The NZ Herald reports that latest population estimates show Auckland’s population increasing from the current 1.5 million to almost 2 million by 2031 – out of a total NZ population that will be over 5 million by that point:
New subnational population projections show Auckland will continue to be New Zealand’s fastest growing region, and account for three-fifths of the country’s population growth between 2011 and 2031.
In 2031, 38 percent of Kiwis will reside in Auckland, compared to 34 percent in 2011. It is projected Auckland would have almost 2 million of New Zealand’s 5.2 million people.
Natural increase (births minus deaths) is projected to account for two-thirds of Auckland’s growth, and net migration (arrivals minus departures) the remaining one-third.
Of New Zealand’s 16 regions, only Auckland will have more births in 2027-31 than in 2007-11, but all regions will have more deaths as the population ages.
“Auckland has a slightly younger population than other regions, and younger populations tend to have more births and relatively fewer deaths,” population statistics manager Andrea Blackburn said.
I think there are a few key considerations in these numbers:
- Auckland accounts for well over half the country’s population growth in the next 20 years – which has some interesting implications in terms of requirements for new transport infrastructure.
- Auckland’s population growth is largely through natural increase, not just migration, meaning that such growth is more predictable than if it were more dependent on migration (migration tends to fluctuate enormously over time).
- Statistics NZ projections tend to be a bit conservative, with Auckland’s population often exceeding projections historically.
- Working out whether Auckland’s population growth will swamp the seeming decrease in per capita travel or not will be critical in getting an accurate idea around the amount of additional transport infrastructure Auckland might require in the future. Let alone what type of infrastructure might be needed.
I suppose the other big thing these numbers highlight is that growth in the rest of New Zealand will be pretty slow over the next 20 years. With the country’s current population not far off 4.5 million now, basically the whole rest of NZ will grow by only 280,000 over that time, around a 10% increase on current population. In contrast Auckland’s population will grow by around a third.
This further points to the awkward and unusual role that Auckland plays in New Zealand.
New Zealand is very clearly a “primate city economy”, that is where a country has one city that is greater than two times the next largest city in a nation (or contains over one-third of a nation’s population).
The ‘law of the primate city’ was first proposed by the geographer Mark Jefferson in 1939. He defines a primate city as being “at least twice as large as the next largest city and more than twice as significant.” A primate city is number one in its country in most aspects, like politics, economy, media, culture and universities. As a result the rest of the country depends on the primate city in terms of economic activity.
Other examples of Primate City economies include France (Paris), Ireland (Dublin) and most notably Thailand (where Bangkok is 40 times larger than the next largest city!).
This compares to the “rank-size distribution” pattern found in countries such as the USA, Canada, Australia and Brazil, where there are several cities of similar size, with no one city is significantly greater than others.
But New Zealand / Auckland is relatively unique in that the primate city is not the capital city (I can think of one other, can you name it? – and no, Australia, USA, Canada are not primate city economies).
So although Auckland is significantly greater in size than the next nearest city (which has been further exaggerated since the Canterbury earthquake), and dominates the country in terms of economic activity, it is not being allowed to be number one in the other aspects described above, such as politics, culture, media etc. In other primate city economies the rest of the country effectively falls in line and supports the progress of the primate city, knowing this will benefit the whole of the country. In NZ, the rest of the country is trying as hard as possible to resist the power and direction of Auckland.
In other words, we have a country that is working against the usual benefits of a primate city –which as I say, is relatively unique, and is causing not just Auckland, but NZ problems, which will only become greater as Auckland becomes larger and competition between world cities for business and trade becomes more fierce.
Why are we creating such difficult circumstances for ourselves? Why can our political leaders not see such obvious problems?
I think that part of the problem we have is that the rest of the country doesn’t comprehend just how much bigger Auckland is compared to the rest of the nation. They see the region as no different to any other region and so they get upset when Auckland gets say 30% of funding thinking that its unfair even though that is less than Aucklands share of population or economic metrics. Rural interests tend to drive a lot of the agenda in the country and we are constantly told it is the farmers that hold the country up while the city leeches off them even though it isn’t true. I don’t know how we solve this issue though.
