our companies of relocating near their biggest customer. We need better connections among researchers and between research and commercialization — we need policy that fosters cooperation, not competition.

              Yes, we need diversification, but it has to be narrowly targeted and the plan must be well executed. We’re too small to try to do everything and let the market sort it out. That kind of approach only works in large economies; what’s right in America isn’t necessarily correct here.

  7. No Right Turn has been trying to find out what work they’re doing to achieve that goal.

    Actually, I’ve just been trying to show that Brownlee lied to Parliament. The actual information I’ve uncovered on National’s economic plans (most of which doesn’t seem to have been implemented a year after it was discussed) is just a bonus.

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