Every election promise is quietly betting on a productivity rebound nobody has delivered

While the parties argue over tax cuts, wealth taxes and KiwiSaver mandates, the number that decides whether any of it is affordable barely rates a mention. In 2024, Treasury found whole-economy productivity growth averaged 1.4% a year between 1993 and 2013, but just 0.2% a year over the following decade. Every promise on the table is an unstated bet that this figure turns around.

Otago economist Dennis Wesselbaum made the point on the University of Otago’s 30 with the VC podcast, hosted by Vice-Chancellor Grant Robertson. “It’s probably not a very sexy topic but it is … the topic that matters,” he says. Higher productivity lets the country “afford higher wages, higher living standards” and gives the Government “a higher tax income” to spend on health, education and safety. Strip away the jargon and that is the whole election in one sentence.

Fifty years of drift, not a bad patch

This is not a post-Covid hangover. The 2025 MBIE/MFAT long-term insights briefing, citing the IMF, showed New Zealand’s GDP per hour worked was close to Scandinavian peers in 1970 but 40% lower by 2022. Stats NZ’s 2021 historical series showed average labour productivity growth had already slowed from 1.3% in the 2000-2008 cycle to 0.9% in the cycle that followed.

Then it got worse. In 2024, Stats NZ reported labour productivity fell 0.9% in the year to March 2023, the largest annual drop since 2009, with multifactor productivity down 2.2%. The agency rightly flagged one-offs, including the Marsden Point closure, border reopening and severe North Island weather. But one-offs don’t explain five decades of divergence.

The rot is inside the firms

The comforting explanation is that workers have simply shifted into lower-value sectors. Treasury’s October 2025 analytical note demolished that. It found the slowdown was broad-based and driven mainly by weak within-industry growth, and that unlike the OECD, where labour has moved towards higher-productivity industries since the GFC, New Zealand labour has drifted the other way.

NZIER’s July working paper names the mechanism. “Leading firms adopt technology, management practices and digital systems faster than the wider business sector, leaving a long tail of lower-productivity firms,” it says. Investment remains concentrated in housing and asset-backed sectors while knowledge-intensive firms struggle to raise capital. NZIER economist Nam Bui is blunt about the geography excuse: “New Zealand cannot move itself closer to the rest of the world, but it can make better choices about where investment, skills and innovation are directed.”

What the parties are actually offering

University of Auckland professor Rod McNaughton summarises the problem: “Our economy grows by adding more people and more hours, not by producing more value per hour worked.”

National is backing capital investment, including foreign money, planning and consenting liberalisation, retention of Investment Boost and compulsory KiwiSaver with higher contributions. Labour would scrap Investment Boost for targeted small business incentives, including immediate write-offs of up to $10,000 a year, and pitches its housing capital gains tax partly as a way to push capital into productive assets.

Both contain genuine levers. National’s consenting and investment settings attack the supply side directly. Labour’s capital gains argument, whatever you think of the tax, at least engages with NZIER’s finding about housing soaking up capital. But Wesselbaum is right that much of the campaign noise misses the target: “Supermarket policy proposals claim to improve competition and reduce food prices, yet have hardly any effect on productivity. Similarly, a wealth tax is principally about how wealth is distributed.” He has also credited National’s trade agenda while noting little direct policy on competition, and R&D incentives have barely featured.

The costing gap nobody wants to price

Here is the uncomfortable part. In 2024, Treasury explained it had been cutting its long-run productivity assumption since mid-2023 because a 1% forecast no longer looked credible. Campaign costings rest on fiscal forecasts that, in turn, rest on productivity assumptions. If growth per hour keeps tracking near 0.2%, the room for any coalition’s tax cuts or spending is smaller than advertised.

The arithmetic is stark. At 1.4% a year, output per hour doubles in roughly 50 years. At 0.2%, it takes about 350. For business owners, that is why wage demands outrun what margins can bear, why profit growth feels like a grind, and why the tax take never stretches far enough.

What business should demand

Wesselbaum calls for sustained reform across “investment, competition, skills, technology, energy, infrastructure and regulation”, and warns the gains take years to show, which is exactly why politicians drift away from them.

That is the test business should apply to whoever forms the next government. Not the headline tax number, but whether consenting gets faster, energy gets cheaper, competition gets sharper and SMEs can actually finance technology. Without that, every costed promise is a cheque written against an account that is barely earning interest.

Sources

• Newsroom: Otago Uni’s 30 minutes with the VC: Our productivity ‘nosedive’ (2026-11-02)
• Stats NZ: Productivity statistics 1978-2020 (2021-02-17)
• Stats NZ: Labour productivity falls 0.9 percent (2024-04-16)
• Treasury: Understanding the effect of changing industry structure on New Zealand’s labour productivity slowdown (AN25-11) (2025-10)
• NZIER: New Zealand’s productivity problem is closer to home than we think – Working Paper 2026-01 (2026-07-02)
• The Post: Policy Spotlight – How NZ’s parties would tackle NZ’s productivity crisis (2026-10-04)
• Scoop: Low Productivity Is NZ’s Economic Elephant In The Room. Election Pledges Mostly Avoid It (2026-09-30)
• NZ Herald: Is NZ’s productivity problem the real economic elephant in the room? – The Front Page (2026-09-30)