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Answering the
$64,000 question
Context
1
11/30/2009
3700
2300
69000
GDP per capita relative to OECD GDP per capita
capita, AU$ 2008
73
72
53500
51900
150 NZ US OECD Australia 150
51200
50700
46200
43000
38400
140 140
130 130
120 120
110 110
AUSTRALIA
Northern Territory
Tasmania
South Australia
Queensland
Victoria
Western Australia
ACT
100 100
90 90
80 80
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006
10000 $25,000
5000 $20,000
Korea New Zealand Slovenia
0 $15,000
1980 1984 1988 1992 1996 2000 2004 2008 1990 2009 2025
New Zealand Baseline GDP/capita
Source: OECD and Statistics NZ Australian GDP/capita New Zealand 'Catch-Up’ GDP/capita
2
11/30/2009
1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
-10000 -20
Gisborne
0 -10
0 Masterton
Nelson
10000
10
20000
20
30000 30 Timaru
40000 40
Number Net outflow to Australia % Invercargill
% gap between NZ and Australia GDP per capita (right axis)
Causes
• Myths:
y Size;; minerals;; investment in housing;
g; past
p
reforms; New Zealand’s monetary policy
• Primary cause: Poor policy choices by governments
over long periods (notwithstanding intervals of
outstanding reform)
• E.g. over the last decade, New Zealand has:
• Increased EMTRs
• Increased subsidies and concessions
• Increased state ownership in business
• Imposed heavier regulation on the labour market
3
11/30/2009
4
11/30/2009
Government as spender
• Government spending was reduced relative to GDP in the late 1980s and 1990s
• Spending has accelerated over the last 6years, crowding out private sector
activity and the opportunity to reduce taxes
• Core Crown expenses are now 36% of GDP, up from 29% in 2004/05
• Recommendation: Reduce Core Crown expenditure to 2004/05 levels as a
share of GDP within three years, then cap in real terms per capita
5
11/30/2009
Government as tax-collector
35
30
Source: OECD
25 Australia New Zealand
20
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
4.0
3.0
2.0
1.0
Australia New Zealand United Kingdom
0.0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
6
11/30/2009
Government as law-maker/regulator
Estimate:
st ate New Zealand is middle-of-the-pack
OECD Prod
Product
ct Market Reg
Regulation
lation Inde
Index, 2008
1/
Up to 3 of the income gap 2.50
could be closed if NZ adopted
OECD best practice
2.00
Recommendations:
• Consistent application of the 1.50
Norway
Turkey
Spain
Japan
Finland
Australia
Switzerland
France
Korea
Luxembourg
Mexico
Poland
New Zealand
Denmark
Hungary
Italy
Czech Republic
Canada
Iceland
Sweden
Germany
Austria
Portugal
United States
Netherlands
United Kingdom
Belgium
• Establish a New Zealand
Source: OECD
Productivity Commission
Way forward