Lifting the long-term performance of the economy
The Government's focus is on accelerating the recovery and ensuring the economy expands in a sustainable way. This requires addressing significant problems around the rate and composition of economic growth.
New Zealand's trend growth rate has gradually declined over recent years. The International Monetary Fund (IMF) recently estimated that New Zealand's potential growth rate had halved over the past decade, falling to around 1.6% per year in 2009. By contrast, the IMF assessment was that Australia's rate had remained almost unchanged.
New Zealand entered recession before the Lehman collapse in late 2008 that sparked the global recession, and the economy had grown by less than 1% a year in the three years before that. This was less than half our trading partner average, and less than one-third of Australia's growth rate. The economy is little bigger now than it was in 2005.
From mid-decade on, this growth was fuelled by a mix of rising household debt and ballooning government expenditure, which grew 50% in the five years to 2009. Through this period New Zealand became less competitive and more exposed to external shocks. Our net external debt position grew to $168 billion, over 90% of GDP.
This Budget addresses the root causes of these problems. The Government is committed to the sustained improvements that will tilt our economy away from debt and consumption toward savings, investment and exports. The six key drivers of stronger economic performance that we have identified - a better regulatory environment for business; skills and education; quality infrastructure; science, innovation and trade; improved public sector performance; and tax - form a programme to address these imbalances.
