Great article. I disagree that the missing magic ingredient from the tax system is broad-based CGT. Australia's CGT (as recently reformed) is actively hurting a lot of investment at the moment, as I have been told by many institutional investors. The existing NZ tax is system is pretty decent, certainly better than Australia's, and could be improved by bringing in a consistent land value tax and dropping personal and corporate taxes. None of which, nor reforming the education system, is what the median voter is remotely interested in. So yeah, Mediocristan it is, I guess.
There's a new-ish NZ party running on introducing a land value tax! They might even end up as kingmakers in the upcoming election. I still think they have no hope whatsoever of getting it enacted but a man can dream.
Why not go all in on some kind of skilled immigration program?
I’d happily move to NZ even for much lower pay than what I’ve attained in US / Canada (where I’ve been blessed with a great career and timing) but have tried many times to apply to NZ companies and find it virtually impossible to get them to agree to hire a non-Aussie foreigner.
I suppose there would be grumbling about housing costs increasing yet higher if it were made easy for wealthy foreigners to immigrate.
The FIF tax has historically been a big deterrent but the new rules make a lot more sense than the old.
Yea that's right. Another problem that's at least somewhat downstream of the distorted housing market. The rules are being relaxed slightly though, and yes, the FIF changes are welcome and long overdue.
Given that the US is a continental nation with wide internal variance, an internal "barbell light" strategy is possible.
Make your fortune in NYC or SF, etc, and relocate in middle age to a well run rural area near North Las Vegas or Nashville or Boise or Charles Town WV. The last one is a short drive from the DC Metro but has sane local government.
There are numerous options. Of course, if nukes fly, you're toast. Black swan risk is higher than than Oz.
Bottom line: a lot of the exurban USA has less crime and social disfunction than Switzerland. Yes, there's a certain remoteness / loneliness. And the need to drive everwhere is a downside for many. But today's tech is minimizing those factors.
I accept your call to action. I shall stay to help revive mojo. Can’t help but notice the slight uptick in policy position ranking upon my arrival in 2021.. coincidence?
It does feel like there’s hope for policy to keep getting better but I doubt there will be any long term recovery. Increased selection and sorting is not going away, the best people will keep going overseas. Ironically I feel like the best thing for the country would be a retreat of globalisation or crisis that causes the diaspora to come back looking for stability.
Funnily enough, I had the same mysterious “I am too young to die!” kind of chest pain a couple of weeks ago. But I was in LA at the time and didn’t want to use my insurance, so I just waited it out...
Great post! I’m always amazed and curious when I stumble onto a fellow Kiwi online! Have you done any sort biographical posts about life in NZ and how you ended up where you are?
Analysis of the problem is spot on. I feel like you've been listening to the conversations I’ve been having for the last 10 years.
The unfortunate part about the solution is the evidence only seems to point in one direction.
A country can be good to live in for the average person, or it can be culturally ambitious. Never both.
I remember being asked (actually at an Icehouse ventures conference) what my most controversial opinion is - it’s that ambition is bad on average. The reason why: Ambition is the psychological counterpart to insecurity. It serves a natural and important place in our evolutionary toolset. If one is insecure e.g. lack of resources to survive, or lack of status to find a mate etc, then it serves one’s best evolutionary interest to take more drastic steps to change one’s situation.
An interesting piece of evidence for this: Anyone who has spent time getting to know a lot of founders, will surely notice that most successful founders are also very insecure people - often emotionally insecure more than materially, but our psyche seems to react the same way regardless.
The unfortunate part is that a country where a lot of people are ambitious is only created by conditions where a lot of people are insecure. Having spent several years living in Silicon Valley now, I’ve seen first hand exactly what this looks like. Ambition feels necessary for survival in America. Material insecurity in the US is real in a way NZ'ers can't relate to. And I’ve never met so many deeply insecure people as I have in Silicon Valley. AI has only exacerbated it with many believing they must succeed now or join the 'permanent underclass' (yes that term is now everyday vernacular in the bay area).
