Bollard: Could we be better off than we think?

Could we be better off than we think?

17 February 2012
by Alan Bollard and Rochelle Barrow

Executive Summary

Quality macroeconomic statistics help us understand developments in our economy, and especially about the way economic activity and related measures are changing over time. Time series data play a critical role for us in monetary policy. However, macroeconomic statistics also play another important role; they are used by analysts and the media to judge how well New Zealand is doing relative to other countries, and they also play a part in how positive we feel about ourselves.

International comparisons of macroeconomic statistics can be fraught with difficulties. Differing definitions, measurement, currencies and price levels are just some of the factors that can cloud the picture.

Our view is that in New Zealand, some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand’s economic performance. In international league tables New Zealand is in some ways better off than is often thought. Though better, more comparable statistics, do not make any individual New Zealanders any better off in an absolute sense, they do affect the interpretation of New Zealand’s relative economic performance over the decades and they impact individual decisions.

In this paper we discuss some of these statistical issues and provide some rough estimates of their possible impact on GDP per capita – which is the most widely quoted, if not always the most useful, indicator of an economy’s performance. Our list is not exhaustive, but surprisingly all of the treatments covered result in an underestimation of New Zealand’s GDP. Could New Zealand’s GDP be higher relative to other OECD countries? Could it be around 10 percent higher relative to Australia? And what might that mean for thinking about the New Zealand economy and its changing fortunes?

As this paper outlines, Statistics New Zealand, like other countries including Australia, regularly changes its measurements. A number of examples of change Statistics NZ has made and the difference to the resulting statistics is provided in my paper. Statistics New Zealand was given additional funding in last year's budget to undertake a major multi-year change programme. This enables it to accelerate its ability to change statistics to keep up with the evolving requirements.

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