Importance of Pro-Growth Strategy for NZ

Media Release

Economic Freedom Report Highlights Importance of Pro-Growth Strategy for New Zealand

The results of the Economic Freedom of the World Annual Report 2002 highlight the importance of implementing a pro-growth strategy for New Zealand, according to Norman LaRocque, Policy Advisor with the New Zealand Business Roundtable.

The Economic Freedom report, released today by Dr Michael Walker, executive director of Canada’s Fraser Institute, is the sixth in a series. It ranks the economic freedom of 123 nations on 37 variables with data back to 1970. The report is co-published by the Fraser Institute and a network of 54 independent public policy organisations, including the New Zealand Business Roundtable.

The Fraser Institute defines economic freedom as the extent to which one can pursue economic activity without interference from government. Economic freedom is built upon personal choice, voluntary exchange, the right to keep what you earn, and the security of your property rights.

This year's report showed that New Zealand continued to rank highly in terms of economic freedom, but that its position has slipped since the mid-1990s.

According to the report, New Zealand’s overall economic freedom rating declined from 8.6 to 8.2 out of 10 between 1995 and 2000, while its ranking dropped from 3rd to 5th over the same period. Hong Kong retains the highest rating for economic freedom, closely followed by Singapore, the United States and the United Kingdom. The other top ten nations ranked below New Zealand were Switzerland, Ireland, Australia, Canada and the Netherlands.

“While New Zealand continues to outperform most other countries in terms of economic freedom, we cannot be complacent. As a small, isolated nation, we need to stay well ahead of those countries that we usually compare ourselves with. Any slippage is to be regretted," said Mr LaRocque.

Mr LaRocque noted that the report showed the link between economic freedom and growth. Nations that score in the top fifth of the economic freedom rankings have average economic growth of 2.6 percent a year. Those in the bottom fifth had negative economic growth of 0.9 percent a year.

“The report highlights that, around the world, governments of the so-called left and right have continued to introduce positive, pro-growth reforms, with 100 of the 123 countries surveyed increasing their economic freedom rating between 1995 and 2000”, said Mr LaRocque.

“From a growth perspective, a key concern is that New Zealand was one of only five OECD countries whose economic freedom rating fell between 1995 and 2000. It was also one of only four OECD countries to have increased its top income tax rate between 1995 and 2000. The others were Mexico, France and Norway.

“And recent policies which have reduced economic freedom - such as the nationalisation of ACC and the establishment of Kiwibank - have not yet be factored into the economic freedom index”, said Mr LaRocque.

Mr LaRocque said that the Treasury's forecasts of economic growth rates continue to fall well short of those required to return New Zealand's per capita income to the top half of OECD rankings which is the objective of the main political parties. A credible pro-growth strategy must be put in place to achieve that objective.

Copies of Economic Freedom of the World: 2002 Annual Report can be obtained by contacting Suzanne Walters, Director of Communications, The Fraser Institute on +604 714-4582 or at suzannew@fraserinstitute.ca. It is also available on the Fraser Institute’s website at www.fraserinstitute.ca

The complete data set can be downloaded at www.freetheworld.com

Background Facts for New Zealand:

Economic Freedom of the World Annual Report 2002

- New Zealand’s overall economic freedom ranking was 8.2 out of 10 in 2000. This was down from 8.6 in 1995.

- New Zealand ranked fifth in economic freedom in 2000. This is down two places from its third-place ranking in 1995.

- New Zealand’s performance improved in two of the five broad components that make up the index (see Table1):

- Legal structure and security of property rights; and

- Freedom to exchange with foreigners.

- New Zealand’s performance fell in three of the broad components that make up the index (see Table 1):

- Size of government expenditure, taxes and enterprises;

- Access to sound money; and

- Regulation of labour, credit and business.

- New Zealand was one of only five OECD countries whose economic freedom rating fell between 1995 and 2000. The others were Hong Kong, Ireland, Luxembourg and Norway.

- New Zealand was one of only four OECD countries to have increased its top income tax rate between 1995 and 2000. The others were Mexico, France and Norway.

Table 1

Economic Freedom Rating, New Zealand, 1995-2000

Economic Freedom Rating

Component 1995 2000 Change

1995-2000

Size of Government Expenditure, Taxes, and Enterprises 7.5 6.7 -0.8

Legal Structure and Security of Property Rights 9.0 9.1 +0.1

Access to Sound Money 9.6 9.0 -0.6

Freedom to Exchange with Foreigners 8.0 8.3 +0.3

Regulation of Labour, Credit and Business 8.9 7.9 -1.0

Source: Economic Freedom of the World Annual Report 2002

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