New Zealand has consistently performed as one of the wealthiest countries in the world with very high living standards. With a GDP per capita of $53,000 USD, this places New Zealand substantially higher than many of their Western counterparts, like Australia ($47,000 USD) and the UK ($39,000 USD). New Zealand’s prosperity has been achieved through a neoliberal fiscal framework – far from the Keynesian ideal that has stifled growth in Western Europe, leading to lower living standards and slower growth. Low taxes and light-touch regulations are a large part of the Kiwi economic success, fostering investment through its business-friendly environment, thereby giving birth to robust economic performance.
Taxation & Benefits
The absence of a National Insurance (or a ‘Jobs Tax’ as referred to by ex-PM David Cameron) Tax, alongside lower income taxes, contributes to New Zealand’s economic success. The top income marginal tax rate in New Zealand is 39% and is applied on income above $70,000 NZD equivalent (with a median income of $55,000 NZD as of 2021); by comparison, the UK has a marginal tax rate of 40% on incomes above £40,000, with an additional National Insurance tax levied of 13.25% set on income between £9,000-£50,000 (the median salary in the UK is £30,000 as of 2021). This leaves the UK with a substantially higher tax rate on average and higher earners, leading to fewer incentives for work. For example, over 90% of GPs in the UK work part-time, with surveys indicating that this is largely due to the punitive UK tax regime that punishes work and rewards rent-seekers. As such, the tax policy of New Zealand has contributed to its economic success, rewarding productive individuals through less cumbersome taxes to promote economic activity that benefits everyone.
As of 2022, the proportion of working-age individuals claiming benefits in the UK was 22%, with 6 million benefit claimants amongst a working-age population of 27 million. By comparison, this figure is only 13% in New Zealand, with 500,000 benefit claimants out of a working population of 4 million. This highlights the difference in the inactivity rates of the two nations, with New Zealand taking advantage of its labour force much more so than the UK. Similarly, the vast majority of welfare recipients of working age in New Zealand are in work; in the UK, fewer than of half its 6 million working-age welfare claimants are working as of 2022. As New Zealand has a better welfare system that rewards work as a pose to inactivity, it is of little surprise that their economy fairs much better due to their more prudent, means-tested, welfare system.
Businesses
Businesses in New Zealand benefit from a light-touch regulatory regime that promotes competition and business freedom. New Zealand has consistently ranked in the top five countries over the past five years in the ‘Index of Economic Freedom’, ranking fourth in 2022. This is primarily due to the ease of starting a business in New Zealand, with a straightforward process to establish a new company with few steps and without much red tape. The low barriers to entry for businesses entering new markets are also a significant factor in New Zealand’s prosperity, promoting competition and innovation.
Similarly, labour regulation in New Zealand is minimal, creating a flexible labour market that promotes employment and business growth while benefitting workers. This is because businesses can easily hire and fire workers, reducing costs and boosting efficiency as unproductive workers are easily laid off. This also helps businesses hire workers as there is little red tape in creating new jobs, allowing firms to hire staff when needed. Improved productivity growth is another benefit of New Zealand’s flexible labour market laws, as workers are forced to remain highly productive to remain in their roles as they can be easily replaced. Finally, increased innovation is a consequence of flexible labour laws, allowing businesses to hire workers when needed. As such, this has contributed to the economic prosperity of New Zealand as small companies are allowed to prosper under the guise of light-touch regulation that promotes entrepreneurship and growth.
Ultimately, New Zealand boasts one of the most neoliberal economies in the Western world, with low taxes and light-touch regulation compared to most of its Western counterparts. Limited government intervention with a minimal welfare state that caters to those who are in need, alongside little red tape that promotes entrepreneurship, is a large part of the economic success of New Zealand as one of the wealthiest countries globally.
Free Marketeer 