The Real New Zealand

New Zealand Centre for Political Research

The New Zealand Centre for Political Research is a web-based think tank that takes a research-based approach to public policy matters and encourages the free and open debate of political issues. www.nzcpr.com

If you listen to the news each day, you could be excused for thinking the nation is shrouded in despair and on the brink of crisis. That’s how many in the media depict New Zealand. 

For a less sensational view, let’s look at how others from outside the country portray us.

In November last year, the London-based Legatum Institute published the 2016 World Prosperity Index.Of the 149 countries surveyed, New Zealand was ranked in first place, followed by Norway, and Finland, with Australia ranked 6th, the UK 10th and the US 17th.

Also in November, the 2016 Human Freedom Index was published jointly by the Washington-based Cato Institute and the Vancouver-based Fraser Institute. Of 159 countries, New Zealand ranked third behind Hong Kong and Switzerland, with Australia and the UK on 6th equal, and the US on 23rd

And in March, the 2017 World Happiness Report was published by the United Nations. Of 155 countries surveyed, New Zealand was ranked 8th behind Norway, Denmark, Iceland, Switzerland, Finland, Netherlands, and Canada – but ahead of Australia in 9th place, Sweden in 10th, the US in 14th, and the UK in 19th place.

On the surface these reports paint a picture of New Zealand as a country that isn’t on the verge of crisis. Quite the reverse – we aren’t doing too badly at all. So let’s look at some detail, and, with the election just around the corner, see whether some policy recommendations can be made.

First, the Prosperity Index, which not only measures economic wealth, but also social wellbeing by factoring in ‘freedom’ and the ‘joy’ of everyday life. The framework for ranking countries is based on the assessment of 104 variables within nine separate criteria: Economic Quality; Business Environment; Governance; Education; Health; Safety and Security; Personal Freedom; Social Capital; and the Natural Environment.

Of New Zealand, the report says, “Free markets, free people, and the world’s strongest society ensure that New Zealand takes the top spot in the Prosperity Index”. They note that we have been ranked first in the Index for six of the last ten years, and they credit the upward trend since 2012 to a concerted effort by policymakers.

On Economic Quality, which examines indicators such as free trade, open markets, growth, economic opportunity, and financial sector efficiency, New Zealand was ranked in first place with trade identified as critical: “New Zealand is one of the least distorted markets in the world, with unrivalled free market access… proof that a small nation whose exports are still dominated by the primary sector, can trade its way to prosperity.”

We also ranked first in Social Capital, which covers personal relationships, social network support, social norms, and civic participation: “New Zealand has the strongest society in the world, with 99 percent of New Zealanders saying they can rely on family and friends in times of need. This social strength has been proved globally to not only have a significant impact on wellbeing, but on economic growth also.”

In the Business category, which measures entrepreneurialism, infrastructure, innovation, and labour market flexibility, New Zealand improved nine places over the past decade to rank second. This was attributed primarily to improvements in infrastructure – particularly broadband penetration – and to an increase in labour market flexibility. Along with the ease of getting credit, and improvements to boost innovation (including better intellectual property protection), the report identified New Zealand as one of the best environments for business in the world – second only to the United States.

New Zealand was also ranked second in Governance, which covers democracy and the rule of law, and third in Personal Freedom, which includes basic legal rights, individual freedom, and social tolerance.

In the area of Health, which assesses general health, medical infrastructure, and preventative care, New Zealand has improved eight places from 20th in 2007, to 12th – with a public satisfaction rating of 85 percent, an increase of nearly two years in life expectancy over the past decade, and falling mortality.

On Safety and Security, which measures national security and personal safety, we ranked 19th, and on the Natural Environment, which looks at the quality of the natural environment, pressure on the ecosystem, and preservation efforts, we ranked 13th.

Our ranking on Education, however, which assesses access to education, the quality of learning, and human capital, has fallen from 8th place in 2007 to 15th. The report attributes the decline to a reduction in human capital, which is measured by the number of years of education per worker. It warns that if the trend continues, this “has the potential to undermine New Zealand’s economic success and its role as a world-class place for business. If the country cannot sustain the skills base to match, then prosperity is at risk.”

This, of course, is precisely what is happening at the present time, with record levels of immigration now needed to provide the skilled workers required by local businesses.

The second report, the Human Freedom Index, presents a broad measure of human freedom, which is defined as the absence of coercive constraint.

Using data from a range of sources including the OECD, some 79 indicators of personal and economic freedom are measured to create a country score in the following 12 areas: Rule of Law; Security and Safety; Movement; Religion; Association, Assembly, and Civil Society; Expression; Relationships; Size of Government; Legal System and Property Rights; Access to Sound Money; Freedom to Trade Internationally; and Regulation of Credit, Labour, and Business.

The report explains that democracy is underpinned by both political freedom and personal freedom, and that in the early 19thcentury, at its peak, 29 nations were democracies. However, the rise of Fascism saw the number drop to 12. While these days around eighty countries maintain the outward manifestation of voting with majority rule, many have backtracked on freedom.

In particular, the authors warn that freedom is under threat in a number of developed democracies as populist politicians target minorities, call for restrictions on trade and other economic freedoms, and propose increasing police powers and state intrusions that threaten personal freedom.

