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JOHN RAINE: Shifting Investment towards High-Productivity Industry

Over the last couple of weeks, several posts have had a common factor - New Zealand’s low productivity - indicative of increasing concern over an issue which is critical if the country is to pay down debt, and invest in infrastructure, health, welfare and education at the level needed.

Don Brash reminded us again in his 12th May 2024 article [1] that New Zealand has a high ratio of median house price-to-income.  The highly productive USA economy has a house price-to-income ratio of only 4.1.  At a ratio of 10.5, NZ ranks 47th out of 104 countries in the Numbeo statistics [2]. Successful economies like Singapore (14.9) and Switzerland (11.1) are higher, but New Zealand has a low-income economy, and high house prices mean less discretionary investment capability to support the productive sector.  

Lower house prices and price inflation should reduce capital gain incentives for property investors and shift investment towards the productive sector, albeit we will always need a domestic property rental market. Effects of land and building planning regulations and the cost of building supplies on prices have repeatedly been highlighted as critical issues, but successive governments have substantially failed to date, through legislation, to dampen house price escalation. Let us see MPs overcome their own love of property investment and grasp this nettle.

Simplicity CEO, Sam Stubbs, noted in a linkedIn post in April 2024 that the much larger and stronger Australian economy has hugely benefitted over time from having compulsory superannuation and a Capital Gains Tax, and that NZ must implement these if we are to focus away from property investment and improve productivity. Muriel Newman’s column of 22nd May 2024 [3] highlighted how powerful our economy would have been today if the Muldoon government had not axed the compulsory superannuation scheme in 1975.  This needs fixing, but NZ must also seize on other ways to stimulate investment in the productive sector, dampen demand prices for houses, and make property more accessible for first home buyers.

On Friday 23rd May, the NZ 50 share market index closed at 11,809.48, no higher than it was in early-mid January 2020, prior to the Covid-19 market fall.  Over the same period the AXJO has increased a little under 12%, and the USA S&P 500 index by more than a whopping 60% The USA market movement, especially, highlights our poor performance, partly a legacy of the Ardern/Hipkins Government’s massive borrowing and wasted expenditure, but also indicative of our weak rate of productivity improvement.  

Between 2000 and 2022 New Zealand saw its GDP per hour worked (acknowledging this is a very flawed measure of productive enterprise) in constant US dollar terms increase by a modest ~24% [4]. Productivity in Australia and the USA grew by 27.6% and 38.7% respectively over the same period. More significantly, at USD 43.7 GDP per hour worked in 2022, NZ still lagged Australia (USD 55.9) by about 22%, and lagged both Denmark (USD 74.3) and the USA (USD 75.5) by over 40%.

On 22nd May 2024 Professor Rob MacCulloch [5] eloquently stated 15 reasons why productivity in NZ will continue to stagnate, including failure to address structural deficits, failures in our education system, the abandonment of meritocracy, and the huge cost of ongoing Treaty-related issues.

In sum, we urgently need to drive investment into high productivity industry. I note just five critical areas below – all raised previously, but still needing action:

(i) A highly educated workforce is vital. Too many are in low-productivity employment, and too few school leavers pursue qualifications and training that lead to high productivity jobs. The Minister of Education must face down the pressure from those pushing postmodernism and critical social justice theory, and hold the line to rebuild an education curriculum strong in mathematics, literacy and the sciences. A key factor in enabling high productivity industry growth and attracting Foreign Direct Investment (FDI) will also be to rectify the serious shortfall in our supply of STEM graduates, particularly in Engineering and IT. This is an issue that the Government’s University Advisory Group must address. 

(ii) R&D investment (NZ Government and Business Sector combined), which is correlated internationally to economic growth and a key driver of the tech sector, still sits stubbornly at around 1.3 – 1.4% of GDP, where it was at the time of the 2011 Powering Innovation Review [5], and far below the OECD average of ~2.7% [6].

(iii) Stronger links between industry and the research sector are needed enable greater industry-pull in the allocation of part of the contestable public research funding. We need to refocus research funding towards strong fundamental science and towards industry-demand projects in the Sciences, Engineering and IT and mandatory industry-research sector partnering.

(iv) New Zealand’s technology sector is increasing our productivity. It includes electro-mechanical products, smart electronics, medical technology, the IT sector, AI, agritech, and added value dairy and forestry products, and machinery - where the economics of shipment are viable. Distance from markets means a greater focus on weightless exports and higher export dollars per unit shipped volume or weight. The Technology Investment Network report for 2023 [7] notes that this fast-growing sector employed 63,874 people in 2023. It is NZ’s second biggest export earner, with overall revenues up 11.8% on 2022 to $17.2 Bn, and technology exports were up by 13% to 13.05 Bn. We have the innovative capability to spawn more companies like Rocket Lab, Xero and F&P Healthcare, and more recent ventures like Dawn Aerospace and Halter. Still, despite all the positives, a realistic report card would say, “Could do better”. This sector needs to be investment turbocharged.

(v)  Stronger capital markets will drive investment into higher productivity industry.  These have grown over the past 30 years, and there is also now a fairly large pool of investors backing early-stage companies. Simplicity KiwiSaver superannuation fund has also led by example with a small stake in early-stage companies through Icehouse Ventures. Australia, with its compulsory superannuation-supercharged economy, has better supported high-tech R&D and the high-productivity industry sector. As venture capital activity and KiwiSaver grow, our pool of available capital will increase, but we must move faster.

To close, here's a challenge for Government to direct more investment towards high productivity industry, in addition to making KiwiSaver mandatory and progressively increasing minimum contribution levels:

·    Lift R&D investment (with a commensurate increase by industry) by a challenging 7.2% per annum so that NZ hits the OECD average within 10 years.

