NZ is running a ponzi economy

Advertisement

By Leith van Onselen

Last week, Treasury and the Ministry of Business, Innovation and Employment (MBIE) warned the New Zealand Government that the huge influx of students and working holiday makers could be lower New Zealand productivity in addition to displacing locals from work. From Interest.co.nz:

Treasury and MBIE noted the numbers of temporary overseas migrants with work rights had increased significantly recently, “driven mainly by working holiday-makers and international students.” They said a significant proportion of permanent and temporary labour migrants worked in lower wage occupations, “and recent trends show a relative decline in the skill level of permanent migrants.”

“Migrants are meeting firm demands for labour and skills, but increasingly in low productivity growth industries and lower-wage and-skilled jobs” they said in the briefing paper…

…”there is an increasing use of temporary and permanent labour and non-labour migration in lower wage and/or productivity industries where there is no strong evidence of genuine skill shortages”…

“In lower skilled and lower wage occupations it is unlikely that firms are experiencing genuine skill shortages… Filling migrant labour shortages through migrant labour can reduce incentives on firms to employ domestic workers, increase wages to attract domestic workers, and invest in training and/or capital (eg Technology)”…

The report showed that the major categories for ‘essential skills’ visas in 2015 were tour guides, chefs, dairy cattle farmers, cafe or restaurant managers, retail managers, dairy cattle farm workers, aged or disabled carers, truck drivers, aged care nurses, and winery cellar hands. By contrast, visa applicants in genuinely skilled professions, such as doctors, software engineers, and programmers, failed to make it into the Top 15 visa categories.

Over the weekend, Bernard Hickey also published a great article questioning whether the New Zealand economy has become too reliant on quantitative drivers of growth, such as immigration, instead of qualitative drivers that boost productivity and ultimately raise living standards. Also from Interest.co.nz:

Advertisement

How do New Zealanders get richer? It seems such an obvious question, but it’s not one we think nearly deeply enough, and one we seem to be ignoring through our actions.

…the only sustainable path to increasing the wealth of New Zealanders is to increase the amount of goods and services we produce every hour. This is productivity and is what eventually increases real wages and supports the prices of assets we own. Asset prices can go up and down in the short term because of capital flows or supply shortages/surpluses or migration or more/less borrowing, but ultimately it’s the ability to service a mortgage or a rent with an income that matters.

All this is showing through in New Zealand’s real income per capita, which fell 0.4% in the 2015 year, despite a 2.5% rise in total GDP for the year. We added more people working longer hours and added plenty of natural resources with a bit more capital, but didn’t actually produce much more per person per hour worked…

It’s the same old story. New Zealand has avoided the tough decisions about taxation, investment and competition and has simply bought growth by adding more resources — more people, more hours, more land and more water. We’re not working much smarter or using technology to make us richer.

…the student and working holiday maker numbers have surged by nearly 50,000 to over 250,000 a year, including 4,137 successful visa applications for tour guides in the eight months to February 2016.

The economy is getting bigger, but productivity has stalled. That is not a recipe to make everyone richer in the long run.

There’s no getting around the fact that New Zealand has become the new population ponzi king, taking the mantle from Australia. In the year to December 2015, New Zealand added a record 95,100 people, 68% of whom were via net migration:

ScreenHunter_12206 Mar. 22 12.08
Advertisement

The rate of population growth in New Zealand – 2.1% in the 2015 calendar year – is also the highest since at least the 1970s:

ScreenHunter_12207 Mar. 22 12.09

According to Statistics New Zealand, 31% of all migrant arrivals in the year to February were for work visas, whereas 23% were student arrivals.

Advertisement

Meanwhile, last month’s national accounts release for the December quarter revealed that per capita national disposable income (NDI) growth has turned negative, falling by a combined 0.9% over six quarters versus 1.2% growth in per capita GDP (see next chart).

ScreenHunter_12354 Mar. 30 08.42

So, in addition to causing great strain on infrastructure and housing, national income is now also falling in per capita terms – a situation that will only worsen as dairy prices weaken further.

Advertisement

Expect the push-back over high immigration into New Zealand to get louder. Quantitative ponzi growth might be good for the aggregate economy and big business (i.e. more inputs equals more outputs and more customers for business), but it can represent a step backwards in living standards for the average Kiwi.

[email protected]

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.