reflections on the new zealand economy · • in the budget 2014 the minister of finance laid out...
TRANSCRIPT
Reflections on the New Zealand Economy
Sir Roderick Deane
Presentation at the University of Auckland 18 April 2015
Sir Roderick Deane KNZM, PhD, BCom (Hons), FCA, FCIS, FNZIM, Hon. LLD, is Chairman and Patron of the IHC Foundation and Chairman of the Pataka Foundation. He is also a Trustee of the Deane Endowment Trust. He was previously Chairman of Fletcher Building, ANZ NZ Bank, Telecom NZ, the NZ Seed Fund, TransPower NZ, PowerDesignBuild, Pacific Road Group in Sydney, Te Papa Tongarewa (the Museum of NZ), City Gallery Wellington Foundation, & a Director of the ANZ Banking Group in Melbourne and Woolworths Ltd in Sydney. At an earlier stage he was CEO of Telecom NZ, Electricity Corporation of NZ, Chairman of the State Services Commission, and Deputy Governor & Chief Economist of the Reserve Bank of NZ. He was also Professor of Economics and Management at Victoria University of Wellington, a Director of TransAlta Corporation in Canada, and Alternate Executive Director of the International Monetary Fund in Washington DC.
Sir Roderick is very appreciative of the assistance he was given in preparing these charts by Susanna McLaren.
Many of the data charts in this presentation were prepared by Susanna McLaren under the auspices of a 2014-15 Summer Scholarship at Victoria University of Wellington. They were updated and adapted from earlier versions used by Sir Roderick Deane in a number of speeches. Other charts were drawn from the NZ Treasury post election briefing document entitled “Holding On and Letting Go” 2014. The text charts were prepared by the author.
The Government’s priorities
• In the Budget 2014 the Minister of Finance laid out four priorities:
• 1. Responsibly managing the Government’s finances
• 2. Building a more productive and competitive economy
• 3. Delivering better public services
• 4. Supporting the rebuild of Christchurch
• Inter alia reduce net core Crown debt to under 20%
• Reduce core Crown expenses to below 30% of GDP
• If tax revenue exceeds forecast, it will be used to reduce debt
• R & D funding of $1.5 b in 2015-16
-4
-3
-2
-1
0
1
2
3
4
5
6
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018per
cen
tage
ch
ange
(%
)
Year
NZ GDP per capita
Annual percentage change (bars)
Source: Statistics NZ; Treasury
Three year moving average (line)
Forecast
A story of fluctuating rates of economic growth
0
5
10
15
20
25
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Ran
k
Year
Large decline in NZ GDP per capita ranking
Source: OECD
GDP per capita below most other OECD Countries
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
100 000Lu
xem
bo
urg
No
rway
Swit
zerl
and
Un
ite
d S
tate
s
Au
stra
lia
Au
stri
a
Ire
lan
d
Net
her
lan
ds
Swed
en
De
nm
ark
Ger
man
y
Can
ada
Be
lgiu
m
Fin
lan
d
Ice
lan
d
OEC
D
Fran
ce
Un
ite
d K
ingd
om
Jap
an
Ital
y
New
Zea
lan
d
Spai
n
Ko
rea
Isra
el
Slo
ven
ia
Cze
ch R
epu
blic
Slo
vak
Rep
ub
lic
Po
rtu
gal
Gre
ece
Esto
nia
Po
lan
d
Hu
nga
ry
Ch
ile
Me
xico
Ch
ina
GD
P p
er c
apit
a ($
US,
cu
rren
t p
rice
s)
Country
NZ is No. 21 in OECD per capita rank 2012
Source: OECD
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
70,000.00
80,000.001
98
0
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
GSP
per
cap
ita
($U
S, c
urr
en
t p
rice
s)
Year
New Zealand
Australia
Source: IMF
NZ has fallen a long way behind Australia in GDP per capita
Western Australia$55511
Northern Territory$58094
South Australia$44768
Queensland$45769
Tasmania$40411
New Zealand$35225
New South Wales$48657
Victoria$42916
Australian Capital Territory$88418
NZ gross disposable income per capita (NZD) is lower than every state in Australia
Source: Statistics NZ; Australian Bureau of Statistics
0
20000
40000
60000
80000
100000
120000
140000
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
GD
P p
er c
apit
a (U
SD)
Year
Growth rate needed to catch up to Australia
Source: IMF
Australia's average growth has been approximately 6.01 since 1980. If this rate continues then New Zealand growth will need to be approximately 10.2% in order to catch up to Australia.
