The OECD has written another report about New Zealand. I am not sure that it is very useful but two people seem to think that it thoroughly vindicates their understanding of economics and our current situation. Are we relaxing in luxury with a safe future or is our situation dire.
Dr. Cullen and Roger Kerr give us their take on the report. Firstly Dr. Cullen:
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The OECD's 2007 Economic Survey of New Zealand highlights the critical importance of the government's strategy to lift savings and investment, Finance Minister Michael Cullen said today.
"It is reassuring that the OECD considers New Zealand to be 'one of the most flexible and resilient economies' in the world. Our structural policies are judged overwhelmingly consistent with international best practice," Dr Cullen said.
The Survey assesses that the key challenges facing the country are raising incomes and meeting the fiscal pressures that will arise over the long-term from the ageing of the population. These are objectives we share. One area of clear concern highlighted by the OECD is the issue of households' very low savings performance.
"In this regard, the design of New Zealand Superannuation is applauded and the new savings policy enshrined by KiwiSaver is described as a 'welcome development which should contribute to raising private savings'.
"However, OECD suggestions to pare back national superannuation are not on this government's agenda. The New Zealand Superannuation Fund, our fiscal track record over the last eight years and the government's commitment to low debt levels going forward are designed to better prepare us for the long term challenges of an ageing population. Our success in this regard has been recognised overseas.
"The OECD has highlighted challenges around the high current account deficit, persistent inflation and low productivity.
"We have a sound strategy to shift the mix of growth away from consumption to higher value exporting. Measures that will be announced in Budget 2007 related to the Business Tax Review that will encourage innovation and improve competitiveness are all crucial parts of our integrated approach to better position New Zealand for the long haul," Dr Cullen said.
"This government has run surpluses in recent years to help take the pressure off inflation.
"There is a clear warning in the OECD report directed at those parties that went into the last election promoting large, indiscriminate income tax cuts that would have mainly benefited those already on higher incomes.
"The OECD report is categorical: That sort of reckless additional fiscal stimulus, had it been implemented, would have significantly delayed the necessary rebalancing within our economy. National's policies threaten to exacerbate the imbalances within the economy by putting significant upward pressure on the Kiwi dollar and interest rates. National's policies would worsen our savings performance, instead of contributing to fixing them," Dr Cullen said.
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And now for Roger Kerr:
OECD Report Highlights Failed Policies of the Present
“The latest OECD report on the New Zealand economy identifies fundamental problems with the government’s current policy settings and some obvious ways of boosting New Zealand’s flagging economic performance”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.
“The report criticises the recent massive increases in government spending (up a full 4 percentage points of GDP in the past two years) and the stress this is placing on inflation, monetary policy and exporting industries. The Business Roundtable has long made the point that New Zealand cannot achieve fast growth with government spending at present levels.
“The OECD also criticises the futile search for alternative monetary instruments, the government’s plans to introduce further tax subsidies, and the design of KiwiSaver and Working for Families.
“Curiously, however, this latest report does not assess New Zealand’s performance against the government’s objective of lifting GDP per person back into the top half of the OECD. Plainly it is not achieving this goal. Recent productivity growth has been weak – just 0.7 percent a year since 2000 for multifactor productivity, less than a third of the 2.3 percent rate recorded in the 1992-2000 period. On this trend New Zealand is moving away from rather than towards the goal that the government once said was its top priority.”
Mr Kerr said the report also lacked a framework based on contemporary insights about economic growth, in particular the importance of sound institutions (such as secure property rights) and economic freedom to encourage entrepreneurship. Currently actual or threatened breaches of property rights in industries such as telecommunications, forestry and fishing can only be having negative effects on investment and growth. The OECD has missed an opportunity to engage with business sector concerns about the growth of regulation, and to explore the merits of a Regulatory Responsibility Act.
“The report does, however, point clearly to some of the ways of improving the economy’s performance”, Mr Kerr said. “It highlights the merits of policies such as lowering and flattening income taxes, aligning the top personal and company tax rates, freeing up employment law (especially rules governing unjustified dismissals), privatisation of central and local government businesses, and raising the eligibility age for state pensions.
“If New Zealand political parties cannot bring themselves to support reforms of this kind, the outlook for New Zealand living standards is mediocre”, Mr Kerr said. “Meanwhile Australia is continuing with moves towards greater economic freedom and our counterpart organisation the Business Council of Australia is targeting a move into the top five countries in the OECD income rankings. Politicians, economic commentators and media should be joining with business organisations in calling for higher aspirations for New Zealand and the changes needed to make them reality”, Mr Kerr said.
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Did they read the same report?
© Copyright; Foundation for Economic Growth and various authors. Individual authors retain their own copyright.
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