The plucky country needs to reinvent again

Australia, with over 23 million people, has a 47.5 per cent top personal tax rate, capital gains tax, stamp duties and a raft of other taxes. And Australia is about to deliver a $A47 billion budget deficit, the third highest in its history. Meanwhile New Zealand is close to being back in surplus.

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New Zealand, with 4.4 million people, survives with a 33 per cent top tax rate, no capital gains tax, no payroll tax and a GST rate only five per cent higher than Australia’s.

If Australia is “the lucky country”, in Donald Horne’s famous phrase, then New Zealand must be “the plucky country”. 

The challenge, though, is “plucky” may not be enough. New Zealand can’t afford to rest on its laurels. 

Australia is a sobering lesson across the ditch. The island off to the west rode a resources boom for decades - the longest economic expansion, the largest rise in incomes that a developed country has ever known. But what does Australia have to show for it now? 

New Zealand cannot afford such missed opportunity and there are several key areas on which to focus. A great education system will be important to our future but I doubt we can compete with the number of PhD’s coming out of universities around the world. 

Instead we should focus on producing adults who have a worldly, positive and creative outlook. Sir Peter Jackson, Sir Richard Taylor, the Finn brothers, Eleanor Catton, Lorde and many others prove that. Then there are the clever high tech manufacturers and entrepreneurs. 

It is creativity more than being able to reproduce the next widget at a cheap price that will see New Zealand prosper. Future governments need to focus on how to foster, support and monetise that creativity. While dairy – our white gold - will continue to be a great export earner we need to broaden our markets so we’re not just reliant on China. 

At the moment 20 per cent of our exports go to China. But we need to spread our eggs and that’s why looking at equally dynamic economies like Indonesia, Vietnam and India are critical for New Zealand. 

Just as importantly, while we need to continue to ramp up dairy exports, we need to put more effort into areas like education, high tech manufacturing and premium tourism. 

But if New Zealand is to continue to stand tall Kiwis also need to acknowledge and accept that over a 200 year period the country has always prospered as a result of foreign investment and by being an attractive trading partner. 

ANZ’s “Greener Pastures” insight report into the agricultural opportunity which comes with an Asian century showed there was the potential for a $NZ1.3 trillion increase in agricultural exporters by 2050 but that would require some $NZ340 billion in additional investments. 

Sadly, as poor savers, all that investment isn’t going to come from within New Zealand. 

Taking on the world and embracing it will make New Zealand stronger and sustain its sovereignty. Our Aussie mates will then have to try even harder to catch up with us. 

The post Global Financial Crisis (GFC) world is not returning to business as usual. Climate change, aging populations, industry upheaval and international outsourcing of labour challenge all nations. 

It’s a world where New Zealand and Australia have to understand how to be part of the Asian century and take advantage of our close proximity to the fastest growing economies. Right now, New Zealand is leading its big brother. 

New Zealand is ahead of Australia in the World Economic Forum’s Global Competitiveness Report. It recently jumped five places to 18th. Australia declined one place to 21st. That drop, the report says, was because of higher cost structures, large regulatory burdens and labour market rigidity. 

Australia, indeed, sounds like New Zealand pre the mid-1980’s. Critically however, New Zealand cannot afford to stop at 2014. 

Successive governments have changed immigration rules, pushed ahead with free trade agreements, embraced the trade liberalisation agenda of APEC, helped reform the dairy industry and either sold off state owned businesses or made them operate as businesses as State Owned Enterprises. 

New Zealand also has a 2017 target of reducing by 25 per cent the costs for business in dealing with Government. It has free trade agreements with 29 per cent of the world’s population but is forging ahead with negotiations with another 26 per cent. 

Next on the agenda is likely to be local government, where costs currently seem to be driving inflationary pressures. 

In New Zealand we’ve had the quadruple whammy of the GFC, a collapsed non-bank financial sector, a dollar at record highs and the devastating Christchurch quakes. Yet the economy is bouncing back strongly because of some relatively tough budgetary decisions which have helped to improve our financial foundations. 

Fortunately – and again in contrast with Australia – the political process here is not as instinctively anti-reform and short term focused.

New Zealanders seem to be more sympathetic than Australians to the concept that a government has to do what’s right for everyone in the long run. They are far more cynical and alert to political pork barrelling. 

Instead, they seem to look for policies that are fiscally sound and make the economy better because they understand that as a small nation we’re all in it together.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.