Ambition may create a higher GDP but it only creates it within a system in which there is a massive downside risk of not being ambitious enough. Naturally we see this manifested in the US as massive inequality in wealth distribution. Californias GDP dwarfs most countries, yet the reality of average Californian life is far from enviable to someone from middle class New Zealand. Because the exact force that drives that massive wealth creation is the inequality in how it’s distributed. You can’t have massive wealth AND relative equality…. Except for one circumstance.
And this is where the evidence points to. The countries that consistently have both plentiful resources to go around and also share them all have something simple in common. They don’t compete. They play a game for which there is large or infinite demand, constrained supply, and which their country can uniquely fill without any significant ongoing, innovation or ambition required at a cultural level.
Norway, Qatar, UAE have oil, Denmark and Switzerland have precision manufacturing, Australia has mining, Singapore, Monaco, Luxembourg… all tax havens (although Ireland has shown the difficulty of turning this into real shared prosperity).
The countries that have built their wealth primarily on highly competitive industries are now all in stages of decline and will likely all soon be in the same situation as NZ unless they happen on some new innovations to prolong their prosperity. China, Germany, United Kingdom, Canada,…
In a globalised world economy, where the cost to replicate is lower than ever, competing costs more than ever for the entire country - see China for what the end game looks like here. Children grow up spending their entire waking life trying to compete for scarce positions in better schools and universities. Sadly the US is well on its way too - just look at how crazy competitive the education system is becoming. If it wasn't for protectionist, anti-globalist policy, the entire US and European automobile-manufacturing industries would likely be nearing extinction from China.
The only way to really win in the quality of life game long term, is to not play the globalist economic game - at least not at an individual level. Having done business in the Nordics, I can confidently say the intensity and drive in Norwegian business vs American business is laughably low, yet the average Norwegian sees far more real prosperity in their life than the average American.
New Zealand for much of its existence was uniquely able to build wealth through primary industries. However the competition has increased massively (we literally had a monopoly export relationship with the UK before they cut us loose), and the proceeds of this wealth are shared by a smaller and smaller part of our (now much larger) population as we’ve urbanised our country.
So what do we do about it? Well that’s the billion dollar question, but as a tech founder, I must reluctantly concede that investing in individual entrepreneurship and general technology capability is not going to be the answer and will likely have the opposite to intended effect on prosperity. Because investing in this means encouraging insecurity.
'Clean green NZ' is the closest we've come recently to monopolising a resource and realising a true 'unfair advantage' we can export at the collective level. You said it yourself - we haven't really earned it - it's largely been enabled by our unique geography. That's actually a good thing - as Peter Thiel famously said 'competition is for losers'. And it's a relevant example, after all Thiel has invested in NZ for exactly this innate advantage.
Clean green NZ is still far from sufficient in its current state, but perhaps we could auction off central Otago for a slice of the largest American tech companies, the largest Arab and European oil companies...? Piggy back on their wealth by leveraging their insecurity.
Talking to many young NZers I know, I can see we’ve already started down the ambition, insecurity and inequality spiral. The fact that young people are increasingly interested in entrepreneurship is not the ray of hope it may appear on the surface. Most are trying to escape from the hopeless situation they see themselves trapped in. Trying to “get ahead” as the Americans would say.
Some getting ahead means many are left behind. We have to do better than this.
It's heartbreaking to see our country fall from such a strong position to mediocrity in two generations. Especially when there is so little interest from existing politicians in doing something about reversing the damage. What little interest there is is pretty much all from the centre-right and they are structurally incapable of doing much good. The problem is that the left, the only direction from which dramatic improvement could come, is stuck deep in the social liberalism doldrums, unable to recognise that there is nothing worthwhile left in that dogma to squeeze. Fixating on it is causing a serious opportunity cost.
