The following OECD assessment and recommendations summarise Chapter 4 of the Economic Survey of New Zealand 2005 published on 4 July 2005.
Education services could be refocused to build the country’s human capital more effectively
Human capital plays an important role in productivity growth, not only because of specific skills but also because a well educated workforce is more adaptable and can more quickly integrate new equipment and processes. However, the very rapid expansion of post secondary education – NZ resident enrolments were almost 35% higher last year than in 1999 – reflects a proliferation of courses that are of low quality and/or in subjects that have only remote career relevance. The government now has a set of instruments in place designed to channel public funds towards priority areas and has recently signalled its wish to see funding withdrawn from courses that offer a negligible contribution to work-related capabilities. It remains to be seen whether these changes can deliver the necessary redirection the sector needs, but if they fail a more radical restructuring of incentives for providers and students will need to be considered.
Funding for Early childhood education and care should ensure that scarce teaching resources go to where they provide greatest benefit
For children under five years, policies involve an integrated approach to early childhood education and care (ECEC), with a primary focus on educational outcomes. To support this, the government has specified that by 2012 all ECEC staff will require a recognised teacher qualification; funding is greater for centres that have a higher proportion of such staff. If teacher shortages were to emerge, there is a risk of more affluent children receiving better services, while some more disadvantaged pre schoolers receive an inferior service or none at all. The government needs to be alert to this risk. It has also made a decision to finance 20 hours per week free access to early childhood education for all three and four year olds by 2007, which represents important progress towards giving all children a more robust pedagogical start in life. But it is not an entitlement, and parents will have to find a place with a community based provider in order to take advantage of the 100% subsidy. Ensuring sufficient places are available would be significantly easier if that funding were extended to private for profit providers. At the same time a better use of scarce teaching resources might be achieved if per child funding rates were redesigned to encourage centres to provide concentrated teacher led sessions for these 20 hours, organised separately from other care provided on the same site. This would provide a more intensive pre school experience for older children, while allowing centres to offer high quality, but more flexible and less expensive, care arrangements for any supplementary hours and for younger children. Making a clearer distinction between meeting educational objectives and subsidising childcare for working parents would represent a major change in policy approach in New Zealand.
To raise labour utilisation, work incentives need to be strengthened
Higher labour utilisation can also make a contribution to boosting living standards. Although on average, NZ workers put in relatively high annual hours, some people face particular barriers in participating in the workforce. Others work part time but would prefer to increase their hours. There are two key groups on which attention should be focussed. One group is non-beneficiary families where both parents would like to work, but one may be discouraged from doing so. This could be because they cannot find good quality and affordable childcare for under fives and out of school care, and they may also be affected by the withdrawal of family assistance. The other group is those working-age people on benefits for whom expectations about work capacity may be unnecessarily low. These could be strengthened by more effective assistance to make the transition into work.
Improving access to childcare could raise participation…
Finding suitable and affordable childcare is sometimes difficult, despite the subsidies the government already pays to ECEC providers and the planned free hours for three and four year olds. Removing obstacles to increased supply of places and more help with childcare costs would facilitate family members, particularly women, working the hours that they prefer. This could strengthen their participation and allow them to maintain and add to their human capital, enhancing economy wide productivity growth. The design of policies in this area would need to take careful account of the fiscal costs involved.
….but the Working for Families package embodies conflicting work incentives
The government’s 2004 Working for Families package significantly increases income transfers to low and middle income families over the next two years. The new in work payment provides an additional incentive to enter work. Alongside this, changes will be made to the abatement regime to allow families to earn more market income before their family assistance payments are cut back. These changes should improve the incentives for some of those on welfare to move towards work and for some in work but on low incomes to increase their hours of work. But the package also extends the income range over which the range of assistance will be withdrawn, which raises the number of families where working additional hours becomes less attractive financially because of very high effective marginal tax rates. This may especially affect potential second earners, who are predominantly women, exacerbating economic gender gaps. Alternative ways of supporting families without such damaging effects on incentives to work could do more to raise living standards and should be investigated further. Shifting the balance of funding towards more generalised assistance with childcare costs for working parents would be one option.
Assistance to couples with two children (1)
Per cent of APW, 2003
1. Assistance is calculated as the difference between net income after taxes and transfers for a family with and without children with the same gross earnings, expressed as a percentage of the Average Production Worker (APW) wage.
2. The principal earner is assumed to earn 75%, 100% or 125% of APW and the secondary earner earns 67% of APW wage.
Source: OECD tax-benefit models.
Reforms to help people move from benefit dependency back into work are welcome
The government has agreed in principle to replace the range of income support benefits (unemployment, domestic purposes, sickness, invalid, etc.) with a new single core benefit from 2007. This would apply one set of criteria to all working age beneficiaries and include more emphasis on individualised and effective back to work strategies for clients. It would be complemented by a new service delivery model, which would deliver employment assistance to clients based on their individual circumstances in terms of their work readiness rather than their benefit category. For example, those currently drawing sickness or invalid benefits would be able to more readily access employment services that have to date been largely offered only to unemployment beneficiaries, and to receive more practical assistance and rehabilitation to assist with their return to employment. These changes would also provide an important opportunity to strengthen work availability requirements, especially for sole parents receiving the domestic purposes benefit even though their children attend school. This would give practical reinforcement to the government’s message that having their parents engaged in paid work is important for children’s longer term well being, not least by reducing child poverty. However, for the new approach to be successful, the benefit administration may need a significant upgrade of its case management capacity and must clearly apply the “mutual obligations” principle whereby all types of beneficiaries will face effective sanctions for non compliance. Those activation measures already being used in New Zealand show that beneficiaries respond positively to mutual obligations and sanctions and indicate their potential for wider application.
Working-age beneficiaries
Source: Ministry of Social Development (2005).
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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 at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Deborah Roseveare and Annabelle Mourougane under the supervision of Peter Jarrett.
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