By Matt Edwards
Spring is here, and with it comes the usual talk of growth — of grass, of the economy, and hopefully, of Kiwi businesses.
But beneath the chatter lies a sobering truth: New Zealand’s productivity problem is as stubborn as ever. For decades, our output per hour worked has lagged behind nearly every other developed economy, leaving us close to last in the OECD rankings. If we want to maintain our standard of living and the social services we value, we can’t afford to carry on like this.
We’ve been here before. Decade after decade, we’ve prided ourselves on hard work while watching other countries outpace us in output per hour. That’s not a reflection of our people — it’s a reflection of how we invest (or don’t) in the assets, technology, and skills that drive long-term productivity.
The problem is becoming more acute now. Over the coming decades, New Zealand faces growing unfunded liabilities as our population ages, people retire, and healthcare and superannuation costs rise. The obvious lever to address this is taxation, and ideas like the introduction of a capital gains tax to raise more revenue continue to be debated.
The degree to which increased taxation has a negative impact on a country’s overall productivity is a hotly contested question. There are certainly strong arguments that taxes on capital gains can disincentivise investment and entrepreneurship — two things critical to lifting productivity. These are concerns that smart tax policy can overcome. What most people can agree on is that higher productivity will drive economic growth, which in turn drives higher tax receipts.
Higher productivity will lift the standard of living in New Zealand and help fund social obligations into the future. The crux of the problem is: how do we do it?
The Bottom of the Cycle Is the Best Time to Invest
It may sound counterintuitive when many businesses are feeling the squeeze, but the bottom of the economic cycle is the right time for businesses to invest in the future. Adversity and tough conditions create the perfect environment for thinking about how to drive efficiency, deliver more value, and create a more productive operation.
Businesses that are forward-thinking and playing a long game will emerge from the current downturn leaner, faster, and better prepared to capitalise on the inevitable economic upswing.
This isn’t blue-sky thinking. We can look to one of New Zealand’s most successful and important industries — dairy — as an illustration. Investment in technology as well as improvements in breeding, pasture management, and herd practices have driven continuous increases in yield and farm productivity over many decades.
A forward-thinking dairy operation does not stop investing because milk solid prices are low. They continue to make sustainable investments with a long-term view that when prices rise, they will reap the reward — as we are currently seeing in the dairy industry.
Waiting for ’certainty’ before investing is a trap. By the time certainty arrives, opportunities are gone and the market has already moved. The real winners are the ones who keep moving forward when everyone else freezes. There is arguably more opportunity in a tough market for businesses that have a long-term view.
Investment Boost: Good, but Not Enough
The Government is acutely aware of New Zealand’s productivity issue and the challenges it creates. The Investment Boost scheme, designed to lift productivity by encouraging investment in new technology, machinery, and equipment, is a clear indicator of this.
The scheme, which allows quicker depreciation of capital investments, is essentially a cashflow tool — lowering tax obligations and increasing cash available for investment. It’s a great idea, but the immediate impact requires a business to be operating profitably. If a business is in losses or at an early stage, the benefit is not immediate.
Policy nudges are good, but to really yield a productivity lift there needs to be a direct, multi-decade, and non-partisan push for higher productivity that touches many more areas than just tax policy.
Finland is a good example of this, where productivity gains have become central to Government policy and, arguably, part of the national culture. The Finnish Government’s productivity strategy combines high R&D spending, skills development, digital adoption, labour force participation policies, and the ‘green transition’. Their approach is not just about cutting costs but about raising value-added per worker and per firm through innovation, education, and sustainable competitiveness.
The Long Game Matters
Investing in plant, machinery, technology, or staff training isn’t about quick wins. It’s about building the foundation for sustained, consistent growth over 10 years or more. It’s about breaking free from New Zealand’s addiction to short-termism — an addiction that keeps us underperforming while our competitors surge ahead.
Yes, it’s uncomfortable to spend when your P&L is bleeding. But the alternative is worse: stagnation, the slow road to decline.
Access to affordable working capital is often said to be the main barrier to small and medium businesses investing to increase capacity or productivity.
Tax Pooling as a Productivity Driver
A tool that is still grossly underutilised by New Zealand businesses is tax pooling. Although it doesn’t have a catchy name like Investment Boost, tax pooling is a fantastic example of innovative tax policy that can drive long-term benefits for business and productivity.
The policy allows businesses to defer or smooth out provisional tax payments for up to 22 months without incurring penalties or interest. It supports tax compliance but also frees up working capital.
That capital can instead be directed into new equipment, technology, or staff training — exactly the kind of investments that can lead to productivity uplift.
Additionally, unlike bank loans, tax pooling requires no security, doesn’t affect bank covenants, and avoids lengthy approval processes. It’s effectively hidden-in-plain-sight access to capital, and the cost is often materially cheaper than other funding sources.
The Ball Is in Our Court
Ultimately, Government policy alone will not solve New Zealand’s productivity challenge. It is an important catalyst, but business leaders need to adopt a long-term view, and mediocrity needs to be consigned to the history books.
The decisions we make now as business leaders — in what feels like the worst of times — will decide which businesses thrive when the cycle turns.
So, ask yourself: are you positioning your business to be ready for the upswing, or are you waiting on the sidelines while others quietly invest and get ahead?
Because here’s the reality: if we don’t change how we invest, we don’t change our productivity. And if we don’t change our productivity, we don’t secure our future.
Matt Edwards is CEO of TMNZ and has grown successful FinTech business in the UK.