Chapter 1: Raising New Zealand’s living standards
This chapter discusses the main challenges facing New Zealand in meeting the goal of raising living standards. In the near term, the economy needs to shift onto a more sustainable growth path and the stabilisation task of the central bank would be made easier if the government were to pursue a more fiscally-neutral stance over 2007 and 2008. Labour utilisation has been impressive but economy-wide trend productivity growth remains modest. The country has accumulated large net foreign liabilities, the current account deficit is at very high levels, and household saving has fallen sharply. Higher household savings could boost future national incomes, while greater accumulation of financial assets would make it easier for individuals to smooth consumption over their lifetimes. The government is currently a significant net saver, but the Treasury’s long-term projections indicate that adjustments over time to spending and/or taxes will be required to ensure that public finances are sustainable.
Chapter 2: Public pensions and retirement savings
New Zealand faces the challenge of an ageing population, and doubts about whether it can continue relying so heavily on foreigners’ savings in the future. New Zealand Superannuation, the public pensions scheme, is well-designed, but the growing share of recipients will lead to rising debt levels. Future outlays could be pared back by adjusting the indexation of benefit rates and/or by raising the age of eligibility, and an automatic adjustment mechanism to share the fiscal risk associated with life-expectancy increases should be considered. Households have accumulated relatively few financial assets and relatively few working-age adults are covered by registered superannuation schemes. KiwiSaver is designed to encourage participation in voluntary work-placed savings schemes. Employer contributions have been made tax-exempt. This should promote retirement savings although the housing elements of KiwiSaver are inconsistent with households diversifying their net wealth. And all registered superannuation schemes that have lock-in of savings comparable to KiwiSaver should be treated equally for tax purposes.
Chapter 3: Deepening financial markets
New Zealand’s financial markets are relatively small by OECD standards, and dominated by the banking sector, although there are no obvious regulatory barriers impeding financial market development. Fostering the development of deeper bond financial markets would provide a wider range of options for managing risks as well as for raising capital. However, there is little evidence that NZ businesses are systematically constrained by lack of access to finance and the small corporate bond market may partly reflect the small share of large private-sector enterprises. Relinquishing public ownership would allow the market to determine where that capital could be used most productively. Some improvements could be made to enhance the environment for savings instruments. Efforts to improve financial literacy and plans to integrate financial education into the school curriculum are welcome.
Chapter 4: Toward a more efficient taxation system
After the radical reforms undertaken in the 1980s, the NZ tax system has long been regarded as one of most efficient within the OECD, and is based on a comprehensive income approach. Looking forward, the country will require a tax regime that helps the economy to continue raising living standards, supports savings and investment and copes with emerging pressures such as increasing geographic mobility of labour and capital. In this context, it will be important to have in place a clear long-term direction for the tax system to guide reforms. There are at least two broad options that are worth considering: adapting the system within a comprehensive income approach or adopting a dual income tax system. Future changes to the tax system need to be consistent with the approach ultimately adopted. In any case, a number of limitations of current tax bases will need to be tackled.
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:
For further information please contact the New Zealand Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Deborah Roseveare, Annabelle Mourougane and Shuji Kobayakawa under the supervision of Peter Jarrett.