When Don was young and Michael’s parents were young, New Zealand had among the very highest material standards of living in the world. It really was, in the old line, one of the very best places to bring up children. But no longer.

For 75 years now, with no more than brief interruptions, New Zealand has been losing ground relative to other countries. Australia and the UK pulled ahead of us, previously poor places like Singapore and Taiwan caught up and overtook us, and increasingly now the former eastern bloc countries (Slovenia, Estonia, Poland, and so on) are catching and overtaking us.

Don’t get us wrong: material living standards here are still well ahead of where they were in the 1950s, but if we were once a leader, we are now a laggard. All too many of our people have seen better opportunities across the Tasman for themselves and their kids and have made the move. That’s good for them, of course, but a poor reflection on economic performance and policy back here.

For 40 years, successive governments have talked a good game about reversing that relative decline and closing the gaps that were opening up. In the earlier part of the period there were far-reaching policy reforms, which probably helped slow the rate of relative decline. In more recent decades, the ratio of talk to action has very much favoured talk. And that is so whichever of our main political parties has led the government.

In late 2008, nearly 17 years ago now, as part of a post-election agreement with ACT, the then government led by John Key announced a goal of catching up with Australia by 2025. A Taskforce was set up to advise the government on policy options that might enable aspiration to be turned into solid economic achievement. Don chaired that 2025 Taskforce and Michael wrote much of the Taskforce’s first report.

The report wasn’t well-received by the then government – in fact, the then Prime Minister openly dismissed it even before it was released publicly – but that didn’t alter the facts: New Zealand was lagging far behind Australia (and Australia itself wasn’t, and isn’t, a stellar economic performer).

It is now 2025 and over the intervening years – under successive governments, led by both main parties – no progress at all has been made in closing the gaps to Australia.

If anything, and as measured by labour productivity (output per hour worked), the gaps have widened a bit further. Recently the Australian government has made it easier, and more secure, for New Zealanders – any of us, skilled or unskilled, young or old – to cross the Tasman. It isn’t that Australia has done particularly well economically in recent years – rather the contrary – it is just that New Zealand hasn’t even managed to match their underperformance consistently. Productivity growth – the only secure foundation for material prosperity – here dropped away further from about 2012.

This month we’ve heard a lot from the Prime Minister about the importance of economic growth. It is fine rhetoric, and we entirely endorse his argument. Material prosperity – whether it is private consumption or better and more public services – rests on restarting sustained economic growth, which in turn rests on accelerated sustained growth in productivity.

This isn’t just about the ups and downs of the business cycle. Economic activity has been particularly weak in the last 12-18 months as the Reserve Bank has been getting on top of the inflation it inadvertently generated with too easy monetary policy during the Covid period. Now that inflation is falling and interest rates are dropping, we should expect a cyclical recovery. But a near-term bounce isn’t anything like enough; what we need is, say, 20 years of 2-3 per cent per annum productivity growth. Over the last decade, actual productivity growth has averaged not much more than 0.5 per cent per annum.

The Prime Minister announced a couple of small reforms in his speech this week. They may well be individually helpful, but small changes aren’t what will produce really big differences in outcomes.

We’ll watch with interest the promised “rolling maul” of reforms but aren’t confident that this government, any more than its National and Labour predecessors this century, is likely to respond on the scale equal to the challenge.

Sadly, it isn’t obvious either that the government has a public service with the energy, intellectual ferment, and concrete ideas that a willing government could pick up and run with. But some of the options that should be considered are pretty obvious: economics literature suggests that most of the burden of heavy taxes on business is actually borne by labour (in the form of lower wages than otherwise), and yet New Zealand – plagued by decades of low levels of business investment – has one of the highest company tax rates in the OECD, and takes a higher percentage of GDP in corporate income tax than almost any OECD country. Foreign investment in New Zealand remains harder than it should be and is taxed more heavily than it should be.

We can choose to continue to drift, with just incremental reforms, as successive governments have done for 30 years even amid the fine talk. But if we do, more and more New Zealanders are likely to conclude rationally that there are better opportunities abroad, and for those who stay, aspirations to first world living standards and public services will increasingly become a pipe dream.

It is a multi-decade challenge under successive future governments, but as the old line has it the longest journey starts with the first step. We hope the Prime Minister’s bold rhetoric signals the beginning of a willingness to lay things on the line, to lead the debate on serious options, to spend political capital, for the serious prospect of a much better tomorrow for our children and grandchildren.

Don Brash, former Governor of the Reserve Bank and former leader of National and of ACT was chair of the 2025 Taskforce from 2008 to 2011. Michael Reddell was a former Reserve Bank and Treasury official.

Originally published on Basset, Brash and Hide.