5.00
6.00
7.00
8.00
9.00
10.00
20122008200420001980
Ind
ex
Year
NZ ranked No. 3 in the world based on the economic freedom index in 2012
Source: Frazer Institute 2014 Report on 152 countries, maximum score 10.00
7.00
7.20
7.40
7.60
7.80
8.00
8.20
8.40
8.60
8.80
76
77
78
79
80
81
82
83
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fraz
er
Inst
itu
te In
de
x
Her
itag
e Fo
un
dat
ion
In
de
x
Year
NZ also ranked No. 3 on Heritage Foundation economic freedom index
Frazer Institute Economic Freedom Index (RHS)
Heritage Foundation Economic Freedom Index (LHS)
Source: Frazer Institute; The Heritage Foundation (maximum score for latter is 100)
0.850
0.860
0.870
0.880
0.890
0.900
0.910
0.920
0.930
0.940
0.950
Ind
ex
Country
NZ No. 7 on the Human Development Index 2013
Source: United Nations
76
78
80
82
84
86
88
90
Ind
ex
Country
NZ rates highly on the Social Progress Index 2014
Source: Social Progress Imperative
NZ No. 12 in happiness (or least misery) on the Bloomberg index
But NZ is historically a poor growth performer
• In terms of GDP per head:
• In the 1950’s NZ was in the top 5 countries
• In the 1970’s we were in the top 10
• Now we are No. 21 in the OECD
• IMF ranks us no. 32 across all countries (GDP PPP basis)
• We are a long way behind Australia
• And we are below Singapore, Hong Kong, Taiwan, Sth Korea
• Many developing countries are growing much faster than us
• Nonetheless we rank well on economic freedom
• And on human development, social progress and happiness
Source: Statistics NZ; ANZ
-2
0
2
4
6
8
10
198
0Q1
198
1Q1
198
2Q1
198
3Q1
198
4Q1
198
5Q1
198
6Q1
198
7Q1
198
8Q1
198
9Q1
199
0Q1
199
1Q1
199
2Q1
199
3Q1
199
4Q1
199
5Q1
199
6Q1
199
7Q1
199
8Q1
199
9Q1
200
0Q1
2001
Q1
200
2Q1
200
3Q1
2004
Q1
200
5Q1
200
6Q1
200
7Q1
200
8Q1
200
9Q1
201
0Q1
201
1Q1
201
2Q1
201
3Q1
201
4Q1
2015
Q1
(f)
2016
Q1
(f)
2017
Q1
(f)
Qu
arte
rly
% c
han
ge
Year
Like other countries, inflation has been tamed CPI Quarterly Percentage Change
Forecast
0.0
2.0
4.0
6.0
8.0
10.0
12.0
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
(f)
20
16
(f)
Um
ep
loym
en
t ra
te (
%)
Year
The unemployment rate is better than many other countries but higher than it should be
Source: RBNZ; ANZ
Forecast
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Jan86
Jan87
Jan88
Jan89
Jan90
Jan91
Jan92
Jan93
Jan94
Jan95
Jan96
Jan97
Jan98
Jan99
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
Ind
ex
Year
NZ has to live with fluctuating world prices World Price Index
Source: ANZ
Non-tradables have risen much faster than tradables
600
700
800
900
1000
1100
1200
1300
1400
1500
1970 1980 1990 2000 2010
Ind
ex
Year
NZ has benefitted from rising terms of trade for the past decade (the ratio of export to
import prices) Forecast
Source: Statistics NZ; ANZ
The terms of trade and policy settings matter greatly
• Post reform monetary policy a great success story
• Fiscal policy also greatly improved in 1990’s and early 2000’s
• Inflation was thus brought under control
• Unemployment rate lower than many other countries
• Terms of trade increased strongly 2002 to 2014
• This greatly helped economic and employment growth
• But growth was more in non-tradables than tradables
• Regulation became pervasive again as 2000’s progressed
• And fiscal policy deteriorated, only recovering more recently
• So this impacted economic growth & productivity growth
NZ works harder but produces less than OECD average
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Ind
ex
Year
Multi-factor productivity growth: the reforms mattered
Pre-reform Period
Post-reform Period
Reform Retreat
Source: Statistics NZ
-4
-3
-2
-1
0
1
2
3
4
5
6
% c
han
ge
Year
Slowing growth rate for multi-factor productivity
Annual percentage change (bars)
Source: Statistics NZ
Three year moving average (line)
Agriculture, Forestry and Fishing
Mining
ManufacturingElectricity, Gas, Water and
Waste ServicesConstruction
Wholesale Trade
Retail Trade
Accommodation and Food Services
Transport, Postal and Warehousing
Information Media and Telecommunication
Financial and Insurance Services
Primary industries
Service industries Information and communication technology
intensive industries
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
-2 -1 0 1 2 3 4 5 6
Ave
rage
mu
ltif
acto
r p
rod
uct
ivit
y gr
ow
th (
%)
19
78
-20
12
Average labour productivity growth (%) 1978-2012