But one great advantage New Zealand has is that there is very little friction to structural reform. If a reform program comes along that is popular it will be adopted very quickly. You could never say that about America, for example.
Fundamentally, the choice is between higher incomes and more equal incomes. The right and left ends of your curve work against each other. Ultimately, societies have to choose between everyone having more than they did before and everyone having just as much as everyone else.
Very interesting article. My parents and my six brothers and sisters left New Zealand in 1963. At that time New Zealand was a parochial snobbish Anglocentric nothing. My parents, exposed to Americans during the WW2, could not get out of New Zealand quick enough. Dad was a university lecturer and got fellowships in the US in the late 1950's. He moved the entire family to the US on the promise of 1/4 of a years teaching at Virginia Polytechnic. We ended up in Canada, lucky for us as the US denied a visa renewal in 1969 and Canada accepted us on an emergency application. Only one brother was lucky enough to gain American citizenship with the oldest brother returning to live in Australia. I was the baby, born in 1963, and only visited once for 3 weeks in 1975. My impressions were that NZ was considerably poorer than Canada, especially noticeable in cars, houses, and infrastructure. Only the food was superior to Canada. I think that NZ's problems are self-inflicted much like Canada's. Way too much socialism and low expectations. Way too much union power and not enough entrepreneurship. Too much concern about meaningless things like racism (everybody is racist) and climate change (the climate is always changing). Immigration wont help, it will just expose the laziness of the existing society. The one thing NZ cant change, which will forever limit its people, is the distance to the rest of the world. If I thought both Canada and NZ were equally good to live in, I would still choose Canada for proximity.
Great article. I disagree that the missing magic ingredient from the tax system is broad-based CGT. Australia's CGT (as recently reformed) is actively hurting a lot of investment at the moment, as I have been told by many institutional investors. The existing NZ tax is system is pretty decent, certainly better than Australia's, and could be improved by bringing in a consistent land value tax and dropping personal and corporate taxes. None of which, nor reforming the education system, is what the median voter is remotely interested in. So yeah, Mediocristan it is, I guess.
There's a new-ish NZ party running on introducing a land value tax! They might even end up as kingmakers in the upcoming election. I still think they have no hope whatsoever of getting it enacted but a man can dream.
Of course institutional investors like the idea of not having a capital gains tax. But ask any economist and they'll agree that there should be one.
Why not go all in on some kind of skilled immigration program?
I’d happily move to NZ even for much lower pay than what I’ve attained in US / Canada (where I’ve been blessed with a great career and timing) but have tried many times to apply to NZ companies and find it virtually impossible to get them to agree to hire a non-Aussie foreigner.
I suppose there would be grumbling about housing costs increasing yet higher if it were made easy for wealthy foreigners to immigrate.
The FIF tax has historically been a big deterrent but the new rules make a lot more sense than the old.
Yea that's right. Another problem that's at least somewhat downstream of the distorted housing market. The rules are being relaxed slightly though, and yes, the FIF changes are welcome and long overdue.
Given that the US is a continental nation with wide internal variance, an internal "barbell light" strategy is possible.
Make your fortune in NYC or SF, etc, and relocate in middle age to a well run rural area near North Las Vegas or Nashville or Boise or Charles Town WV. The last one is a short drive from the DC Metro but has sane local government.
There are numerous options. Of course, if nukes fly, you're toast. Black swan risk is higher than than Oz.
Bottom line: a lot of the exurban USA has less crime and social disfunction than Switzerland. Yes, there's a certain remoteness / loneliness. And the need to drive everwhere is a downside for many. But today's tech is minimizing those factors.
I accept your call to action. I shall stay to help revive mojo. Can’t help but notice the slight uptick in policy position ranking upon my arrival in 2021.. coincidence?
P.s. glad you’re ok!
