Background and introduction
Following last year's General Election, in the Confidence and Supply Agreement between their two parties signed on 16 November 2008, the leaders of National and ACT noted that they shared “aspirations for greater prosperity for New Zealanders, and see Australia as a benchmark. They have agreed on the concrete goal of closing the income gap with Australia by 2025”.
The agreement went on to provide for the “establishment of a high quality advisory group to investigate the reasons for the recent decline in New Zealand's productivity performance, identify superior institutions and policies in Australia and other more successful countries, and make credible recommendations on the steps needed to fulfil National's and ACT's aspirations.” The 2025 Taskforce has been established to serve as that advisory group, and was given the mandate of providing an initial report by 30 November 2009.
The terms of reference for the Taskforce are as follows:
The purpose of the 2025 Taskforce is to provide the Government with credible recommendations to close the income gap with Australia by 2025, noting that this will require a sustained lift in New Zealand's productivity growth rate from its current level to around 3% a year or more. The Taskforce will provide its advice through an initial report that:
- Reviews New Zealand’s poor productivity performance, and monitors the productivity gap versus Australia
- Identifies the causes of New Zealand’s poor productivity performance and any barriers to improved productivity
- Provides recommendations to create new or improve existing New Zealand institutions that could have an impact on productivity
- Provides advice on policies and other measures to close the income gap with Australia by 2025
Taskforce members were appointed in mid-August, and began to meet in September.
A 1962 Monetary and Economic Council report was one of the first official documents to identify a productivity problem for New Zealand, raising questions about New Zealand's continuing ability to match living standards in comparable countries. The National Development Conference in the late 1960s highlighted similar issues. In subsequent decades there has been a growing awareness that our living standards have been drifting further behind those of countries we typically compare ourselves with.
Successive governments have talked of ambitious economic growth targets. In the early 1990s, senior figures in the then government talked of a 3.5 to 5 percent annual growth target. In the late 1990s, the then Prime Minister, the Rt Hon Jenny Shipley, articulated a goal of an annual rate of economic growth over the medium term of 5 percent. The Rt Hon Helen Clark, Prime Minister in the last Government, set a goal of lifting New Zealand incomes to the top half of the Organisation for Economic Cooperation and Development (OECD) group of countries within 10 years.
The continued failure to put in place policies and institutions that would enable us to make progress towards closing the large income gaps should stand as a reproach to successive governments over many years. On this occasion, however, the Government has both set a goal and then established a group to monitor its performance in pursuit of that goal. We take that as a sign of a serious commitment to doing what it takes to close the gap.
Closing the income gap with Australia by 2025 is, quite appropriately, an ambitious goal. Per capita economic growth rates have been pretty good in the last 15 years or so - as good as the average OECD country, although not as good as Australia. But Australian incomes are now 35 percent higher than our own. Matching Australian incomes by 2025 will mean roughly doubling the per capita growth rate we've already achieved, not just for a single year, but on average for the whole of the next 16 years. That won't be easy, and a year has already passed since the target was announced.
No one can credibly claim that the 2025 goal can be achieved without major changes in the way we are doing things. But New Zealanders are as hardworking and resourceful as any. And they do wish to improve their circumstances. The number who have left permanently prove that beyond any doubt. Given the right environment, our children and grandchildren will not have to leave to secure the living standards available in the wealthier countries of the OECD.
We firmly believe that New Zealand living standards can, once again, match those of other advanced economies and of Australia in particular. But goals and targets, aspirations and beliefs, are one thing. Making it happen is quite another.
To make it happen, substantial reforms are required on a wide range of fronts. Small changes simply will not be enough. Economic policymaking needs to be consistently focused on fostering a climate in which households and firms are more inclined to save and invest, to build for the future and to use scarce resources together in the most efficient possible way.
The 2025 Taskforce has no power, but we have the ability to contribute to informed public debate about the nature of the goal, the options for achieving it, and the progress (or lack of it) being made towards the goal. We commend Ministers on their willingness to establish a group such as this and we hope that our reports will be part of a process which means that, this time, significant and sustained action is taken to put New Zealand back among the countries with the best living standards in the world.
The Taskforce will offer recommendations on practical policy initiatives and institutional reforms that, together, could transform the outlook for New Zealand and enable us to catch Australia by 2025. Taskforce members come from a variety of backgrounds. We hope that the common ground we have reached on the sorts of policies and institutions that are likely to be required will help to influence public and political opinion.
The Taskforce has been set up for a three year term. In our next two reports, in addition to any further analysis and recommendations we provide (and there are a number areas we would like to explore in more depth), we will be assessing progress. That assessment is likely to take the form of analysis of the policy initiatives undertaken in the intervening period, and of any early signs in the economic data of the impact of those measures. In this report, we strongly urge the establishment of a permanent, properly-resourced, Productivity Commission by 2012. Such a Commission would have a wide-ranging role, but we would expect that it would, among other things, help carry forward the task of analysis and independent advice on the sort of microeconomic reform required to carry New Zealand towards the 2025 goal.
We have prepared this initial report in a rather short period of time. In doing so, we have been greatly helped by presentations from experts in a number of fields, and by submissions received from a wide range of individuals and institutions. The names of those from whom submissions were received are listed in Appendix One. A number of the presentations and most of the submissions are available on the Taskforce's website (www.2025taskforce.govt.nz).
We also record our appreciation to The Treasury, which has provided staff to act as the secretariat to the Taskforce.