Labour and multifactor productivity by Industry
Source: Statistics NZ
Then and Now – Treasury’s View
Productivity growth is the key
• Productivity growth is one of the most important domestic contributors to economic growth
• The major economic reforms took place 1984 to 1991
• NZ recorded its strongest productivity growth in the post reform period 1992 to 2000
• In the 2000’s we benefitted from strong terms of trade growth
• But productivity growth slowed as regulation re-emerged
• Example: telecommunications heavily re-regulated yet had recorded fastest productivity growth
• And the government sector generally got larger again
• So once again productivity growth is slow
• MBIE target now 2 % pa, up from 1 % pa, not a great target
-20
-15
-10
-5
0
5
10
15
20
25
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
% c
han
ge
Year
NZ Investment Growth
Annual percentage change (bars)
Three year moving average (line)
Source: OECD
Source: Statistics NZ
-20
-10
0
10
20
30
40
50
0
10000
20000
30000
40000
50000
60000
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
% c
han
ge
Val
ue
($
m)
Year
Fluctuating NZ export values
Annual percentage change (RHS)
Annual Value (LHS)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Milkpowder,
butter, andcheese
Meat andedible offal
Logs, wood,and wood
articles
Crude oil Machinery Beverages Fruits andnuts
Fish Aluminoids,starches and
glues
Electricalmachinery
andequipment
Cerealpreparations
NZ$
Mill
ion
s
Commodity
Dairy dominates top 10 NZ export commodities 2014
Source: NZ Trade and Enterprise
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1990 2000 2010
Val
ue
($N
Z Th
ou
san
ds)
Year
Principal export values for NZ over time
Milk Powder, Butter and Cheese
Machinery and Mechanical Appliances
Logs, Wood and Wood Articles
Total Meat and Edible Offal
Source: Statistics NZ
Distance to markets by country: NZ small & distant
NZ exports low as % GDP v other small countries
Projected huge changes in the world economy
-18000
-16000
-14000
-12000
-10000
-8000
-6000
-4000
-2000
0
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Cu
rre
nt
Acc
ou
nt
Bal
ance
($
NZ
Mill
ion
s)
Year
Overseas current account deficits are endemic for New Zealand
Source: Statistics NZ; Treasury
Forecast
-10
-5
0
5
10
15
Swit
zerl
and
No
rway
Net
her
lan
ds
Ger
man
y
Den
mar
k
Swed
en
Irel
and
Slo
ven
ia
Luxe
mb
ou
rg
Ko
rea
Icel
and
Hu
nga
ry
Au
stri
a
Isra
el
Slo
vak
Rep
ub
lic
Gre
ece
Ital
y
Spai
n
Jap
an
Po
rtu
gal
Fin
lan
d
Esto
nia
Fran
ce
Cze
ch R
epu
blic
Po
lan
d
Be
lgiu
m
Mex
ico
Un
ited
Sta
tes
Au
stra
lia
New
Zea
lan
d
Ch
ile
Un
ited
Kin
gdo
m
Turk
ey
Cu
rre
nt
Acc
ou
nt
Bal
ance
(%
GD
P)
Country
NZ ranks poorly with large overseas current account deficits v OECD nations 2013
Source: OECD
Source: RBNZ
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
0
50,000
100,000
150,000
200,000
250,000
300,000
Mar
. 19
93
Sep
. 19
93
Mar
. 19
94
Sep
. 19
94
Mar
. 19
95
Sep
. 19
95
Mar
. 19
96
Sep
. 19
96
Mar
. 19
97
Mar
. 19
99
Jun
. 20
00
De
c. 2
00
0
Jun
. 20
01
De
c. 2
00
1
Jun
. 20
02
De
c. 2
00
2
Jun
. 20
03
De
c. 2
00
3
Jun
. 20
04
De
c. 2
00
4
Jun
. 20
05
De
c. 2
00
5
Jun
. 20
06
De
c. 2
00
6
Jun
. 20
07
De
c. 2
00
7
Jun
. 20
08
De
c. 2
00
8
Jun
. 20
09
De
c. 2
00
9
Jun
. 20
10
De
c. 2
01
0
Jun
. 20
11
De
c. 2
01
1
Jun
. 20
12
De
c. 2
01
2
% o
f G
DP
$N
Z M
Illio
n
Year
NZ has a large gross overseas debt
Total debt as % of GDP (RHS)
Total debt value (LHS)
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042
% o
f G
DP
Year
NZ has adverse external current account deficit projections
Australia
New Zealand
United Kingdom
United States
Source: The World Bank
Overseas debt & deficits are ongoing risk factors
• Fluctuations in export receipts are a challenge
• Dairy and agricultural exports dominate
• Talk of diversification is just that – talk
• NZ is small and distant from markets
• Exports as a % of GDP very low compared to other countries
• NZ’s external deficits are large and very persistent over time
• Thus our overseas debt ratio is one of the highest in the OECD
• We rank too close for comfort to the basket cases
• Projections are for the deficit to get worse
• No one talks much about the risks around this
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
-16000
-11000
-6000
-1000
4000
9000
% o
f G
DP
$N
Z M
illio
n
Year