I did think about adjusting the chart to smooth out your impact but ultimately decided to let the data speak for itself
It does feel like there’s hope for policy to keep getting better but I doubt there will be any long term recovery. Increased selection and sorting is not going away, the best people will keep going overseas. Ironically I feel like the best thing for the country would be a retreat of globalisation or crisis that causes the diaspora to come back looking for stability.
just clicked through and read your excellent Sydney piece. here for anyone else who sees this:
https://stoates.substack.com/p/review-sydney
Funnily enough, I had the same mysterious “I am too young to die!” kind of chest pain a couple of weeks ago. But I was in LA at the time and didn’t want to use my insurance, so I just waited it out...
It's not a bad essay but you should never confuse comparative with absolute.
Your position in the rankings is comparative but what you have is absolute.
If you become comparatively richer I do not be come absolutely poorer.
If other nations are now better educated ours is not less educated.
If you're sicker am I healthier? You shorter, I'm taller? And so on
There's a lot of confusion about this point.
Great post! I’m always amazed and curious when I stumble onto a fellow Kiwi online! Have you done any sort biographical posts about life in NZ and how you ended up where you are?
Analysis of the problem is spot on. I feel like you've been listening to the conversations I’ve been having for the last 10 years.
The unfortunate part about the solution is the evidence only seems to point in one direction.
A country can be good to live in for the average person, or it can be culturally ambitious. Never both.
I remember being asked (actually at an Icehouse ventures conference) what my most controversial opinion is - it’s that ambition is bad on average. The reason why: Ambition is the psychological counterpart to insecurity. It serves a natural and important place in our evolutionary toolset. If one is insecure e.g. lack of resources to survive, or lack of status to find a mate etc, then it serves one’s best evolutionary interest to take more drastic steps to change one’s situation.
An interesting piece of evidence for this: Anyone who has spent time getting to know a lot of founders, will surely notice that most successful founders are also very insecure people - often emotionally insecure more than materially, but our psyche seems to react the same way regardless.
The unfortunate part is that a country where a lot of people are ambitious is only created by conditions where a lot of people are insecure. Having spent several years living in Silicon Valley now, I’ve seen first hand exactly what this looks like. Ambition feels necessary for survival in America. Material insecurity in the US is real in a way NZ'ers can't relate to. And I’ve never met so many deeply insecure people as I have in Silicon Valley. AI has only exacerbated it with many believing they must succeed now or join the 'permanent underclass' (yes that term is now everyday vernacular in the bay area).
Ambition may create a higher GDP but it only creates it within a system in which there is a massive downside risk of not being ambitious enough. Naturally we see this manifested in the US as massive inequality in wealth distribution. Californias GDP dwarfs most countries, yet the reality of average Californian life is far from enviable to someone from middle class New Zealand. Because the exact force that drives that massive wealth creation is the inequality in how it’s distributed. You can’t have massive wealth AND relative equality…. Except for one circumstance.
And this is where the evidence points to. The countries that consistently have both plentiful resources to go around and also share them all have something simple in common. They don’t compete. They play a game for which there is large or infinite demand, constrained supply, and which their country can uniquely fill without any significant ongoing, innovation or ambition required at a cultural level.
Norway, Qatar, UAE have oil, Denmark and Switzerland have precision manufacturing, Australia has mining, Singapore, Monaco, Luxembourg… all tax havens (although Ireland has shown the difficulty of turning this into real shared prosperity).
The countries that have built their wealth primarily on highly competitive industries are now all in stages of decline and will likely all soon be in the same situation as NZ unless they happen on some new innovations to prolong their prosperity. China, Germany, United Kingdom, Canada,…
In a globalised world economy, where the cost to replicate is lower than ever, competing costs more than ever for the entire country - see China for what the end game looks like here. Children grow up spending their entire waking life trying to compete for scarce positions in better schools and universities. Sadly the US is well on its way too - just look at how crazy competitive the education system is becoming. If it wasn't for protectionist, anti-globalist policy, the entire US and European automobile-manufacturing industries would likely be nearing extinction from China.
