A point on consistency: Finland v NZ

After saying I thought the general goal of catching other countries was a bit silly I suddenly clicked onto another point – the implied inconsistency of the policies being suggested by Labour.

Look, I don’t want to beat up on Labour specifically – as I think all parties are guilty of this – they just did it right here right now. Labour is saying:

  1. We want more innovative capital investment, in capital intensive technology industries
  2. We want to introduce a capital gains tax

So they want to increase capital investment … when their main policy recommendation so far is reducing the rate of return on investment.  They also suggest investing more in education – which is fascinating when we are a small open economy with an extremely mobile labour market, implying that it is very hard to keep hold of said highly trained labour.

Seriously, lets let the rest of the world bid down the price of manufactured goods and keep pushing forward technology, while we feed them and offer them awesome holiday’s – focus on what we are good at, and we will be better off than if we start trying to gamble on venture capital, or joining into the current highly competitive game of manufacturing/high tech.

  • You’ve summed up one side of the equation neatly, but there’s the other side: given we don’t have a capital gains tax how come our capital investment performance is so poor? 

     

    • Our capital investment levels have been high – why has the performance been poor?  That is a tough question, its easy to say we’ve overinvested in housing and in sectors that perform poorly – but if that is the case the question has to be what has caused this, not an appeal for a CGT and arbitrary intervention.

      Also, given our small size and distance from market, and given the rising relative price of primary goods (which we are highly exposed to) has our productivity performance been so bad?  Average productivity tends to fall when a countries terms of trade rises – as exporters ramp up production, using more marginal resources.  And yet, export productivity in NZ has kept rising, even as it has fallen in Australia and Canada.

      I find that little fact fascinating, and have planned to write about it for the past six months – but to no avail 😉