$99.30 an hour and falling
New Zealand’s small businesses ended 2023 producing less per worker-hour than they did before the pandemic. That is not a post-COVID hangover. It is the measurable consequence of a system that structurally discourages productive investment.
Xero’s Small Business Insights report, drawing on anonymised data from more than 240,000 customers across NZ, Australia and the UK, found average NZ small business labour productivity ended December 2023 at $99.30 per hour. That is down from a peak of $122.60 per hour in November 2022, a 19% decline in barely a year. Pre-pandemic, productivity ran between $100 and $110 per hour. The December 2023 figure sits at the bottom of that range.
The 2022 peak was never real. Border closures and skill shortages forced existing workers to produce more, a sugar hit that evaporated as soon as migration reopened and demand softened. What remains is the underlying trend, and it is ugly.
Australia is pulling away
In 2024, Xero reported that NZ’s annual productivity decline of 6.1% was more than double Australia’s 2.5% fall and the UK’s 2.9%. NZ held the small business productivity lead over Australia for most of the seven-year measurement period from 2017 to 2023. That lead is being eroded faster than anywhere else in the comparison set.
In 2024, Bridget Snelling, then Xero’s NZ Country Manager, said: “Small businesses have been doing it tough post-COVID, working long hours with less to show for it in an inflationary environment. As a nation, we need to be working smarter, because working longer days is no-one’s ideal solution.”
The decline hit every industry. Agriculture fell 12.1%, hospitality 9.2%, retail 7.8%, and construction 7.4%. Hospitality’s absolute figure is the standout: $14.30 per hour against a national average near $100. Xero noted hospitality employs a higher proportion of short-term migrant workers in NZ (around 30%) compared with Australia (15%), contributing to training drag and turnover costs.
Every region declined too, from Waikato at -7.9% to Otago at -3.2%. Auckland’s 4.9% drop matters most because the city accounts for roughly 38% of the national economy.
Treasury confirms the problem is structural
The Xero data is the symptom. Treasury’s diagnosis is worse.
A Treasury analytical note published in October 2025 found NZ’s labour productivity growth averaged 1.2% between 2000 and 2021, below the OECD average of 1.4%. After 2016, the gap widened. The OECD average trended upward from 0.7% to 1.5%. NZ’s fell from 1.0% to 0.8%. The slowdown was broad-based, driven primarily by declining within-industry productivity, not a shift toward lower-value sectors.
Critically, unlike the United States and Australia, NZ experienced no significant post-COVID reallocation of workers toward higher-productivity industries. The pandemic was supposed to be a reset. For NZ, it was just an interruption.
A separate Treasury OIA response from January 2025 on capital intensity adds another dimension. While NZ’s capital stock has grown faster than many OECD countries since 2007, it has not kept pace with labour force expansion. The economy is becoming more labour-intensive, not less. More workers, not better tools.
Budget 2026 addressed neither the symptom nor the cause
This is where the policy failure compounds. The one agency tasked with tracking and diagnosing productivity problems, the Productivity Commission, has been closed. Budget 2026, by multiple assessments, offered no credible blueprint for lifting small business output per worker.
In 2024, Xero estimated that a 20% increase in cloud-tool adoption could add $7.8 billion to annual GDP. That figure comes from a company that sells cloud tools, so discount accordingly. But the direction is supported by Treasury’s own finding that NZ needs more capital per worker, not more workers per unit of output.
Snelling put it plainly in 2024: “The mantra has to be about working smarter not harder, and this means a focus on supporting businesses to digitalise to save time.”
NZ small businesses are not lazy. They are operating in a system where capital flows to property instead of plant, where compliance absorbs owner-operator time, where R&D investment is low by OECD standards, and where the government has closed the institution responsible for measuring the problem. The data is not ambiguous. The trajectory is not cyclical. And no one with the power to change it appears to be in a hurry.
Sources
- Xero: NZ small business labour productivity remains below pre-pandemic levels (2024-04-10)
- Xero: Urban centres lead decline in Aotearoa’s small business labour productivity (2024-06-13)
- Xero XSBI Special Report – Small business productivity part 1 (PDF) (2024-07)
- Treasury Analytical Note 25/11: Understanding the effect of changing industry structure on NZ’s labour productivity slowdown (2025-10)
- Treasury OIA 20250006: Causes of New Zealand’s low capital intensity (2025-01)