MEDIA RELEASE
Treasury Economic Briefing: Comment
The executive director of the New Zealand Business Roundtable, Roger Kerr, said today that the Treasury's Briefing to
the Incoming Government 2002 contained useful data on New Zealand's economic performance but that its ideas on ways of
achieving the government's goals for economic growth were unconvincing and at variance with orthodox OECD thinking.
The Briefing unequivocally states that "New Zealand's growth performance over the 1990s has been significantly better
than in the previous two decades." It points out that "over the 1990s and more recently, employment growth has been the
best in the OECD, and current unemployment levels are below the OECD average", reflecting the impact of labour market
reform in the late 1980s and early 1990s. Inflation outcomes and the government's financial position have also greatly
improved, as has the current account position, although external liabilities remain high.
The upshot, according to the Briefing, is that "since 1992, growth in New Zealand's real per capita income has been
closer to that of other developed countries."
"It is clear from the Briefing that talk of 'failed policies of the past' is nonsense", Mr Kerr said. "It is time to
move on and examine why New Zealand has done less well in recent years and how to achieve faster growth in the future."
The Briefing rightly says this task is urgent: "we need to find ways to get more ambitious about our relative growth
performance, and quickly."
Curiously, however, it contains no comment on the policy slippage of recent years and its inconclusive speculation about
the implications of the New Zealand economy's size and location overlooks the clear evidence from modern economic
research that the institutional and policy environment is the dominant factor in explaining economic performance. No
reference is made, for example, to New Zealand's fall in the rankings of economic freedom or the costs of a lack of
stability and predictability in policy directions.
Even more extraordinary is the absence of any significant comment on crucial areas that the OECD, representing the
mainstream views of its member governments, has made on New Zealand in its recent reports.
The OECD has drawn attention to problems with government spending, the merits of the McLeod Tax Review's recommendations
for a lower and flatter tax structure, the dubious value of industry policies, the gains from phasing out tariffs, the
backward moves on ACC and employment law, the benefits of privatisation rather than nationalisation of industries,
regulations that are stifling growth such as the Resource Management Act, the case for more choice and competition in
health and education, and the need to address welfare dependency and superannuation policies.
None of this mainstream analysis, which featured in Treasury advice in the past, is emphasised in the latest Briefing.
On fiscal policy, there is some discussion of poor quality spending but not of the overall tax burden, and no reference
at all to the key McLeod Review recommendations. The commentary on regulation shows no serious recognition of business
sector concerns. For example, the statement is made that New Zealand's "labour market regulation and institutions are
generally sound." One wonders how many Treasury officers have experienced the problems of small business owners dealing
with opportunistic personal grievance claims. Similarly, while compliance costs are mentioned there is no discussion of
the larger economic costs of many regulations.
Instead of examining such fundamental obstacles to growth, the Briefing focuses on peripheral matters which cannot
possibly have a significant bearing on the country's growth rate. Although it warns that the economic costs of ratifying
the Kyoto Protocol "are potentially significant", it fails to offer clear-cut advice on actions that should be avoided
if New Zealand is to achieve faster growth.
"Overall, the most worrying feature of the Briefing is that Treasury has failed to highlight the fact that New Zealand
has no likelihood of reaching growth rates of the order of 4 percent or more a year under existing policies, or to
explain clearly to the public the major changes that would be necessary to achieve that goal", Mr Kerr concluded.
"New Zealand cannot hope to match the performance of more successful OECD countries, such as Australia, Ireland and the
United States, without significant policy adjustments in the direction of more mainstream, market-oriented OECD
approaches. Stronger policy leadership is needed and other sources of advice should be tapped for ideas on how to
implement proven pro-growth strategies with greater urgency."
ENDS