This reinforces our view that here in New Zealand the recent attempts by the Race Relations Commissioner to strengthen hate speech laws and introduce hate crime, is a genuine attack on the personal freedom of citizens and must be resisted.

While the report paints a relatively rosy picture of New Zealand by ranking us third in the world in economic and personal freedom, it does raise concerns over some aspects of our performance, including the over-regulation of business and the excessive cost of government. Compared to many other countries, government spending and tax rates in New Zealand are too high. In addition, we are too reliant on government transfers and subsidies as a result of a welfare system that is not effective enough at moving people off benefits and into work. 

The third index, the World Happiness Report, was developed by United Nations in response to a growing awareness that ‘happiness’ is increasingly considered a measure of social progress and a legitimate goal of public policy.

To generate the Index, researchers ask up to 3,000 people in each country to rank their own happiness based on life in a fictional country called Dystopia, where everyone is extremely sad and miserable. Their answers are then weighted according to six measurable factors that contribute to happiness in each country: social support; freedom to make life choices; generosity; the absence of corruption; GDP per capita; and life expectancy. 

The report shows that while New Zealand ranks 8th in the world on the overall rankings, on social support and generosity we ranked 5th, on trust 6th, on freedom to make life choices we ranked 8th, on life expectancy we ranked 20th, and on GDP per capita we trailed at 27th – signalling the need to do better in the areas of health and economic reform.

The report raises a number of interesting issues, including identifying marriage as a significant benefit, especially in protecting people from the effects of a mid-life crisis which appears to have a seriously detrimental impact on people in many of the countries surveyed.

It highlights how in New Zealand, and many other countries, being self-employed is viewed far more positively than being a full-time employee.

It shows that, all things being equal, senior professionals report the highest life evaluation across all regions of the world – except amongst farming, forestry, and fishing workers in New Zealand, Australia and North America, who report equal or higher affects.

The report also highlights the crucial importance job satisfaction plays in a person’s happiness and wellbeing, and it outlines how unemployment leads to persistently low levels of life satisfaction. This reinforces just how necessary it is to have in place a welfare system, that is effective in getting people who have lost their jobs back into work as soon as is humanly possible.

This week’s NZCPR Guest Commentator is Dr David Skilling, a former Treasury official who set up the New Zealand Institute before moving to Singapore and establishing Landfall Economics. With his intimate understanding of our country, Dr Skilling provides a further ‘outside’ perspective of how we are doing:

“New Zealand is noteworthy for its strong economic performance over the post-crisis period. GDP growth has averaged close to 3% since 2012, well above the advanced economies average, on the back of factors such as Chinese demand for dairy, record tourism flows, as well as record-high rates of immigration. Unemployment has reduced to 5.2%, and the government is running a fiscal surplus.

“This record shows that small economies can do well even in a challenging global environment. Political stability has underpinned New Zealand’s strong economic and fiscal performance over the past period, and contributed to the relative absence of support for inward-looking, populist policies.

“The caveat is that this is largely input-driven growth: New Zealand’s labour productivity growth and per capita income growth remain low, and the exports/GDP ratio has not increased. This means that New Zealand’s growth is particularly exposed to reversals if there is a shock to tourism or migration, or to a key export market. And New Zealand is increasingly running into supply side constraints (infrastructure, housing, etc) that will constrain growth.”

Dr Skilling’s evaluation highlights the reality that there is no room for complacency when it comes to ensuring our economy remains productive and competitive. In fact, with President Trump’s recent announcement that the corporate tax rate in the US will reduce from 35 percent to 15 percent, it’s time for our Prime Minister to be proactive too and reduce down our 28 percent company tax rate so Kiwi businesses are no longer handicapped by an uncompetitive tax burden.

 

As we look towards the election, all of these reports reinforce the view that while the country’s policy framework is, relatively speaking, standing us in good stead, there is clear room for improvement.

In particular, on the economic front, the comparisons show that taxes in New Zealand are now far too high, that government spending remains excessive, that businesses are suffering from an overload of regulation, that the welfare system is not effective enough in requiring the able-bodied to get jobs, and that our education system is failing to deliver what people need to succeed in work.

One final thought – before politicians are tempted to jump onto the populist bandwagon and call for an end to unskilled immigration, they should make sure they know what is happening in the workplace.

In a recent radio interview the manager of an aged care facility explained that she used to have no trouble hiring locals to fill basic jobs, but not so after the new Health and Safety laws became operational and workplace drug testing had to be introduced. As a result, locals no longer apply for the jobs, and without immigrant labour, the facility would have to be closed down.

What this shows is that welfare policy is now clearly out of step with workplace health and safety requirements, signalling that the drug testing of welfare beneficiaries is now urgently needed. While sanctions are already in place for beneficiaries who apply for jobs and fail a drug test, those who don’t bother to apply – because they know they will fail the test – are not presently covered.

Any political party that wants to campaign on restricting immigrants from taking basic jobs, should therefore extend their thinking to include the drug testing of all unemployed beneficiaries in their manifesto.

THIS WEEK’S POLL ASKS:

Should welfare beneficiaries be subject to drug testing?

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