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The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of New Zealand 2005 published on 4 July 2005
The economy has continued on its strong upward course and living standards – measured as real GDP per person – have risen steadily over the past decade, putting the country on track towards the government’s objective of returning to the top half of the OECD. But capacity has become increasingly strained, and monetary policy has been tightened to ensure inflation remains well anchored. The country’s prospects are bright, with potential growth projected to remain comfortably above 3% per year over the medium term.
Against this favourable backdrop, the key policy challenges are, first, to raise productivity growth, which remains relatively weak by OECD standards; second, to lift participation rates in the pockets where they are still relatively low; and, third, to enhance the management of public finances.
Competitive pressures in some sectors could be strengthened to spur productivity gains
Most product markets are working well, with healthy competition providing firms with the incentives to become more efficient and to innovate. One exception is the electricity sector, where regulatory uncertainties, including those relating to resource use, need to be resolved in order for market participants to be willing to undertake investment in either new generation or transmission capacity.
Some tax and regulatory changes would improve the efficiency of capital
Tax distortions in investment decisions need to be minimised and especially avoid discouraging investment in short lived assets, including ICT. Changes introduced in Budget 2005 should go a long way to addressing this. Congestion charging could help reduce road transport bottlenecks and help to signal where additional road infrastructure is needed.
Labour market flexibility should be preserved
Last year’s legislative changes further reduce the flexibility of labour markets, and the government should monitor developments closely and be prepared to take corrective action if necessary. Relaxing the rules on initial trial periods and fixed term contracts would help to mitigate the effects of increased employment protection.
Education services require a sharper focus on results
Although a better educated workforce facilitates productivity growth, some of the recent rise in participation has come in courses of low quality or subjects that have only remote career relevance. The government’s recent efforts to reorient public funds towards high quality, job relevant programmes need to succeed. Providing free early childhood education for 20 hours per week to all three and four year olds would be easier to deliver if private for profit providers were allowed to participate.
Labour utilisation could be boosted
Many mothers face financial or practical obstacles if they wish to work. Easier access to affordable care would help, as would reducing the disincentive effects for some families in the Working for Families package, in ways that take careful account of fiscal costs. Sole parents and other welfare beneficiaries would benefit from more intensive case management and effective activation strategies, including clear sanctions for non compliance.
Management of public finances could be enhanced
Despite the solid framework for public finances, upward spending pressures suggest no room for complacency, and any further tax or spending initiatives should be financed through more systematic reprioritisation of existing programmes. Efforts should be redoubled to ensure that public sector outputs, deliver, and can be seen to deliver, the government’s desired outcomes without any waste of resources.
Return to the Economic Survey of New Zealand homepage
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A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
To access the full version of the OECD Economic Survey of New Zealand:
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For further information please contact the New Zealand Desk of the OECD Economics Department at webmaster@oecd.org.
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