Economic growth and New Zealand

May 21, 2002

Free Market Foundation

If New Zealanders want better housing, health care and education, and to retain highly skilled workers and protect the environment, the country needs economic growth, says Reserve Bank Governor Don Brash.

Extensive economic reforms have reduced the net public sector debt from over 50 percent of Gross Domestic Product (GDP) in the early 1990s to under 20 percent currently. Reform also improved the quality of service in areas such as banking, retailing, telecommunications, postal services, health care and air travel.

However, over the last three decades, growth in per capita GDP averaged 0.8 percent, compared with the 2.0 percent average for developed countries.

As a result, New Zealand’s per capita GDP (on a purchasing power parity basis) slid from 9th among developed countries in 1970 to 20th in 1999 way behind Singapore, for instance.

In 1990, Australia’s GDP per capita was only some 5 percent above New Zealand’s; by 1999, it was nearly 40 percent above New Zealand’s.

Among the possibilities for increased economic growth, Brash suggests:

Change incentives in the welfare system and the public pension system (Superannuation), to reduce transfer payments, which now total 11 percent of GDP per year.

Increase productivity, which has not grown at a rate much above one percent in recent years, by reducing the corporate tax burden.

Increase human capital by improving the quality of the education system which has performed so poorly that nearly half the workforce in New Zealand cannot read very well.

Finally, New Zealand might consider free trade arrangements and closer economic integration with large market countries, such as the United States.

Source: Don Brash (Governor of the Reserve Bank of New Zealand), Faster Growth? If New Zealanders Want It, Policy, Spring 2001, Centre for Independent Studies, P.O. Box 92, St Leonards, NSW, Australia 1590, (+61) (2) 9438 4377.

For text http://www.cis.org.au/policy/Spring01/PolicySpring01_3.html
For more on New Zealand http://www.ncpa.org/iss/int

FMF Policy Bulletin\14 May 2002