An unusual event took place among the leaders of New Zealand’s largest companies last week. Whether it was Air New Zealand’s Christopher Luxon, ASB Bank’s Barbara Chapman or delegation leader Fraser Whineray from Mercury, en masse they put aside their desk jobs to participate in The New Zealand Initiative’s week-long Go Swiss trip.
Delegations of business leaders are nothing new. But what was unusual about this one is that it was not about business. Instead, its aim was to witness first-hand the social, economic and environmental policy settings that have placed the Swiss among the most prosperous – and happiest – people in the world.
To learn about Switzerland’s success story, they met some of its most prominent leaders. From federal government politicians to bankers, and from regulators to city mayors, speakers provided a wide range of perspectives on what makes Switzerland tick.
This is a remarkable country. Surrounded by mountains and with few natural resources, until the middle of the 20th century Switzerland remained comparatively poor. In 1960, the average Swiss citizen’s income was barely three-quarters that of her New Zealand counterpart.
Yet today Switzerland’s 8.5 million inhabitants enjoy a standard of living the average New Zealander can only dream about. And their prosperity matters.
It means they can afford to spend more on healthcare – in fact, two-and-a-half times more per person than is spent in New Zealand – so their health outcomes are better, with infant mortality 20% lower in Switzerland and life expectancy nearly two years longer. The Swiss are also 25% less likely to be unemployed, more than 50% less likely to be in prison and are materially less unequal than New Zealand.
But if there is one comparison that should be of interest to New Zealanders it is in housing. Like New Zealand, Switzerland has experienced persistent levels of high immigration. And at levels that match the record 1-1.5% of population a year level, New Zealand has experienced in the past few years.
Yet Switzerland has experienced just one tenth of the house price inflation we have witnessed in Auckland. And when transport infrastructure in New Zealand – and in Auckland in particular – has become choked, Switzerland’s transport system works as efficiently as the proverbial Swiss watch.
How has Switzerland managed to do this when New Zealand has so spectacularly failed?
The answer lies in Switzerland’s governance. Despite its small size, Switzerland is highly decentralised, with 26 cantons and more than 2000 councils, each with its own income tax-raising powers. Because local growth means more local income tax, cantons and councils are incentivised to pursue growth-friendly policies.
This is in stark contrast with New Zealand. Here, growth at a local level is great for central government but not so good for councils. It is Wellington that benefits from the income tax, company tax and GST generated by growth. Yet local councils are left with the cost of funding the infrastructure needed to support it.
Little wonder that councils are less than growth-friendly. Planning rules that front-load costs on developers are entirely predictable when a council’s only funding alternative is its existing ratepayers. As one prominent Swiss business leader said when hearing about how New Zealand funds its local infrastructure, “But surely this is a systemic failure?”
It is and we must solve it. Our housing affordability crisis is causing overcrowding and poverty. And it is driving workers away from New Zealand’s largest growth engine.
The Initiative’s 2013 report, Free to Build: Restoring New Zealand’s Housing Affordability, described how revenue sharing arrangements can incentivise local councils to facilitate development. After last week’s delegation, the government can expect a chorus of business leaders to join the calls for reform.
It is not just in housing and infrastructure where we can learn from the Swiss. Where New Zealand's schooling system has been in gradual decline for well over a decade, Switzerland’s has remained world-class. And its dual-track approach to education, which sees 80% of its school leavers pursue vocational training, has contributed to a highly skilled, more future-proofed workforce, and enviably low levels of youth unemployment. It certainly warrants further study.
Beyond these two important policy areas, there may also be lessons for New Zealand in Switzerland’s decentralised approach to local government, its competitive use of tax policy – especially corporate tax – to attract investment, and the quality and concentrated focus of its tertiary education system on excellence.
Of course, Switzerland is not without its problems. Its system of direct democracy is slow to reform (Switzerland only gave women the vote in 1971). And while Switzerland’s immigrants are quickly assimilated into the workforce, they cannot easily become citizens, ironically creating a significant democratic deficit in a country that prides itself for its democracy.
But as with many disparities, these shortcomings are less important in a country where everyone prospers. And perhaps that makes the trip by New Zealand’s business leaders to the other side of the world a little less unusual. As they know only too well, we are all in this together.
Roger Partridge is chairman of The New Zealand Initiative