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Insights 13: 19 April 2024
Newsroom: Dr Oliver Hartwich on judicial overreach in the Swiss climate ruling
Podcast: Dr Eric Crampton & Nick Clark on council debt with Peter Nunns & Graham Campbell
NZ Herald: Roger Partridge on the crisis of ambition confronting New Zealand

New Zealand's productivity puzzle
Dr Bryce Wilkinson | Senior Fellow |
Imagine two farmers, each with a plot of land. One farmer finds ways to make his land just 1% more productive each year - a bit better irrigation, a new crop rotation strategy, or a slight improvement in fertiliser use. The other farmer, content with his current methods, sees no need for change. 
Fast forward 20 years, and the difference between the two farms is dramatic. The innovative farmer's land is now 22% more productive, while the passive farmer's plot has stagnated. Which farm would an heir prefer to inherit?
This simple example illustrates the power of compound growth, a concept famously marvelled at by Albert Einstein, who reportedly called it the "eighth wonder of the world." 
Just as small, consistent improvements can lead to dramatic long-term gains in farming, the same principle applies to a nation's productivity.
Unfortunately, New Zealand's productivity figures are troubling. Statistics New Zealand's latest estimates, released this week, show negative growth for the year ended March 2023 across all three measures - labour, capital, and multi-factor productivity. 
Even more worrying is the long-term trend: decadal labour productivity growth has steadily declined from 1.9% p.a. in 2006, to a paltry 0.6% to 2023.
To put these numbers into perspective, let us consider their impact on the average New Zealand household. If labour productivity continues to grow at the current sluggish rate of 0.5% per year, the average household income from salaries and wages will only reach $92,000 in 2023 dollars by 2043. 
However, if productivity growth is a robust 2% annually, that figure jumps to $124,000 – markedly helping future generations to afford a higher standard of living, a cleaner environment, and more leisure time.
So, what can be done to turn the tide on New Zealand's dismal productivity trend?
The answer lies in a concerted and sustained effort from successive governments, with businesses, and individuals able and willing to respond. Attracting overseas investment, reducing red tape to encourage innovation, and improving educational outcomes are all crucial components of the recipe. 
Also important is helping those without jobs to find work and shifting people out of low-productivity roles, most immediately in the public sector.
The choices governments make today and tomorrow will have profound implications for the generations to come. By focusing on productivity growth, successive governments can unlock the key to a brighter future for all New Zealanders. 
Just as the innovative farmer's land flourished through consistent improvements, so too can New Zealanders thrive by persistent improvements that harness the power of compound growth. The more the government focuses on productivity growth now the better the prospects for our children and grandchildren, who will inherit the New Zealand that current generations build.

For a better fast-track
Nick Clark | Senior Fellow |
Under a better Resource Management system, there would be no need for fast-track approval processes. The fast process would simply be the process. Until that better system is in place, the government’s proposed Fast-Track Approvals Bill can help. But it needs some refinements.
Slow and costly consenting processes impose a substantial burden for relatively little environmental benefit.
In 2021, the Infrastructure Commission estimated that consenting costs almost $1.3 billion per year – excluding costs of processes from other conservation legislation. It also excludes the costs incurred by non-infrastructure development projects, such as housing, mining, and aquaculture. The time taken for consenting has also increased significantly in recent years.
The proposed Fast-Track Approvals Bill will streamline decision-making for projects with significant national and regional economic benefits, providing a one-stop shop across multiple pieces of legislation. Rather than face approvals and court challenges across multiple pieces of legislation, projects will instead receive a rapid decision.
Our submission on the Bill urges that eligibility for fast-tracking should be informed by economic efficiency and rigorous cost-benefit analysis to enable effective project prioritisation. The expert panels assessing projects and recommending consent conditions to decision-making Ministers should also have economic expertise alongside the other skills set out in the Bill.
Where there are risks of at least the perception of impropriety in decisions, Ministers need strong disclosure requirements around lobbying and campaign donations. They should disclose reasons for not adopting expert panel recommendations. Perhaps the panels should decide rather than Ministers.
The Bill’s prioritisation of economic development has raised objections. But too many high-value projects have been stuck for too long in the current system. There are still environmental safeguards in the Bill, but we think the Minister for the Environment should also be a joint decision-maker. A sunset clause would make clear that fast-tracking is an interim solution until more fundamental RMA reform is in place.
The fast-track process should also encompass reconsenting of major existing infrastructure, such as wastewater plants and stormwater discharges. And it should cover interconnected components of projects – think of all the different infrastructure needed for a housing development.
Ultimately, the RMA and conservation laws need to efficiently approve projects with net positive impacts, while respecting property rights and protecting important environmental values. In such a framework, separate fast-tracking would be unnecessary. But in the meantime, the Bill is a necessary step to unblock New Zealand's infrastructure pipeline and kickstart our sluggish economy.

Nick Clark's submission, Fast-Track Approvals Bill, was lodged on 18 April.

If you want to believe
Dr Eric Crampton | Chief Economist |
There’s a weird art to commissioned cost-benefit assessments. Even when it seems like a report’s funder really wanted a particular result and even if the final number seems absurd, the report can still be valuable.

It can make clear just what you have to believe if you want to believe that an implausible project is worthwhile.

Suppose you really wanted to believe that the government was right when it stopped the Anglican Bishop of Christchurch from running a bulldozer through the ruined Cathedral a decade ago and instead forced a path to reinstatement.

You’d have to believe figures a lot like those in NZIER’s report on the merits of that rebuilding.

You’d have to believe that every person in the country, regardless of whether they ever visit the Cathedral, would enjoy $1 to $5 in benefits just from knowing the Cathedral is there and that they have the option to visit – $2 to $20 if you live in Christchurch.

You’d have to believe that a lot of international visitors will spend an extra night in New Zealand, and spend more money on that longer visit, because of the glories of the Cathedral. People travel to see the Sistine Chapel, after all.

You’d have to believe that the Cathedral will earn 5 to 15 times as much selling tickets to climb the tower than they ever did before the earthquake – despite better views from the new nearby library.

And you’d have to believe there were no risk of cost overruns.

If you’re prepared to believe a series of implausible things, well, many projects become eminently feasible and reasonable.

A few weeks ago, my esteemed colleague made the case for the Cook Strait Bridge. I think he understated its benefits. Surely we each would receive at least $1000 in benefits just from knowing the thing was being brought into existence and that we might someday drive upon it. Those benefits would start immediately, even if construction took decades. That’s $5 billion!

Millions of tourists would arrive every year to gaze upon the construction, each spending thousands of dollars at the bridge’s gift shop on miniature bridges, t-shirts, and toy excavators.

The bridge would have paid for itself even before construction was complete.

And if you believe all that, please drop me a line. I’d love to sell you a tunnel under Wellington – the bargain of the century!

On The Record

Initiative Activities:
  • Submission: Fast-Track Approvals Bill, Nick Clark, 18 April 2024
  • Podcast: Germany's dual education system, Dr Oliver Hartwich and Dr Michael Johnston talk to Rachel Simpson from Business NZ about what Germany's dual education system looks like first-hand, 18 April 2024
  • Podcast: Are councils debt constrained?, Dr Eric Crampton and Nick Clark talk to Peter Nunns and Graham Campbell from New Zealand Infrastructure Commission, Te Waihanga about council debt and infrastructure financing, 16 April 2024

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