How to make us better off
Inflation is soaring, and we earn less than those in countries we like to compare ourselves to. Dan Bidois offers a way forward.
For as long as I can remember, our economy has consistently produced low average incomes compared to other OECD countries. Average household net disposable income measures the average income a household receives, less any taxes paid but adding in any social benefits received.
New Zealand’s household net disposable income is about average in the OECD club of 38 mainly developed countries. However, compared to other English-speaking countries, where most of our citizens overseas live, we rate persistently lower. PreCovid, household net disposable incomes were 75% higher in the US, 28% higher in Australia, 11% higher in Canada and 6% higher in the UK.
To solve our current cost-of-living crisis, our Government needs to focus on lifting incomes and our economic performance. Higher incomes improve the ability of families to absorb price rises and make households more resilient to inflation pressures.
How can we achieve this when everything this Government does seems to add inflationary pressures? By focusing on supply-side growth-enhancing measures.
Here are two supply-side areas which could be considered to lift incomes in the short-term. First, consider lowering business tax rates to encourage growth, improve productivity and raise incomes.
New Zealand has one of the highest business tax rates in the OECD. At 28%, it’s far higher than the OECD average of 21%. Colombia ranks first at 35%, and just behind are Australia and Costa Rica at 30%.
Lowering business tax rates leads to persistent improvements in research and development, productivity and economic output, according to new research this year from the US National Bureau of Economic Research. This would lead to higher incomes as businesses strive to retain and attract staff in a globally tight labour market.
Lowering business tax is becoming a key solution to the current low-growth, highinflation environment experienced globally. Japan and South Korea recently lowered their business tax rates, and six states in America recently passed legislation to lower business tax rates.
This need not be considered inflationary, so long as tax cuts are funded by reductions in government spending, for example by peeling back a lot of Labour’s poorly thoughtout policy agenda since being elected in 2017.
Second, we need to rapidly train and recruit more people for our growing IT sectors. There are massive skill shortages right now throughout our economy, but they are significantly affecting information technology and digital (ICT) businesses’ ability to grow.
ICT jobs are well paid in New Zealand, with the median base wage 73% higher than that of all occupations in 2021. Yet there’s an estimated 10,000 job vacancies nationwide.
These jobs are not only in the tech sector but in related roles across all industries, as businesses small and large work to digitise their operations and services.
There are two main levers the Government can use to solve this shortage, and sadly it has been performing poorly on both.
The first and most obvious is to hire from overseas, which typically provided threequarters of ICT talent before the pandemic. Recent news that the Government is to ramp up attracting ICT workers is positive, but it’s too late for tech leaders who have been calling for such changes for well over a year.
The second lever is improving our domestic pipeline of ICT talent. Again, Labour’s plans have so far failed to produce any measurable lift in students studying or graduating in ICT-related fields.
What could work immediately is greater support from the Government and businesses for existing workers to upskill in IT. Expanding support for those wishing to take an online IT training course would work, as would expanding apprenticeship schemes to include software and other ITrelated jobs, such as the UK has done.
Our economy can emerge from the pandemic with higher incomes and better jobs if we focus on these growth policies.
Dan Bidois is managing director of Bidois Strategy Group and a former National Party MP.