Especially bizarre when people in one of the most urbanised countries in the world talk about the “rural majority”. The vast majority of people in NZ live in cities and as you say 30% live in Auckland alone.
I think there is two things there, for a start about 80% of New Zealanders live in the top 16 urban areas, so we are overwhelmingly ‘townies’. However, only the largest six or so settlements count as true cities, while arguably Auckland is the only real metropolis. So while most of us aren’t rural dwellers, we’re not exactly city folk either.
One-third of the population resides in Auckland. Nearly a further third resides in the combined urban areas of Christchurch, Wellington, Hamilton, Dunedin and Tauranga. 58% of the population reside in the triangle between Whangarei, Hamilton and Tauranga. We are not a rural country by any stretch of imagination.
Wouldn’t it be better to say: We are a rural country, but most of New Zealand’s population will live in and around urban areas.
Myanmar (Naypyidaw as a capital, Yangon as a primate city) and Nigeria (capital Abuja and primate city Lagos). It’s relatively unique indeed. Especially if you realise that both Nigeria and Myanmar have moved their capitals only in recent history.
Also Turkey, where Istanbul easily outranks the other cities, and dwarfs Ankara.
Sting a better comparasion between Australia and NZ is to consider NZ as the missing state. If you do this, view NZ as missing the over arching federal level and not as might seems more obvious missing the state level, ie see our govt as really equivalent to an Aus state government, you’ll see that Australia has only got primary cities. Every state has its big bully and is very similar to Aucklands relationship to the rest of NZ except for in one vital way: In NZ government is in a little fishing village half way the state unlike all of those Aus examples.
This has huge implications. The people with the power to really shape AK don’t even have to get to work here, are not opening huge cultural and political institutions they need to be accessible, basically even if from AK do not face daily reality of operating here. This is especially true of the staff in these ministries. Those MoT execs catching the train to work and spending their days forcing motorways on AK, they don’t have their partners telling them there’s no way they can demolish certain buildings etc, no emotional attachment to place.
Anyway to your main point. Really Aus and a lot of US states only have primary citified and not to consider this is to misunderstand how powerful the states are in these countries.
Not to disagree with your characterisation of Auckland as a primate city, but it is incorrect to say that a rank-size distribution means that there are a several similarly sized large cities. On the contrary, a rank-size distribution if a perfect fit would imply that the largest city was twice the size of the second largest, and three times the size of the third, four times the size of the fourth and so on. Many large countries don’t fit this model particularly well because they have more larger roughly-similar sized cities than it suggests would be the case. At the same time the rank-size distribution is inconsistent with a primate city on the scale of Auckland, as you correctly point out.
“I can think of one other, can you name it?”
I was going to say Brazil but Sao Paulo is a bit short of twice Rio’s size and hard to say if it’s more significant economically… at least from my lacking South American knowledge. (And Wikipedia confirms that… but what is the answer?)
Turkey, Nigeria and Myanmar probably count. Arguably also Chile because Valparaiso is technically the seat of government, not Santiago.
The Australian states have a very primate city arrangement, if not at the federal level.
the one I was thinking of was Nigeria, so nice to know there are some others.
strange Auckland is not in Wiki’s list, but maybe as someone else states, its because its not the political centre. if so, this suggests all the other cities on that list are political centres, thus further reinforcing how odd it is Auckland is not the capital.
yes of course I know Australian states are primate city economies, further fuelling the argument that in a primate city environment, the seat of government should be in that primate city. but i do accept there are disadvantages to a capital primate city as well.
According to Wikipedia Auckland isnt a primate city: http://en.wikipedia.org/wiki/List_of_primate_cities
But we all know Wikipedia isnt that accurate.
