Productivity still shite, but hope for the future

New Zealand has a productivity problem. Heck, we even have an entire government agency, the Productivity Commission, dedicated to helping fix things. The data hasn’t shown improvements yet, but there are reasons to be optimistic about the future.

Getting to the crux of the problem is challenging.

Productivity is multifaceted. A wide range of factors, such as technology, skills, investment, organisational design, financing, infrastructure, taxation, and other government policies, all play their role.

Productivity still shite

Recent productivity statistics show that our productivity problem is still ever present.

Labour productivity slowed in 2018, according to recently Statistics New Zealand data.

The data shows that labour productivity rose just 0.3% in the year ended March 2018, well below its long-term average of 1.4%pa growth.

Some businesses are investing

But the future isn’t necessarily bad, so we shouldn’t get despondent just yet.

There are many businesses in New Zealand that are taking productivity seriously, and who are putting their money where their mouth is.

The Business Operations Survey is a good yardstick for showing what businesses are doing to improve the efficiency of their enterprise.

In the past two years, 28% of businesses introduced automation to their business processes, citing processing data as the area where the most significant automation occurred. The top three reasons for automating were to increase productivity (20% of businesses), reduce human error (17%), and improve the quality of products and services (14%).

Businesses are also spending more on research to fuel future growth.

Research and Development (R&D) investment in New Zealand rose 19% in 2018!

What’s more, this investment was broad-based across all industries.

But before we get too complacent, there is still a way to go yet.

Details from the Research and Development Survey show New Zealand’s R&D investment as a proportion of GDP (1.4%) still lags the OECD average (2.3%).

More government support for R&D

Closing this R&D investment gap is a key area of government focus to improve New Zealand’s productivity growth.

The Government has committed to raising New Zealand’s research and development (R&D) expenditure to 2% of GDP over 10 years.

To support this goal, a user-friendly R&D tax incentive is being introduced in the 2019/20 financial year. More details of the scheme can be found on MBIE’s website.

R&D tax credits have existed in the past, but the new tax incentive is wider-reaching.

A key part of the new incentive’s design is a broader R&D definition so that the credit can be accessed more easily across all sectors, including the technology sector. Thresholds have also been lowered, and rebate rates increased. A handy overview of the R&D incentive has been compiled by Deloitte.

I would encourage economic development practitioners throughout regional New Zealand to get across the details of the government’s push to increase R&D expenditure. Productivity is a problem for all regions and supporting R&D expenditure is a positive step to help improve the situation.