Looking to the future

Our productivity performance needs some work

Aotearoa New Zealand’s productivity performance matters for all New Zealanders. Improved productivity increases the nation’s income and our ability to produce and afford goods and services that underpin a happy, healthy life. It also allows the nation to invest in public goods and services to benefit everyone – like education, health services, and infrastructure.

Aotearoa New Zealand’s productivity has been low for many decades, with levels lagging behind the growth of our peers since the early 1970s. Our workers have been producing less for every hour worked compared with many other OECD countries for half a century.

Action required across a range of interconnected factors

Improving productivity depends on action across a range of interconnected factors, while also requiring sustained focus over the long term. Aotearoa New Zealand also needs to look to the future to understand how global issues could impact on its productivity performance and anticipate the kind of investment required.

Some of these global issues present both challenges and opportunities for the future, and include:

• Changing climate and environment
• Technological innovation
• Complex geopolitics
• Demographic changes
• Social cohesion in a changing world
• Increasing pressure on public health systems.

Concerted investment and deliberate decisions over the long term

Productivity is not achieved through singular action, but requires sustained, concerted investment and deliberate decisions over the long term. The sooner effort begins, the sooner gains may begin to be realised for individuals, firms, industry and the broader economy and society of Aotearoa New Zealand.

In 2023 the Productivity Commission undertook some work to identify the key productivity challenges that would benefit from deep exploration via the Commission's inquiry programme. Following the Commission’s disestablishment, we repurposed this work to set out an enduring productivity policy and research agenda that will support productivity improvements now, and for future generations. 

Opportunities for further work

The key areas the Commission recommended for further work or investigation are:

• focus on the role of innovation – and diffusion of innovation
• invest in the basics – a skilled, healthy population
• think long-term about Aotearoa New Zealand’s approach to land use and infrastructure
• look to the potential inherent in te ao Māori and the Māori economy
• continue work to address Aotearoa New Zealand’s specific productivity challenges.

Within our report, we have identified more specific policy and research topics that could provide a potential starting point for work on each of these opportunity areas.

These topics reflect areas already raised (through engagement) as potential issues for the Commission to examine in future inquiries if the organisation had continued to operate.

They cover a diverse range of topics: insurance retreat, capital deepening, innovation diffusion, land use, energy system transformation, the readiness of regional economies and labour markets for transition, the care economy and skilled employees and lifelong learning.

The benefits of an all-of-government productivity strategy

The extensive work undertaken recently by pro-productivity institutions in Australia and the United Kingdom contrasts with the lack of high-level strategic direction for productivity growth in Aotearoa New Zealand.  

An all-of-government productivity strategy would provide much-needed coherence and direction across efforts to improve productivity performance in Aotearoa New Zealand. Such a strategy would help to drive Aotearoa New Zealand’s long-run productivity by reducing confusion and uncertainty and enabling business and society to make informed investment decisions.

Productivity is important and requires immediate action

Productivity matters, and the issues raised in this report are likely to become increasingly urgent.

We offer this report and the policy and research agenda proposed within it, as a starting point to inform an all-of-government productivity strategy that sets a clear vision for Aotearoa New Zealand’s future economy, and pathways to achieve it.

We are confident that, through sustained and joined-up effort focused over the long term, Aotearoa New Zealand has strong foundations from which to grow its productivity performance and support better outcomes for its people. This policy and research agenda provides a fresh place from which to start.