OECD Economic Survey of New Zealand

New Zealand economy performing well, but sustaining high levels of growth and well-being will require further reforms

The New Zealand economy has performed well in recent years, but bottlenecks in housing and urban infrastructure, inequalities in living standards and rising environmental pressures all pose challenges for sustaining robust growth and high levels of well-being over the long term, according to the OECD’s latest Economic Survey of New Zealand.

The Survey says that New Zealand can expect its strong, broad-based expansion to continue in the near term, with economic growth projected at 3.4% in 2015 and 3% in 2016. The budget deficit has been almost eliminated, general government debt is falling as a share of GDP, and monetary policy remains accommodative, pushing inflation back up to the midpoint of the official 1-3% target range.

However, the OECD points out a number of barriers to sustaining strong growth. House prices in Auckland, New Zealand’s economic hub, are high, reducing its attractiveness as a business location and posing financial stability risks. Strong population growth and constrained housing supply have resulted in rapid house price increases, eroding affordability. To address this, New Zealand should reduce the economic costs of environmental and planning regulations and the scope for vested interests to limit development that would otherwise be in the wider public interest.

The burden of housing costs has risen substantially for low-income households. Moves to bring the social housing stock more in line with demographic and geographic demand, as well as to reallocate it to those most in need, will help the hardest hit households. The government’s commitment to expanding the social housing stock is welcome, although the Survey recommends providing additional resources, to achieve a more significant increase.

As the expansion in social housing will not accommodate all low-income households, the Survey recommends increasing the Accommodation Supplement and re-prioritising it to benefit the poorest households, provided that most of the benefits accrue to tenants rather than landlords.

One of the most problematic factors cited for doing business in New Zealand remains an inadequate supply of infrastructure. The Survey recommends that New Zealand facilitate greater urban infrastructure provision by diversifying revenue streams available to local governments. Better management of the demand for and use of urban infrastructure, including congestion charging to reduce urban traffic, should be considered.

New Zealand’s greenhouse gas (GHG) emissions are high relative to GDP, and policy measures are doing little to constrain them. While reducing GHG emissions is challenging, due to the large share coming from agriculture and the already large share of renewable electricity, this is not a reason for doing so little to restrain emissions. The Survey recommends termination of transitional arrangements that are undermining the effectiveness of the NZ Emissions Trading Scheme. It also suggests development of a new strategy to cut agricultural emissions through a combination of pricing, regulation and R&D.

While New Zealand has generally done well in achieving high levels of well-being for most of its people, a significant minority has experienced poor, and in some cases deteriorating outcomes in terms of incomes, housing quality and affordability, health status and education outcomes. Reforms to help this diverse group are rightly focusing more on long-term progress, without ignoring short-term outcomes, and on improving coordination of social policies (such as welfare, housing, health and education) and of both public and non-government providers of social services.

The Survey says that reforms would be more effective through the use of more relevant data. For example, the recent welfare reform would be more effective if the long-term outcomes for beneficiaries going off benefit were more clearly taken into account.

An Overview of the Economic Survey, with the main conclusions, is freely accessible on the OECD’s web site at: http://oecd.org/newzealand/economic-survey-new-zealand.htm. You can also embed the full report.

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