OECD warns on vulnerabilities from Auckland house prices; Calls for housing densification; Suggests raft of measures to improve NZ's dire labour productivity; Wants RBNZ to have DTI tool

By Alex Tarrant

You face economic vulnerability from high Auckland house prices. You need to give the Reserve Bank power to limit debt-to-income ratios. Densify your cities. Consider cutting corporate and income taxes while introducing potential new tax bases. Sort out labour productivity. Start planning for the future of work. Charge for water. Raise the carbon price. Allow more foreign investment. Boost R&D.

Oh, and well done on the growth front these last few years.

Translation: You’re a good student, but spend too much time talking about what you’ll do rather than just getting on doing it. And start thinking what you want to do when you leave school – it’s not that far away.

Like the typical seventh form pep talk, the OECD has basically told New Zealand it’s doing well, but could do better.

When we join the real world after high school we’ll need to become more productive. We’ll need to figure out what sort of jobs we want. We’ll need to take a bit more responsibility for the future.

Basically, it’s time to become an adult.

The OECD (Organisation for Economic Development – a group of rich countries around the world) has released its latest economic report card on us. Quotes are from its executive summary.

“Strong economic growth is being driven by booming tourism, strong net inward migration, solid construction activity, and supportive monetary policy. The fiscal position is sound, with low public debt and a balanced budget.”

That’s alright then.

“The major vulnerability facing the economy is high levels of household debt associated with rapid house price increases, particularly in Auckland.”

Here we go again.

“New Zealand is also exposed to protectionist trade policies abroad and to slowing Chinese economic growth. While the short-term economic outlook is strong, there are long-term challenges from low productivity growth and a changing labour market.”

Everyone keeps saying that. So, what should we do?

“Labour productivity is well below leading OECD countries, restraining living standards and well-being. Productivity is held back by a lack of international connections, agglomeration economies and scale; weak competitive pressures; low rates of capital investment; and meagre research and development activity.”

Thanks. Just rub it in why don’t you.

“Opportunities to address these factors include reducing barriers to foreign direct investment, lowering the corporate tax rate, expanding infrastructure funding options to increase housing supply (preferably through densification), reviewing the insolvency regime and the current provisions for misuse of market power, and increasing support for business innovation.”

Densification? Good luck with that one.

“Employment has shifted towards high-skilled occupations, a trend that is likely to continue with further diffusion of digital technologies, including Artificial Intelligence. New Zealand has high levels of skills but also high levels of mismatch between jobs and qualifications.”

We bring migrants in to sort that out.

“As in other countries, people will need to acquire more initial education in fields in demand and upgrade or reorient their skills during their working lives. Improving education achievement in mathematics would provide more young people with good job prospects in fields such as engineering and computing.

What? We should focus instead on better educating the local workforce? We’ll have to think about that one.

“With more workers likely to be displaced over the next 10-20 years, there may be a need to strengthen New Zealand’s limited arrangements for supporting displaced workers.”

Start planning for adulthood.