·   Incentivise STEM graduates to return to or stay in New Zealand high-tech industry through arrangements for student loan debt to be forgiven in proportion to years served with New Zealand businesses.

·  Refocus part of the Government contestable research funding more clearly towards industry-pull projects, with early partnering required between industry and researchers at the research project concept stage.

·    Reshape Callaghan Innovation as an advanced technology institute triangulating between universities/research institutions and industry like the Danish Technological Institute (  

·     Mandate ~1% of KiwiSaver funds to go into early-stage NZ businesses.

·     Enhance NZ’s R&D tax credit system to at least match that in Australia.

·   Allow a favourable tax rate on company dividends, but, in fairness, also bank interest. 

·   Take a bolder step to drive investment into early stage companies through investment write-off incentives as in Australia (although likely hand-in-hand with a Capital Gains Tax) (

·      Re-think NZ FDI settings to encourage inward investment flows, and NZ location of R&D centres and Data Centres from mega-corporates.


John Raine is an Emeritus Professor of Engineering and has worked in Deputy Vice Chancellor and Pro Vice Chancellor roles in three New Zealand Universities. He chaired the 2011 Ministry of Science and Innovation “Powering Innovation” Review.



1.         Don Brash, “Perhaps House Prices Don’t Always Go Up”, Bassett Brash and Hide 12th May 2024. 

2.  Numbeo Property Price Index by Country 2034. 

3.         Muriel Newman, “Budget Challenges”, NZCPR Column, 22nd May 2024 

4.  GDP per hour worked statistics.

6.       John Raine, Mina Teicher, Philip O’Reilly “Powering Innovation – Improving Access to and Uptake of R&D in the High Value Manufacturing and Services Sectors.” A report to the Ministry of Science and Innovation, ISBN: 978-0-478-06181-9, 28 April 2011, 112pp.

7.         OECD Main Science and Technology Indicators Highlights on R&D expenditure, March 2022 release.  7pp.

2,416 views146 comments



 Mandate ~1% of KiwiSaver funds to go into early-stage NZ businesses.

No, The purpose of kiwi saver is not to be a vehicle for investing in highly speculative investments. Its a poor enough return as it is.

Show me the evidence of a relationship between capital gains tax and house prices in Australia.

They have CGT on everything but the primary dwelling, but house price increases in Melbourne or Sydney (or Adelaide or Brisbane) leaves say Christchurch miles behind.

In what can only be described as one of the worst financial decisions of my life, I sold a house in Melbourne for just on A$1M 17 years ago. It sold last year for A$2.7 M. The house I bough…

Replying to

Tony, personally I am neutral on CGT rather than an expert advocate and I am aware of other jurisdictions with high house prices and CGT.

Good KiwiSaver funds have averaged 9-10% p.a. despite the post-COVID market slump. Investment of 1% of KiwiSaver would mean perhaps a 0.1% return difference if the lot were lost but investment funds backing early stage companies in this fashion do so through venture funds that are themselves diversified across typically 30 or more companies and normally a few of those are highly successful and the return is good. It is more about timing though, as these funds take longer to reach a payday. John R


John, I like what you say and agree with most of it. We should be looking at clever industries that require small populations and can be automated. One industry that comes to mind is that we should be taking over from Taiwan as the superconductor manufacturer for the world. Think about it. Taiwan is on China's coast and can be economically (and physically) obliterated in a minute! Then what happens to high-tech industry? It grinds to a halt. NZ is tucked away from the main combatants in any real conflict. Super conductors can be transported easily, we have a clean climate so they can be made with minimal fuss. Why aren't we doing it? The main technology company is based…

Replying to

Just who do you mean by "we"?

There is a minority of people who are innovative, entrepreneurial and fully committed to a vision of what they want to create. They invest and risk everything they have in the pursuit of their dream and work their butts off trying to achieve it. They persevere through all sorts of difficulties and setbacks and carry non in spite of all the critics who try to discourage them. Such driven people are rather rare and our culture of mediocrity does not inspire them to believe in themselves and their ability to achieve their vision. Our culture encourages people to regard themselves as weak, victims of some social or econo0mic injustice for which we should be compensated by…


May 26

Yeah well.....its all waffle unless you are prepared to make a positive contribution to society.

Those charged to oversee our society are obviously not fit for the positions.

First and foremost a fair and functioning society must have a fair and functioning economic system.

So the question has to be asked once more, yet again, blah blah blah ..... especially if the economic system we have is so bloody wonderful.... how come so many folk are disgruntled with the outcome ?.

Why is it that so few in society end up with so much.

Its not as if its a effing secret, as there are many countries that don't stand by and let their people get continually ripped off...


Replying to

All good Zeke!


Trying to make everyone feel equal in schools is a fallacy.

If you are dumb you are dumb, just the way the cards fall.

If you save you are not adequately advantaged.

Who wants to save for the country when it's given to the Maori and the like.

You can't make a silk purse out of a sows ear.

This slide started a long time ago and the snouts are allowed to stay in the trough.

May 27
Replying to

I know - it seems such an obvious social problem which is allowed to continue (perversely as you rightly say). Tough love's long overdue on this one.


I think may of our issues in NZ could be eased by "bonding" certain graduate to NZ for 5 years.

The carrot of reducing student debt (I'm not a believer of all debt as many students go overboard buying cars and trendy clothing on this debt) but bonding graduates such as our doctors, nurses, teachers, et al - where we need them, does many good things. If we allow our graduates who have been subsidised to go offshore after their graduation then our tax payer dollars have been used to benefit another country. Surely this is wrong. We seem to do everything in this country that is NOT in our benefit. It is time we rethink this!

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