I would think Turkey, although Ankara is still quite an important city. There is no doubt that Istanbul dominates the country. Incredible place as well. Only Rome can rival it for history in Europe.
Nigeria must be close as well?
Wikipedia’s definition includes a requirement that the primate city must be “the financial, political, and population center of a country”. Auckland clearly isn’t the political center of the country, so doesn’t qualify under that definition.
I like having the capital elsewhere. I don’t like the idea of a London-style city that dominates every aspect of a country. That leads to high property prices and the resulting poverty. It also isn’t very resilient, which must be a consideration in a country as geologically active as NZ.
Wikipedia doesn’t include Germany for some reason, despite berlin being twice the size of Hamburg and at least 4 times the size of anywhere else.
I suppose it depends on the definition of “somewhat weak” with regards political power. I certainly wouldn’t say that the size of Hamburg’s population is close to Berlin’s. I suspect there is a blurry bounday, and where the boundary falls depends as much on personal preference of the author than anything else. I am inclinded to think that the hard definition given actuually makes it a less useful concept than if the definition is looser.
Probably because the Ruhr Valley cities pretty much run in to each other and have a combined population double that of Berlin. And because the financial center is in Frankfurt. Germany is quite a decentralised country… I think the highest courts are in Karlsruhe.
I’m guessing you’re thinking of Glasgow, Scotland, where the population is larger than the capital city of Edinburgh by about 100,000.
Sting, The answer to your question is that primate cities have as many disadvantages as advantages. Naturally Aucklanders see only the advantages whilst everybody else sees only the disadvantages
Pros:
• Advantages of agglomeration of economic activity.
• Large market for goods and services.
• Ability to offer high-end goods and services (including education) because of larger threshold
population.
• Advantages of enhanced flow of information and ideas in large population.
• Advantages of centralized transportation and communication network.
• Global trade opportunities; primate cities can compete on a global scale and attract foreign
investment.
Cons:
• Unequal distribution of investments deters national economic development.
• Unequal economic and/or resource development.
• Unequal distribution of wealth and/or power.
• Transportation network (hub and spoke) prevents equal accessibility to all regions.
• Impact of centrifugal forces and difficulties of political cohesion on economic development.
• Brain drain — migration and unequal distribution of education, entrepreneurship, opportunities.
• Disproportionate effect of disaster in the primate city on entire country.
• Negative externalities, e.g., unsustainable urban growth/slums/environmental impacts if these are
related to economic development, e.g., burden on national economy to cope with problems.
On the issue of disaster risk, modelling for an emergency management exercise in 2008 calculated that an eruption within the Auckland Volcanic Field would cause a decline of up to 48% of regional GDP. On the basis of 2011 figures that’d be about 16% of national GDP.
What does “within the Auckland Volcanic Field” mean? I can imagine that if we have another offshore eruption then GDP will reduce by a large amount as we’re pelted by falling pumice and poisoned by toxic gas. But if a volcano pops up anywhere central then I’d imagine depopulation and loss of economic activity would be close to 100 percent.
If you have a link to this then I’d be interested to read more about it.
You can look up the AVF on Google. We’re actually at pretty low risk of serious impact from a distant volcano (Mt Taranaki is the greatest risk to Auckland, then Okataina, in terms of eruption likelihood multiplied by damage factor), because although the ash would be a nuisance it wouldn’t accumulate sufficiently to destroy structures. A near-offshore (Rangitoto, or something unknown) or onshore eruption within the AVF (which runs roughly from Mt Roskill south to the Bombays) would be devastating within about 5km but will only deposit tephra along the path of the prevailing wind. And even within that 5km it’s only the nearest few hundred metres that would be levelled by the creation of a new cone.
Obviously if there’s a super-caldera eruption all bets are off, but something like the existing cones won’t even come close to a 100% disruption to economic activity.
The figures I got are from the Auckland CDEM Group Plan, which you can find here (see page 17), and the Auckland Plan. There’s a heap of work on Google Scholar regarding the AVF and projections of the impact of eruptions.