The only way to really win in the quality of life game long term, is to not play the globalist economic game - at least not at an individual level. Having done business in the Nordics, I can confidently say the intensity and drive in Norwegian business vs American business is laughably low, yet the average Norwegian sees far more real prosperity in their life than the average American.
New Zealand for much of its existence was uniquely able to build wealth through primary industries. However the competition has increased massively (we literally had a monopoly export relationship with the UK before they cut us loose), and the proceeds of this wealth are shared by a smaller and smaller part of our (now much larger) population as we’ve urbanised our country.
So what do we do about it? Well that’s the billion dollar question, but as a tech founder, I must reluctantly concede that investing in individual entrepreneurship and general technology capability is not going to be the answer and will likely have the opposite to intended effect on prosperity. Because investing in this means encouraging insecurity.
'Clean green NZ' is the closest we've come recently to monopolising a resource and realising a true 'unfair advantage' we can export at the collective level. You said it yourself - we haven't really earned it - it's largely been enabled by our unique geography. That's actually a good thing - as Peter Thiel famously said 'competition is for losers'. And it's a relevant example, after all Thiel has invested in NZ for exactly this innate advantage.
Clean green NZ is still far from sufficient in its current state, but perhaps we could auction off central Otago for a slice of the largest American tech companies, the largest Arab and European oil companies...? Piggy back on their wealth by leveraging their insecurity.
Talking to many young NZers I know, I can see we’ve already started down the ambition, insecurity and inequality spiral. The fact that young people are increasingly interested in entrepreneurship is not the ray of hope it may appear on the surface. Most are trying to escape from the hopeless situation they see themselves trapped in. Trying to “get ahead” as the Americans would say.
Some getting ahead means many are left behind. We have to do better than this.
It's heartbreaking to see our country fall from such a strong position to mediocrity in two generations. Especially when there is so little interest from existing politicians in doing something about reversing the damage. What little interest there is is pretty much all from the centre-right and they are structurally incapable of doing much good. The problem is that the left, the only direction from which dramatic improvement could come, is stuck deep in the social liberalism doldrums, unable to recognise that there is nothing worthwhile left in that dogma to squeeze. Fixating on it is causing a serious opportunity cost.
But one great advantage New Zealand has is that there is very little friction to structural reform. If a reform program comes along that is popular it will be adopted very quickly. You could never say that about America, for example.
Fundamentally, the choice is between higher incomes and more equal incomes. The right and left ends of your curve work against each other. Ultimately, societies have to choose between everyone having more than they did before and everyone having just as much as everyone else.
Great!
Very interesting article. My parents and my six brothers and sisters left New Zealand in 1963. At that time New Zealand was a parochial snobbish Anglocentric nothing. My parents, exposed to Americans during the WW2, could not get out of New Zealand quick enough. Dad was a university lecturer and got fellowships in the US in the late 1950's. He moved the entire family to the US on the promise of 1/4 of a years teaching at Virginia Polytechnic. We ended up in Canada, lucky for us as the US denied a visa renewal in 1969 and Canada accepted us on an emergency application. Only one brother was lucky enough to gain American citizenship with the oldest brother returning to live in Australia. I was the baby, born in 1963, and only visited once for 3 weeks in 1975. My impressions were that NZ was considerably poorer than Canada, especially noticeable in cars, houses, and infrastructure. Only the food was superior to Canada. I think that NZ's problems are self-inflicted much like Canada's. Way too much socialism and low expectations. Way too much union power and not enough entrepreneurship. Too much concern about meaningless things like racism (everybody is racist) and climate change (the climate is always changing). Immigration wont help, it will just expose the laziness of the existing society. The one thing NZ cant change, which will forever limit its people, is the distance to the rest of the world. If I thought both Canada and NZ were equally good to live in, I would still choose Canada for proximity.