of the biological family unit have been accompanied by the development of entrenched, negative productivity and inter-generational misery. • Reduced physical capital per worker: Disincentives to invest productively have many sources: undue barriers to foreign direct investment (FDI), too much regulatory red tape, relatively high tax rates on income from mobile capital, policy uncertainty in conjunction with predatory tendencies towards taking or impairing private property without due compensation, etc. Predation reduces distrust.55 Dominant state-owned competitors have weak incentives to efficiently use capital and labour. • Inadequate provision of public good infrastructure (e.g. transport, electricity and water networks and public health) is a source of low productivity.56 Poor quality of public capital investment, including failing to maintain water pipe networks, also reduces productivity. • Discouraging innovation: Undue disincentives to finding more profitable uses for workers and capital can arise from artificial impediments to competition
(or its opposite – predation towards “excess” profits from successful investment in profitable niches), undue red tape that inhibits flexible resource use57 and the tax system. On the last point, economic research has established that growth in per capita incomes is likely to be weaker the greater the proportion of national income transferred through the tax system. It is not high in New Zealand compared to European and Scandinavian countries, which as a group are at the high unemployment rate, high public debt and low growth rate end of the developed country spectrum. Outside Europe, New Zealand has one of the highest ratios of tax revenues to GDP in the world, excluding very poor countries and countries with small populations. New Zealand’s ratio is high because transfer spending on welfare assistance and health and educational services of a private nature are high. Spending on providing goods and services of a collective nature is small in comparison. In the year ended March 2019, central government spent $20 on social assistance in cash and in kind for every $5 spent on collective consumption (Figure 5).
Figure 5: Current central government spending as a percentage of GDP (2018–19)
29%
20%
5% Collective consumption
Social assistance
Total excluding finance
Source: Statistics New Zealand, “National accounts (income and expenditure): Year ended March 2019,” Spreadsheet (n.d.).
24 ROADMAP FOR RECOVERY