Total Crown operating balance improving substantially in NZ
Source: Treasury
As % of GDP (RHS)
Total crown operating balance (LHS)
Forecast
-15.0
-10.0
-5.0
0.0
5.0
10.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% o
f n
om
inal
GD
P
Year
General Government financial balance also improving in NZ
New Zealand
Australia
United Kingdom
United States
Total OECD
Source: OECD
Source: IMF
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
90
100
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
Gro
ss d
eb
t (%
of
GD
P)
Gro
ss d
eb
t ($
NZ
bill
ion
s)
Year
Gross central government debt should reduce
Gross Government debt ($b) (LHS)
Gross Central government debt as % of GDP(RHS)
Forecast
0
20
40
60
80
100
120
140
160
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% o
f G
DP
Year
Total government debt ratios across countries
Australia
Greece
Ireland
Italy
New Zealand
Portugal
Spain
Source: OECD
NZ net core Crown debt forecast to improve
Overseas debt v government debt by country
Source: IMF
0
10
20
30
40
50
60
exp
end
itu
re (
% o
f G
DP
)
Year
NZ Government total expenditure as % of GDP reducing again
Forecast
Source: Statistics NZ
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
nu
mb
er o
f em
plo
yees
Year
Public sector employees on the rise in NZ
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
nu
mb
er o
f e
mp
loye
es
Year
Core public servant numbers still too high
Source: State Service Commission
Source: Statistics NZ
0
5
10
15
20
25
30
35
40
1989 1992 1995 1998 2001 2004 2007 2010 2013
Ave
rage
ho
url
y w
age
Year
Public sector hourly earnings much higher than the private sector
Private Sector
Public Sector
Source: Treasury
0
5000
10000
15000
20000
25000
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Mill
ion
s ($
)
Year
Core Crown expenses dominated by social services, health & education
Social security and welfare, GSF
Health
Education
Core Government Services
Defence
Transport and communications
0
5
10
15
20
25
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Tax
rate
(%
)
Year
Average tax on personal income: NZ v OECD
Australia
New Zealand
OECD - Average
Source: OECD
0
1
2
3
4
5
6
7
8
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Tax
rate
(%
)
Year
Average tax on corporate income: NZ v Australia v OECD
Australia
New Zealand
OECD - Average
Source: OECD
0
10
20
30
40
50
60
70
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Tax
rate
Year
NZ tax rates over time
Source: OECD, IRD
Corporate
Highest marginal Income tax
Fiscal policy and government spending
• Fiscal deficits were a huge problem pre the reform period
• Major improvements came through 1990’s to mid 2000’s
• That is, post 1991 reforms and pre the GFC 2007-08
• The GFC and Christchurch quakes were major challenges
• Core public servant staff rose 2000-09 but now moderated
• Average public sector pay much higher than the private sector
• Nonetheless government expenditure to GDP ratio declining
• We are now again approaching fiscal balance
• And the public debt ratio is low by international standards
• Overall then, fiscal policy is in reasonable shape
Reforms that really or nearly deliver
• Monetary policy – low inflation over a long period
• Labour market flexibility – employment flexibility
• Exchange rate policy – flexibility with minimal intervention
• Fiscal policy – low Govt expenditure and Govt debt ratios
• Full and more recently partial privatizations
• Roading infrastructure rebuild
• Some health and welfare areas
• Some housing proposals – but slow and painful
• Tax rates – could do better but some reductions
• And no capital gains tax
Source: Statistics NZ
0
1
2
3
4
5
6
7
8
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% c
han
ge
Year
Growth in hourly earnings: private v public
Public SectorPrivate Sector
Source: Treasury
Government expenditure 2014
Social security and welfareand superannuation
Health
Education
Core Government Services
Defence
Transport andcommunications
Other Expenses
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Term
deb
t ($
mil
lion
s)
Exp
end
itu
re (
$m
illio
ns)
Year
Rapid increases in local authority expenditure and debt
Debt (RHS)
Source: Statistics NZ
Expenditure (LHS)
0
20
40
60
80
100
120
140
160%
GD
P
Year
NZ has very low share market capitalization
Australia
New Zealand
OECD members
Source: The World Bank
0
50
100
150
200
250
