Whilst New Zealand has been in the group of high income nations in times past that is no longer the case and unliklely to be the case while the responses are misaligned to the issues. The fundamental problems of New Zealand lie with lack of Capital and misallocation of the capital that is available. According to a UNU study:
Average wealth amounted to $144,000 per person in the USA in year 2000, and $181,000 in Japan. Per capita wealth levels vary widely across countries. Even within the group of high-income OECD nations the range includes $37,000 for New Zealand and $70,000 for Denmark and $127,000 for the UK.[figures at exchange rates] http://www.wider.unu.edu/events/past-events/2006-events/en_GB/05-12-2006/
At PPP per capita this is a summary tableNet worth per capita (PPP) Real GDP per capita (PPP)
China 11,267 3,844
New Zealand 55,823 20,008
Australia 90,906 27,193
United Kingdom 128,959 24,252
United States of America 143,727 35,619
By my reckoning that placed New Zealand at about number 63 in the world and 22 out of 24 in the OECD. With the bulk of that wealth in houses it means that New Zealand must work very hard to produce the income it has with the little free capital it has.
Everyone knows that consuming all or more than you earn makes it more difficult later as you need to play catchup. That applies to a nation and to individuals or families, whether those on benefits waiting for the next cheque or those who have no free income for their retirement.
The change from a long gentle decline to a healthy future will take decades not simple quick fix pretend plugs and buzzwords. When New Zealand has genuine wealth, national income will be supplemented by the additional investments. Investment income is compounding. A dollar invested today at 8% return is worth $4.60 in 20 years time with compounding. Constant consumption of income leads to long term poverty as you run out of income earning capacity.
A big part of the reason China is catching up on the US so fast is the difference between saving and consumption in the two countries. China saves about 30% of income despite it being much lower per capita.
My prescription is varied and will be elaborated over subsequent posts but starts with:
Invest all of the Cullen fund in New Zealand over time. The 40% is a start. I do not wish to engage with those who argue for diversification overseas. You have economic theory on your side but nothing more. Entrepreurs would never get sufficient investment if they relied on diversified portfolios. The young farmer has an unbalanced portfolio. It will take time for the money from the fund to be appropriately invested but it is time for us to back ourselves.
Change New Zealand depreciation rates to 100%. The tax restructure should include German depreciation rates. 100% for all capital spending in the first year. That would cost but it would improve the relative return for investors considering New Zealand as a location vs other countries. That leads to jobs and more investment in a virtuous cycle. The cost to the tax system is timing only. There would be a first year hit to tax revenue but this would pay itself over following years with higher taxable profits from higher returns.
The reality of housing is that people invest in houses as a safe investment. For very good reasons people do not trust NZX and finance houses. It is lunacy that the NZ tax system is skewed towards property speculators by allowing them to offset ongoing rental losses against other income and then no tax on Capital gains.