Strategic investment in a high-wage economy is better than a future dependent on real estate, where countless elections are fought on how to extract more value from property
Opinion: At the end of last year I noticed a bunch of flashy advertisements going up at bus stops I was walking past, and on the back of magazines, for a major New Zealand real estate company. Its central message? Real estate and property are the heart of Auckland.
“As Auckland”, the company said in block white letters on blue background, “as almond milk lattes”. “As Auckland as doggy daycare”, said another ad in the same series.
You can tell from these straplines that the ads were meant to be tongue-in-cheek. Of course “almond milk lattes” and “doggy daycare” aren’t what Auckland is today, right?
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But there was more than a grain of truth in this glossy messaging. This is Auckland – and much of New Zealand – today. An economy centred on housing and property, with tax settings channeling investment in that direction. Writer Jane Kelsey calls it “the FIRE economy”: finance, insurance, and real estate. Journalist Bernard Hickey says New Zealand’s economy is a “housing market with bits tacked on”. Political economist Brett Christophers writes that the UK economy isn’t producing much more than landlords. The same could be said of ours.
It’s precarious for any economy to put all of its eggs in the basket of one sector or industry, or a small number of sectors. It’s particularly precarious when so much of that one sector – property – sits on top of land acquired unjustly from Māori, due to theft, confiscation or otherwise unprincipled acquisition.
It’s bleak, against this backdrop, to see so much of this year’s election debate consumed by a policy proposed by the National Party that depends, again, on boosting the property sector.
National’s Jenga-tower tax plan relies on removing the ban on foreign ownership of property, and taxing foreign buyers at 15 percent. The highly dubious revenue figures produced by National, without any evidence of modelling or how these figures were arrived at, have been defended by Christopher Luxon on the ground that National will turbo-charge luxury property development at the upper end of the market, such as build-to-rent developments.
Never mind that build-to-rent developments are associated with higher eviction rates for tenants, lower investment in housing stock, and reduced accountability for landlords. The more important point is National’s plan involves no hard thinking on how to build our economy on more robust foundations.
"I am going to deliver a 6.5 percent savings out of the sum of those agencies and there are large agencies. If you think about MBIE, $500 million, you've got to say what are we getting for it. The brief to the CEO will be pretty simple and I've done this a lot in my previous business life, you say, you're going to deliver the savings." – Christopher Luxon, National Party
National also wants to use an expanded market in foreign buyers of property to pay for tax cuts for landlords and speculators: it wants to reverse interest-deductibility changes and weaken the bright-line test. At its core, National’s tax plan is all about property.
It should be no surprise that the real estate sector, who stand to gain from an influx of affluent foreign buyers, have been the most vocal in their enthusiasm for National’s tax plan. The managing director of the same real estate company that ran the ads saying property was “as Auckland as almond milk lattes” called the plan the plan a “good positive move”.
So, you might say, how could we build an economy on more robust foundations?
As a start, we could prioritise strategic investment and lending, a high-wage economy, and quality public services and infrastructure.
Strategic investment and lending are essential for diversifying the economy. Establishing a National Investment Bank would be one important plank in more strategic investment and lending. That institution – which could learn lessons from New Zealand’s Development Finance Corporation, and successful overseas national development banks (such as Germany’s and Brazil’s) – could boost regional development, decarbonisation, and innovation.
The Development Finance Corporation previously provided business loans that it would write off when export and job targets were met, contributing to the development of the kiwifruit, wine, and tourism sectors.
Recent Labour-led governments have taken tentative steps towards rejuvenated industrial policy, through Industry Transformation Plans, Workforce Development Councils, and increased funding for New Zealand Green Investment Finance. But funding has been relatively small-scale, and more unflinching advocacy is needed to build public support for this approach, as well as structures that can provide sustained support to key sectors.
The alternative to this approach is to cut taxes and hope individuals and businesses can innovate on their own, and build new industries away from property. But individual success stories often rely on public funding, and rarely result in sector-wide improvements.
Make no mistake: The Act Party’s theatrical claim that it would cut 6,000 staff at the Ministry of Business, Innovation, and Employment is not a random swipe at the public service. It’s a deliberate attempt to cut down strategic investment and lending – Act has specifically identified Industry Transformation Plans and Workforce Development Councils for the chop – driven by ACT’s ideological hostility to public funding for economic development.
A high-wage economy should also be the goal of any future government seeking to build a better economy, no longer dependent on property and a small number of sectors. Higher wages are not just essential for allowing individuals and families to meet essential needs. Better pay cheques provide the security for individuals and communities to take risks and to innovate.
Higher wages help sustain a thriving arts and community sector, by giving people disposable income they can use to support local music, art, bookstores, and venues. It is higher wages, not the prospect of tax cuts, that for years has drawn people to Australia, and it is higher wages that will persuade people to stay in this country and contribute to a more diversified economy.
On movement towards a high wage economy, the current Labour-led government is on the right track with its work on Fair Pay Agreements. Fair Pay Agreements are a form of sectoral collective bargaining, which set minimum floors across industries and prevent businesses from driving wages downwards at the expense of workers to gain a competitive advantage.
Even the OECD – not a far-left institution – has highlighted the importance of collective bargaining for communication between workers and companies, and the need for coordination between employers and workers in a changing world of work. Australia’s modern awards system is also a form of sectoral collective bargaining, and the sky has not fallen in under that system across the ditch. Both National and Act have said they will scrap Fair Pay Agreements, with Act also promising a halt to any minimum wage increases.
Strategic investment and lending, and a high-wage economy, must be built on a bedrock of quality public services and infrastructure. There is sound economic evidence that while wealth can be mobile, the quality of “local or national amenities” and “the provision of public goods and services” are relevant to decisions about business investment and the movement of people. That means investment in public transport, childcare, and healthcare systems can be valuable for economic outcomes – as well as enriching the day-to-day lives of people.
On this front, both National and Labour are mis-stepping by calling for public service cuts. Labour has promised $4 billion in savings, in part from cutting contractors and consultants. National has called, more aggressively, for 6.5 percent cuts by Christmas to fund tax cuts – what the Public Service Association has called a “Christmas chainsaw massacre” – with Christopher Luxon suggesting that MBIE could be cut by 30 percent and housing spokesperson Chris Bishop saying he would “clean out” Kāinga Ora, the state housing provider, and that he “hopes” there will be job losses.
Vicious cuts will damage the quality of policy- and law-making, hurt individuals and families who will be suddenly out of work, and may incur cost in itself, through redundancy payments and the need to fund consultants or contractors to plug gaps. And upgraded investment in public services to support people is needed more, not less, in difficult economic times.
I don’t want to walk past another cringe advertisement in three years’ time for property, which says real estate is “as New Zealand as almond milk lattes”. I don’t want an economy in three years’ time where the main way to progress is to buy or work in real estate.
I don’t want a politics where every election is a scramble to eke out more money and opportunities at the edges of the property market. I want people to have options in paid and unpaid work, to have good wages if we are in paid work, and to have supportive public services throughout our lives. Is that too much to ask?