Thanks Matt. I have some reading to do. I recall Tongariro was erupting a few months ago and that didn’t seem to amount to much more than puffing out a bit of smoke. But people were being told not to stop on roads over 20km away. Obviously the only volcano in Auckland that resembles Tongariro in terms of size is Rangitoto. But I assume that Mt Eden would have erupted with some force and energy, given the size of the cone and the crater. If a similarly sized cone suddenly popped up somewhere on the isthmus, then would we need to evacuate people 20km away? Or further? I can’t imagine any government allowing people to stay if there was even the slightest possibility that an erupting volcano might suddenly go all Mount St Helens. Even ignoring the possibility of compulsory evacuations, are people going to get on with their lives when they might wake up and find a couple of inches of ash in their back yard?
I think it is mad that we live on a volcanic field, but at least Auckland looks stable. I wonder about the people (Maori and European) who first arrived in Rotorua, spotted the erupting hot water and bubbling mud and smelled the toxic atmosphere and decided it’d be a great place to live. What were they thinking?
The risk from Tongariro was one part the possibility of ejected projectiles (which risk cannot be established until after the event) and one part the potential for ash to be collected in engine filters, on paint work, and sucked through ventilation systems. It’s not toxic, but it is highly abrasive and it also sets like cement if it gets wet. Plus, when it’s wet it’s very slippery. Advising people to avoid an area where appreciable quantities of ash might accumulate is prudent. When Ruapehu went in ’96 it caused Auckland Airport to be shut for a day due to the hazard to aviation, and if it or one of the other Central NI cones goes big with the right wind the same thing will happen. Look at Iceland last year.
For Auckland, the risk from the AVF is low but not entirely calculable because there hasn’t been an eruption within the history of modern geological science. What is accepted is that whatever next erupts will not be one of the known cones because of the geological nature of the Field. There are various map overlays that give rough distances for the different effects, and they suggest total destruction out to about 500m and varying levels of evacuation in a pear shape centred on the cone. It’s all public information, just needs a bit of hunting. There’s some of this stuff from the Auckland CDEM page. The catch is that without the location of the cone those overlays are useless as a pre-emptive tool. The law around mandatory evacuations being enforced is clear, but it’s not entirely clear how far they can be declared before they become unreasonable. It’s certainly not reasonable to declare (or in any way possible to implement) an evacuation of even a 20km radius of Auckland ahead of an eruption that was less than totally certain, by which time it would be impossible to achieve evacuation of the hundreds-of-thousands of people affected. However, the term “evacuation” also includes “shelter in place”, and that is the principal evacuation method beyond, from memory, 5km in directions that aren’t down-wind of the cone.
Auckland is globally unique in being a metropolis constructed atop an active volcanic field, which is a rather funky claim to fame.
“It’s certainly not reasonable to declare (or in any way possible to implement) an evacuation of even a 20km radius of Auckland ahead of an eruption that was less than totally certain”
Agreed. But once the thing is erupting then it might go on for months. How many people will be left after the first week? If the answer is zero or close to zero, then Auckland’s economy is worth nothing more than the services provided to visiting geologists. We’d also have a refugee problem orders of magnitude greater than we could possibly manage. Or that Australia could manage. Where would the people go?
Auckland might be unique in being built on a volcanic field. But other cities must have similar problems. Naples, for instance. Vesuvius last erupted in 1944, people live on the side of it, and Naples is well within the proven destructive range.
Yeah, what I found in doing research for the assignment that got me these sources left me far from convinced that NZ could cope if there was an AVF eruption, and that’s not even beginning to account for the economic damage.
The “Auckland’s growth is an issue for NZ” fear, by the way, has been around since the 19th century. I saw a cartoon once from a newspaper of that time, symbolising all the NZ cities by using dogs. Auckland was, if I remember right, shown as a massive bulldog dwarfing every other dog, with Wellington and Dunedin looking up at it rather worried / warily.
