OECD Report Highlights Failed Policies

April 2007

OECD Report Highlights Failed Policies of the Present

“The latest OECD report on the New Zealand economy identifies fundamental problems with the government’s current policy settings and some obvious ways of boosting New Zealand’s flagging economic performance”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

“The report criticises the recent massive increases in government spending (up a full 4 percentage points of GDP in the past two years) and the stress this is placing on inflation, monetary policy and exporting industries. The Business Roundtable has long made the point that New Zealand cannot achieve fast growth with government spending at present levels.

“The OECD also criticises the futile search for alternative monetary instruments, the government’s plans to introduce further tax subsidies, and the design of KiwiSaver and Working for Families.

“Curiously, however, this latest report does not assess New Zealand’s performance against the government’s objective of lifting GDP per person back into the top half of the OECD. Plainly it is not achieving this goal. Recent productivity growth has been weak – just 0.7 percent a year since 2000 for multifactor productivity, less than a third of the 2.3 percent rate recorded in the 1992-2000 period. On this trend New Zealand is moving away from rather than towards the goal that the government once said was its top priority.”

Mr Kerr said the report also lacked a framework based on contemporary insights about economic growth, in particular the importance of sound institutions (such as secure property rights) and economic freedom to encourage entrepreneurship. Currently actual or threatened breaches of property rights in industries such as telecommunications, forestry and fishing can only be having negative effects on investment and growth. The OECD has missed an opportunity to engage with business sector concerns about the growth of regulation, and to explore the merits of a Regulatory Responsibility Act.

“The report does, however, point clearly to some of the ways of improving the economy’s performance”, Mr Kerr said. “It highlights the merits of policies such as lowering and flattening income taxes, aligning the top personal and company tax rates, freeing up employment law (especially rules governing unjustified dismissals), privatisation of central and local government businesses, and raising the eligibility age for state pensions.

“If New Zealand political parties cannot bring themselves to support reforms of this kind, the outlook for New Zealand living standards is mediocre”, Mr Kerr said. “Meanwhile Australia is continuing with moves towards greater economic freedom and our counterpart organisation the Business Council of Australia is targeting a move into the top five countries in the OECD income rankings. Politicians, economic commentators and media should be joining with business organisations in calling for higher aspirations for New Zealand and the changes needed to make them reality”, Mr Kerr said.

ENDS

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