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Where is the money going?

I've watched a few videos posted by people who are new to New Zealand.

It is fascinating to see how they view our culture, our society and our country.

Generally speaking these folk have an almost entirely positive opinion of our little island nation and its people, except for one thing.

The prices we pay for basics such as food and housing.

Compared to most of the developed world, New Zealand is a quite expensive place to live. That wouldn't be so bad except for the additional fact that we don't seem to earn nearly as much as our peers in other countries either.

This results in a somewhat lower "standard of living" when compared to countries such as Australia, the USA and many European nations.

This has got me to wondering... why is this?

Since we're paying through the nose for so many of the goods and services we buy, where is all that money going because it's sure as hell not filtering down into high wages and salaries.

Someone must be getting very rich from these high prices and low labour costs but who is it?

Of course there is a case to argue that in some cases our "small island nation" status works against us. We don't get the same economies of scale as more populous countries and the tyranny of distance hikes the price of imported materials and products.

However, none of this explains why our food prices are so consistently high when compared to our trading partners. We grow the stuff here, we use low-cost labour and we have some of the most efficient agricultural industries on the face of the planet... yet still we pay so much for the products they produce.

Another suggestion is that, since we are primarily a food exporter, the price we pay in our supermarkets is driven by the price we can get for exports. This means that those prices aren't based so much on a cost-plus-margin formula as they are a "what the market will bear" one.

However, even this proposal doesn't stand up to close scrutiny -- when Kiwi produced food products are sold at lower prices on the supermarket shelves in London than they are at your local Countdown or Foodtown. If we were paying parity with those export markets then the price should still be lower in our supermarkets because there's far less cost involved in shipping around NZ than there is in shipping across the globe.

For decades we've been told that New Zealand must become "more productive" if we are to see an improvement in our living standards. Is that really true? Would an increase in productivity really trickle down into the pockets of workers?

To be honest, I can't see how that would happen at all. It strikes me that any extra profit that was to be had from improved productivity would simply disappear into the black hole that is already soaking up huge amounts of Kiwi's hard-earned cash.

Surely there's some kind of basic structural problem here and I'm wondering exactly why it's not being addressed.

Sure, the government has done its "tsk tsk" investigation into the supermarket duopolies but that's turned out to produce no effective change to the situation -- which leaves me wondering if perhaps a big part of the problem is government itself.

It has to be remembered that although NZ is considered a relatively "low tax" nation, that's just the headline numbers. Once you start digging a bit deeper it becomes apparent that quite a significant amount of our money ends up in the coffers of the state.

Sure, our higher rates of income tax are lower than most of our trading partners but then again, we have no tax-free earnings threshold like they do. Kiwis pay tax on every dollar they earn -- including the very first one. Other nations tend to recognise the folly of taking money from the poor only to return it as a benefit of some kind. As a result, the poor in New Zealand are woefully over-taxed compared to most other nations.

We should also remember that we pay GST on virtually everything, including all food items. This not only hikes the cost of the weekly grocery shop but also effectively adds a significant extra tax-burden to the income of those who find themselves spending every dollar they earn just to pay the bills.

Even though our electricity sector was deregulated and privatised several decades ago, the government retains significant shareholdings in the major generators and receives healthy divicends from their profits. In effect, this becomes yet another tax as the pressure to deliver those dividends has seen continuously rising power prices beyond the level of inflation.

There are a myriad of other "user-pays" levies, fees and charges that suck away at the average Kiwi's pay packet and dump that money into the state coffers as well... to the extent that when you add everything up it becomes apparent that we are indeed very heavily, albeit perhaps not obviously, taxed.

Of course tax is an essential way to fund the essential infrastructure of a nation and to ensure that key services such as policing, health, defense and such are operated at a level that is acceptable. However, here in NZ it would seem that this may be one of the very things that is widening the gap between the poor and the rich.

Is there a solution?

Are there other factors that are causing this problem here in Godzone?

How can things this even be possible in a functional economy?

Carpe Diem folks!

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