Really wish I could find it – I will look it up in the book at home. Seeing that it is out of copyright, it might make a nice upload.
I’ve seen that cartoon as well: I thought it was on Te Ara, but I had a look and couldn’t find it.
And how does our current government plan to cater for this population increase? By encouraging housing development to grow further and further out. We’re going to have a proportionally small cbd with long, stretching motorways out to housing as far as the eye can see, and if you can’t afford petrol, too bad!
Come on Jeff that is a little unfair. I am sure the Puhoi to Wellesford road will revolutionize transport in this country and within 10 years Northland will be a powerhouse economy where all the cows start magically producing twice as much milk because of…um…the motorway. Can’t you see the applications? The CRL is just a loop that goes round and round the CBD, haven’t you heard?
You forgot to mention that the CRL is just for 19th century choo-choo trains dreamed up by behind-the-times urban planners who hate freedom, &c, &c.
Am I right in thinking Passenger Transport trips have outstripped population growth during the last 5-10 years in Auckland?
Big time.
Very definitely. Year-on-year patronage growth has averaged over 10% since 2003, I believe, while Auckland’s population growth rate is somewhere around 3%. Even if I’m wrong by 100% on the PT rate (which I’m certain I’m not) it’s still growing at greater than the rate of population growth.
These facts plus the results of the City Centre Access Study, the ongoing work by AC + AT, and the project’s popularity mean that sooner rather than later even the current government will find themselves unable to oppose the CRL. Mark my words, it will be a pawn come election time, Joyce will find an excuse to get behind it while still claiming to having always been right…
It really is time for better communication about all of AK’s transport issues.
The Acess Study will come back saying the CRL is way better than anything else and Joyce will claim it was his review that improved the project and made it stack up. Anyway, as long as the thing gets funded…
at the end of 2015 (barring any electoral crises before then) when big change will be occurring on bus routes, according to the RPTP’s implementation plan. Change in South Auckland (a pretty important set of electorates) are due to be complete by then potentially driving southern/eastern/manukau train patronage up at an even quicker rate than we’ve seen up till now.
Perhaps the reason rural interests hold sway beyond the population numbers (rightly or wrongly) is because around two thirds of our exports derive from the rural populace.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10835692
Add a few other exports to Brian Gaynor’s list (eg. coal, steel and ironsand, vanadium, gold,vegetables and assorted agricultural products such as honey)and a figure of two thirds seems reasonable.
I seem to be having to make this following point a lot recently. The agricultural sector plays only a small part in our nz economy. Yes it does earn disproportionate amount of foreign money, but as a part of our total economy farmers get far too much glory. The nz is much much much bigger than just exports. In fact if you take into account how little farmers in general contribute to nz tax you’d wonder why they are considered to be nz saving grace at all. I get annoyed at how the media seems to portray farmers as the only reason nz isn’t broke when the truth is very different.
Further to that there are other players in the supply chain who are based in cities and without whom the farmers wouldn’t be as productive, e.g. who is it that finances all of the machinery that they use to boost production?
Who is it that does all that financing? Foreign banks, of course. The local money is chasing tax-free capital gains from speculating in property.
Banks have core funding ratios and in NZ that is now up around the 70% mark and means that 70% of funding for loans has to be sourced locally, in the next year or so it will increase further to 75%. Even if banks do source funding offshore, there is a benefit to having larger organisations doing it as they can likely access that funding at a cheaper rate than smaller entities. Putting aside the issue of banking, there are other services that they rely on that are based or have impacts from Auckland. The point is that It is the combination of a number of aspects that makes rural NZ successful.
Fonterra’s head office is right next to the Northern Club on Princes St, Auckland Central. Their auditors (internal and external) are based in Auckland. Their telecommunications suppliers are based in Auckland. The biggest exporter in the country is utterly reliant on services supplied out of Auckland, and even if their head office was in Hamilton they would still be utterly reliant on services supplied out of Auckland. That they moved their head office to Auckland says pretty much everything about just how vital Auckland is to NZ’s economic health.
