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Contents | Executive Summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise Chapter 3 of the Economic survey of New Zealand, published on 23 April 2007.
Contents
More developed financial markets would facilitate better resource allocation and risk management
With the expected growth of private pension funds in coming years, one task for the government will be to ascertain that there is no impediment to enhancing the depth of financial markets, so that funds can best manage their various risks. At the moment, NZ financial markets are relatively small by OECD standards, despite widespread financial liberalisation undertaken in the 1980s, and bank loans are the main source of financing to both firms and households. Nonetheless, the country scores extremely well on the OECD’s indicators of banking and securities market regulation. Developing a better understanding of why some parts of the market remain under-developed and why New Zealanders borrow so much and save so little in the face of high interest rates would allow a clearer assessment of the role that other policy settings might be playing. Well-developed financial markets benefit the country as a whole, as they allow a better allocation of risks at the enterprise and macroeconomic level. They also provide more opportunities for businesses to access funds for investment, potentially at a lower user cost. Finally, financial markets facilitate households’ management of their retirement savings portfolios over time. Growth in KiwiSaver accounts is likely to expand financial markets somewhat, assuming they will not be exclusively used to purchase offshore assets. The level of government bonds on issue has fallen over recent years and is not expected to fall further. In order to support liquidity, issuance has been consolidated into a number of benchmark maturities. In addition, a very deep and active market in interest-rate swaps has developed. Nonetheless, it remains unclear whether this provides a sufficient benchmark yield curve for the economy as a whole and whether increased government bond issuance may be warranted. The current existence of legal opportunities to avoid paying the Approved Issuer Levy effectively a very low rate non-resident withholding tax on yields reinforces market incentives for banks and firms to issue bonds offshore rather than onshore: the net impact of removing these opportunities should be assessed. Privatisation of state-owned enterprises, especially those operating in competitive markets, would enhance economic efficiency and could also provide additional options for New Zealand investors.
Regulatory changes and financial education could help to improve the environment for saving vehicles
Care should be taken to ensure that the financial sector’s regulatory structure is sufficiently flexible to respond as circumstances change. New Zealand has a good overall financial regulation framework, with no major regulatory barriers inhibiting the development of its financial markets. However, improvements could be made in some segments. In particular, the regulatory framework for collective investment schemes could be streamlined – as currently proposed by a government review – and harmonised across schemes. Firms offering collective investment instruments need to have an appropriate governance structure and regulators need to ensure that a rigorous approach is taken to disclosure requirements for fees and expenses. This would help consumer choice by improving transparency and facilitating comparisons across products. Further developing financial education by providing information on retirement options is a low-cost measure that could also enhance New Zealanders’ awareness of the importance of increasing savings. The government has made a major effort to improve financial literacy and plans to integrate financial education into the school curriculum by 2009. This initiative is welcome, and further efforts in this direction should be pursued.
Financial market size and composition
Ratio to GDP, average 2003-05
1. Figures are the sum of private credit and stock market capitalisation.
Source: Reserve Bank of New Zealand; New Zealand Exchange and World Bank, Financial Development and Structure database.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of New Zealand 2007 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
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Additional information
For further information please contact the New Zealand Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Deborah Roseveare, Annabelle Mourougane and Shuji Kobayakawa under the supervision of Peter Jarrett.
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