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
% o
f G
DP
Year
And a low proportion of stocks traded
Australia
New Zealand
OECD members
Source: The World Bank
Source: RBNZ
-2
-1
0
1
2
3
4
5
6
7
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
% c
han
ge
Year
We enjoy consuming: annual change in private consumption in NZ
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Ho
ush
old
sav
ing
rate
(%
)
savi
ngs
($
m)
Year
NZ has low household saving
Source: RBNZ
Household saving rate (RHS)
Household saving value (LHS)
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
% c
han
ge
Ind
ex
Year
The challenge of ever rising house prices
House Prices (LHS)
Annual percentage change (RHS)
Source: RBNZ
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
nu
mb
er
of
pe
op
le
Year
Unemployment & sickness benefit trends
Unemployment benefit
Sickness benefit
Source: Ministry of Social Development
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Inve
stm
ent
(% o
f G
DP
)
Year
Major increases in total inland transport infrastructure investment in NZ
Source: OECD
Declining benefit-cost ratios for NZ highways
Impacts of changes to regulations on business
Reforms under query – more work needed
• Regulation – 200 regimes; 10,000 to 14,000 regulatory staff
• 90 % of businesses consider regulatory regimes contradictory
• 80 % of businesses say regulation forces higher costs on them
• 66 % of public sector CEO’s say legislation is outdated or unfit
• RMA – too time consuming, too costly, too wasteful
• Housing – land inside Auckland urban boundary 9% higher cost than land outside boundary
• 4000 firms build 1 house pa, 5 firms build more than 100
• Financial Market Act “simplified” to 597 clauses
• Prospectuses regulated so overnight placements the norm
• Takeovers regulated so off-market deals proliferate
Reforms under query continued
• Capital markets – new legislation, poor market size remains
• Commerce Commission – unnecessarily huge value impacts
• Tax policy – was world class, now middle of the road
• Excessive and widespread “industry assistance”
• Since 2009, corporate welfare cost $1 to 1.4 billion
• If abolished, could reduce company tax rate from 28 to 22.5%
• Social policy – cf. why have disability payments risen so fast ?
• Education – diversified remuneration but much to improve
• Social housing – partial sell off planned, much to be done
• Numbers of public servants – still higher than 1993-2006
• Christchurch rebuild – controversy over centralized approach
Reforms under query continued
• Local authorities – the uncontrolled sector, rates forever rise
• Auckland reforms – were they really meant to create such large increases in debt and rates ?
• Telecommunications – combined profits of all companies now less than single smallest major bank, ASB.
• And government now spending nearly $2 billion on UFB network. No benefit/cost analysis. 10% take up rate so far.
• Commerce Commission investigations imposing huge unjustified costs e.g. Countdown, Spark & Chorus
• Takes typically longer to get RMA approval for major projects than it takes to construct them
72
Business adaptability has been severely eroded
Regulatory Dilemmas
• Regulation begets regulation• Regulation overrides commercial solutions• Regulation and changes induce uncertainty• It imposes high transactions costs• Diverts energy into rent seeking behaviour• And away from focussing on winning in the market• Regulation always has unintended consequences• It concentrates on past issues rather than future growth• Success ironically attracts regulation• Regulation reduces flexibility• It ultimately impedes the competition it pretends to promote• Reduces attractiveness of New Zealand for foreign direct
investment
73
Some solutions
• More secure property rights
• Greater certainty in the application of the law
• Enforceability of contracts
• Reduce judicial activism
• Less intrusive regulation and fewer changes in the rules
• Insist on cost/benefit analysis for new & old regulations
• Ex post reviews of regulations
• Open and competitive markets
• Smaller government, reduce public service bureaucracy
• Move benefit system to needs based rather than universality
• Tighten up further on government expenditure
• Abolish corporate welfare
• Develop clearer price signals in public sector
• Lower taxes
• Ongoing stable monetary & fiscal policies