Mining, oil, metals, forestry, fishing and aquaculture are all rural-based export earners that are NOT agriculture. I suspect that a large proportion of earnings from tourism also derive from the country’s rural sector. Nevertheless to claim that “the agricultural sector plays only a small part in our NZ economy” seems to be wishful thinking on your part. The old traditional claim that farmers are the “backbone of the economy” is meaningless twaddle but their productivity is world class. As for how much tax farmers pay? I have no idea. Is this relevant? Do they have special tax rates?
Of course how much tax they pay is relevant. They get plenty of special treatment, but if they’re not paying anything to society they’re getting it for free. They get some minor special tax treatment, though a big loophole has just been closed, but the standard taxation rules work very nicely for them to operate largely on a low-tax-paying basis.
The services sector is a full 2/3 of the economy. It is just a myth that we are a rural country or economy. Auckland is by far the most important commercial entity in NZ.
Awesome, I’m preaching to the already converted here!
But to bring my trolling point to a useful conclusion, I do believe that this myth that perpetuates nz that the agricultural sector is somehow the only thing that holds us back from being a third-world country needs to be put to rest. Because of it we dont accept that we need to invest in our cities and treat them as the assets they are rather than being liabilities.
This attitude seems persuasive amongst politicians. Woe betide if a city needs help because we can’t afford to let up our subsidy of agriculture “which is saving us”.
I would argue that the agricultural sector is what’s holding us so close to being a third-world economy. If there wasn’t this blind adherence to the myth that agriculture is our economic saviour we might actually get somewhere with soft exports. Fewer dairy conversions and more Jades and Orions.
So, is the population reaching over 2 million a good thing? Some would say it is (mostly property owners), but for many it results in increased congestion, a higher cost of living and lower quality of life. Would be great if the vested interests were held to account before deciding on the future of population! Also, will immigration change as the lifestyle reasons for many would be arguable if past decisions continue with a larger population. Some massive changes to infrastructure will be required, eg how many train lines did Berlin have when it was 2 million people etc.
It’s mostly natural growth [more births than deaths], and pretty unstoppable unless you want force removal to other parts of the country or draconian entry and exit laws…? But yes it would be good to at least have a discussion about what might be an ideal size for Ak and how, if we can agree, to achieve that….?
Most of the population growth is coming from natural increase so I’m not sure how you would stop it from happening. Larger populations can lead to a lot of benefits as it allows for a lot more economy of scale and who says that it leads to a lower quality of live. Some people would find the extra businesses, services and infrastructure that are justified by a larger population would increase their quality of life. Sure you need more infrastructure and some of it will be very costly but on a per capita basis it often ends up fairly comparable because it is used a lot more. Interestingly a quick look at some other new world cities suggests that the 1.5-2m mark is about the sweet spot to really start developing rail based PT systems. Sydney hit 1.5m in the 1930s and that was when it built its city loop and greatly expanded its system, Melbourne was about 2m when it built its loop, New York was about 2m when it built its first line (elevated), while Chicago was around the 1m mark when it started building its elevated lines.
According to this http://en.wikipedia.org/w/index.php?title=File:Berlin_Population_Development_1880-2007.svg&page=1 Berlin had 2,000,000 population by about 1900. This http://www.davidrumsey.com/publications/maps-up-close/2012/4/13/karte-des-deutschen-reiches-1893 shows that Berlin by then already had an orbital railway, one through the middle, and railways from afar coming at it from 10 different directions. It was at this 2m population point that the U-Bahn started to be built..Much like the early London Underground, the early stages of U Bahn was built by cut an cover tunnelling under the main streets. Here http://upload.wikimedia.org/wikipedia/commons/a/a9/Karte_ubahn_berlin_entwicklung.png it can be seen that the real explosion of U-Bahn construction was in the 1920s and 30s, when the population had suddenly jumped to 4 million.
The advantage that many european cities seem to have is that the 1850-1900 cities of 1-2m or so were densely populated with journeys constrained by walk / ride speeds. The railways were constructed outside these smaller/denser sized cities and then the cities expanded outwards taking advantage of the improved transport. We are starting with a city significantly less dense.
Matt, What is holding us close to being a third world country isn’t a reliance on farming it is a reliance on housing as a way to make money. If we hadn’t squandered our national wealth building sprawling suburbs in the 1950s and 1960s we would have been able to invest in factories to process our primary products and kept the real wealth potential of farming and forestry in this country, via pension funds. That’s why we’ve been falling behind the other OECD countries, we never ended up with manufacturing industries owned by our own pension funds in the 1980s so that when the manufacturing jobs were exported to even lower wage countries than NZ in the 1990s the profits would still have flowed into our economy. It’s also why our economy’s productivity hasn’t been improving as fast as the rest of the OECD, all that foreign income for the pension funds involves 0 worker hours so that increasing the amount of the economy generated by pension fund payouts makes it look like labour productivity is really improving dramatically.
Agriculture is employing fewer and fewer people for higher levels of output. Farms are becoming increasingly automated, with the flow-on effect on jobs. Agricultural jobs have never been paid terribly well, and that’s not changing. Because we have the back-stop of high-exporting primary industry there’s no incentive to pursue other, low-footprint options. Hell, we don’t even do very much to add value to the stuff that’s produced here, instead exporting whole milk and whole logs. It’s very chicken-and-egg to argue about whether it’s the money tied up in housing that’s starved productive investment or the lack of productive investment that’s tied money up in housing, but the bollocksing-up of our regulatory environment around investment has strongly encouraged money going into housing because people don’t trust anything else.
We don’t have pension funds, courtesy of Piggy and his dancing cossacks. That particular decision (for which National have never apologised) has screwed this country out of many things. But blaming it for our utter reliance on agriculture – which is, per dollar of export output, very expensive both in dollar and environmental terms – misses the point that there’s bugger-all being done to encourage more Jades and Orions. National removed the limited R&D tax credit the moment they took office in 2008, removing what little there was to make businesses want to spend on R&D, which is just another step down the no-industry-except-growing-things path to third-world-economy status.
I worked on EU-funded technology-based R&D projects for a number of years and on US government funded product development programs in the US and my observation was that they were a particularly poor use of taxpayer money and actively impeded good development. My opinion is that the lack of a capital gains tax in NZ is the biggest impediment to investing in productive enterprises. Money is attracted to property and such investments are structured to give a tax-free capital gain. Little of this money goes into providing new housing; it’s mainly speculating in existing housing, the supply of which is artificially constrained by legislation such as density limits. Why invest in industries that provide a taxed revenue stream when you can make an untaxed capital gain by pretending that it’s a long term investment? Even the prevailing attitude to the stock market seems to be how a capital gain can be made by speculating rather than looking for a dividend stream.
I don’t like the reliance of NZ on primary industries and tourism for foreign trade but unless the country can leverage some sort of competitive edge it is not going to excel in international markets.
Not government-funded, just tax-credited. Huge difference. National destroyed everything that might’ve encouraged non-agricultural enterprise.
Plus, in this country, most research is done by public institutions, not private. We have one of the lowest levels of R&D spend in the OECD, and the difference between what our private sector spends on R&D and what’s spent by the private sector overseas is even more marked. Again, we’ve got no policy settings whatsoever to encourage innovation.
My experience of R&D tax credits in Australia is that it was great for accountants who’d try and turn as many every day expenses in to “R&D”. I think all our software development was R&D, although little software development ever comes close to being research. I think that going to trade conferences was also R&D if you were in any way associated with software development. I doubt if the R&D tax credits created any innovation, except in the accountancy department.
However, I think what the tax credits did show is that low tax rates incent business activity. We also see this in NZ with tax credits creating commercial activity and job creation in the film industry. I think a standard low or zero corporate tax rate would incent all sorts of businesses to base themselves in NZ. It would avoid the need for creative accountancy, and avoid preferencing particular sectors. I don’t understand why you’d want to use taxes to disincent something good, which is multinationals setting up shop in NZ or NZ businesses expanding locally. I also don’t understand why you wouldn’t look at how low corporate taxes have helped the NZ film industry be such a big success, and not see that the same low corporate taxes wouldn’t cause all sorts of multinationals to create jobs in NZ.
If this argument isn’t persuasive enough, look at what Muldoon did to the boat building industry. He levied a luxury tax on boats that pretty much wiped the industry out over night. It was Lange and Douglas’s removal of envy taxes that allowed the NZ boat building industry to re-establish itself and become such a great success.
I don’t see that businesses should get all the benefits they derive from society at no direct cost. They benefit from the socially-funded roads and utility infrastructure, they benefit from having access to a workforce that’s educated and kept healthy by social funding. Why should those benefits come for free? And “low” taxes are a joke in a country like NZ where so many businesses pay their workers wages so low that they have to rely on things like WFF in order to afford to raise a family. Cutting taxes is a reward for that behaviour.
Yup. We’re a land based economy. Flipping land for development is a national right…Right?
’twas ever so, people may say (at least post European arrival). Wellington probably more than any other was literally a company town, built around snatching and selling land. I get the impression we’ve never really moved on from these roots, especially not the financiers.
You seem much better informed than I am on the subject of how much tax farmers pay – perhaps you can give us some data on it, please. I am aware that they pay a lot more in rates than I do because of the value of the land so I guess you are referring to income tax?
The average tax paid by NZ dairy farms in 2009 was $1509. The whole agricultural sector, including forestry and fishing, paid $319m in tax in 2009.
http://www.stuff.co.nz/the-press/news/5017279/Dairy-farmers-paying-no-tax
This is why I don’t eat NZ dairy
Thanks for that – interesting reading and somewhat alarming. I trust that the IRD is taking a good look at these “loss-making” enterprises. The oft quoted line is that dairy farms in the vicinity of Auckland are only viable for the capital gain on the land when they sell and that seems plausible given the return on capital employed but across the country? Seems a bit far-fetched. It really is time for a comprehensive capital gains tax.
Interesting also that in the article English is stating that 66% of export earnings come from the primary sector (like it or not, forex-earning industries get more government attention than those that don’t). If that is combined with the 2008 Paling report on freight demand projections (which to my eye just didn’t stack up) and statements that proportionally NZ spends a lot more than competitors on getting those products to market it goes a long way to understanding the simplistic push to improve freight transport productivity (a particular concern for forestry where the product is low value/mass). Add to that the undue influence that the trucking industry has on the current government and the collusion of NZTA and you get to the RONS and so-called high-productivity vehicles. Based on my study of the available reports and documents the RONS are basically pandering to the demands of the trucking industry rather than an attempt to push a car agenda. As has been noted on this blog many of these RONS have very poor BCRs (and that is in spite of evidence of fundamental technical errors in the economic evaluation manual in favour of truck transport). It seems unreasonable to call expenditure “investment” when from the get-go the expenditure exceeds the expected returns. That is not investment.
NZTA and the government have been very careful, to avoid defining transport productivity as by many metrics rail freight beats road freight hands down in productivity measures. I am wondering how long it will be before we are being pressed to accept a poorly-enforced 100 km/h speed limit for 65 tonne GVM trucks in the interests of improving “productivity”.
As for not eating dairy – it’s not exactly the healthiest of food types. Butter is essentially 100% fat and IIRC cheese is around 50%.
One thing to note is that a loophole around herd valuation has just been closed, and that’ll make a difference. Previously farmers could switch between the two valuation methods annually and skirt tax as a result, but that is no longer permissible. It’ll take a couple of years to determine the exact impact, but it should be good for several million extra dollars in tax going forward.