Operating Intentions

What are we seeking to achieve?

On economic performance we are seeking to achieve higher GDP per capita, higher productivity and higher living standards.

International connections – broadly, international connections are about flows of people, capital, ideas and trade into and out of New Zealand. These flows allow New Zealand to acquire scarce skills, raw materials, intermediate goods and services, leading edge technologies, new production techniques, management capability, profitable markets, distribution networks, and many other factors that affect productivity. We are seeking to achieve a sustained increase in economic performance resulting from international connections to and from New Zealand, progressively increasing the net benefit to New Zealand from these activities (and hence raising living standards for New Zealanders).

Skills – a number of factors relating to skills and social mobility are particularly critical for achieving an increase in the economic contribution of New Zealand's collective skills base over the medium-term. We are seeking to achieve a substantive increase in the economic contribution of New Zealand's collective skills base, and the contribution of skills to improving living standards.

Natural resource management – we are seeking economic sustainability for New Zealand in a world of limits. We want to see the New Zealand economy using natural resources sustainably and productively.

Long-term fiscal sustainability – we are seeking to influence decision-makers to take action to meet the long-term fiscal challenges. A sustainable long-term fiscal position aids economic growth through keeping the cost of raising government debt low and stable, and providing a reasonable degree of certainty to individuals as to the future path of government spending and taxes. Details are discussed under Outcome 2, A stable and sustainable macroeconomic environment.

What will we do to achieve this outcome?

How will we demonstrate success in achieving this?

To make the biggest difference to this outcome over the next two to five years the Treasury will continue to provide advice on the wide range of policies that affect productivity; and intensify and lift our level of engagement in the four SRAs.

Issues that impact directly on the five drivers of productivity include:

• financial markets, investment and savings
• competition and regulatory frameworks
• sustainable use of natural resources
• skills, including social mobility
• international connections; including exporting
• infrastructure – particularly Auckland transport
• innovation
• labour market performance
• tax
• measuring and monitoring economic performance.

In addition, and related to this, we will contribute to the settlement of Treaty of Waitangi claims.

Our impact will be measured by monitoring trends in the following areas:

• Productivity measures (labour productivity, capital productivity and multifactor productivity).
• GDP and GNP per capita.

To progress our strategy for this outcome overall we will continue to work with the Inland Revenue Department Ministry of Economic Development (MED) and other agencies to achieve the effective implementation of government policies aimed at lifting the savings performance of New Zealanders. We will also be working with MED and others to advise the Government on policy changes to improve the development and performance of financial markets and to implement any changes agreed by government.

In particular, we are seeking to lift our level of engagement through the SRAs as follows:

International connections – there is potential to increase the economic benefit to New Zealand from international connections. Most of these connections occur in the private sector, and the impacts we seek depend on many agents and drivers. Government has a pivotal role in establishing an appropriate environment through its institutions, regulatory settings, international engagements, and overall strategy to manage New Zealand's place in a dynamic global context. This moves beyond the openness of our economy.

As a central agency and economic and fiscal advisor, the Treasury is looking for a step-change in its performance as a strategic advisor to government on international connections. Working with agencies such as Ministry of Economic Development (MED), the Ministry of Foreign Affairs and Trade (MFAT), and New Zealand Trade and Enterprise (NZTE), the Treasury seeks to play a more effective leadership role in considering the implications of globalisation for New Zealand's economy, framing the issues and addressing trade-offs and priorities, focusing on leveraging off the opportunities and mitigating the risks that New Zealand will face over the medium and long-term. This will involve a shift in focus for much of the organisation – we aim to embed an international connections focus throughout all our advice where relevant. For example, we expect this SRA to influence policy development in areas such as skills, regulation, tax, trade, infrastructure and natural resource management.

To achieve a well-connected approach we will work with MED, NZTE, MFAT and other agencies as appropriate.

Over the long run we will be looking for increased trend growth attributable to the direct and indirect effects of international connectedness. While disaggregating these effects is difficult, we will monitor progress on trends in areas such as:

• exports as a proportion of GDP
• skills stock and flows
• capital stock and flows
• ideas and innovation trends
• productivity measures.

The Treasury's role in helping government achieve long-term goals is as a strategic advisor. In the shorter term, we will measure our success through the quality of our advice. In particular, we know we are succeeding when we see the following:

• We are clearly articulating the implications of globalisation for New Zealand, including specifying areas where New Zealand can enhance the economic benefits from international connections. (This will set the scene for much of our work.)
• We are providing targeted, in-depth advice on specified institutional/policy areas – in the first instance, this will be skills/immigration.
• We are supporting the international relationships we most need to foster by engaging ourselves and better supporting Ministers to do so.
• We are providing the analytical tools to support an international connections focus across all of our relevant advice.

What will we do to achieve this outcome?

How will we demonstrate success in achieving this?

Skills – the Treasury will seek to provide greater levels of leadership and analytical input into cross-agency work streams where there are the strongest opportunities to achieve a substantive increase in the contribution of New Zealand's collective skills base to economic growth and to living standards more broadly. This will include:

• engaging more strongly in the Schools Plus policy work to improve the engagement and achievement of 15-19 year olds
• undertaking analysis and research relating to:
  • participation in early childhood education services (particularly for Māori, Pacific and low socio-economic groups)
  • the skills, capability and other attributes needed for improved economic performance (in order to achieve a better match between the skills, capabilities and other attributes we have and those needed for improved economic performance)
• working with other State sector agencies to minimise domestic policy barriers to social mobility, undertaking research, and consulting with other agencies, NGOs and academics to provide policy advice.

For all these activities, we will have a specific role to ensure fiscal risks and budgetary implications are well considered and policies represent the best value-for-money outcome.

We will advise on approaches and undertake research on skill needs for economic development.

To achieve a well-connected approach we will work together with the Ministry of Education, the Tertiary Education Commission and the Department of Labour.

To gauge progress we will look for indications that:

• rates of labour productivity are increasing
• skills shortages are reducing
• wages are less correlated with ethnicity, gender and socio-economic background.

Contributory success measures are:

• increased participation rates of two to four year olds from targeted populations in high quality early childhood education services
• increased levels of “school readiness” among new entrants and achievement for year 6, both overall and for targeted populations
• an increased percentage achieving at each level of the qualifications framework, especially the percentage of school leavers with NCEA Level 2 or equivalent.

Specifically we will:

• provide advice on improving outcomes relating to participation and quality in early childhood education
• produce a discussion paper on the skills needed for improved future economic performance.

Natural resource management – the Treasury will seek to lead the policy debate on how to achieve an economy that is both sustainable and productive.  We will work at a macro level, on how to smoothly adjust to sustainability, take advantage of opportunities and manage the risks from sustainability. We will also address the specific topics of climate change and water.

We will implement effective and predictable policies to meet New Zealand's current climate change commitments, and help efficient adjustment to climate change to occur.

We expect this result area to impact on a number of other policy areas including competition and regulatory policy, industry policy, internationalisation, innovation, tax, and macroeconomics.

To achieve a well-connected approach to sustainability we will work together with other central agencies, the Ministry for the Environment, the Ministry of Agriculture and Forestry and the Ministry of Economic Development.

Our work will be successful when:

A sustainable and productive economy

• we have developed an understanding of and view on the barriers, opportunities and risks associated with moving towards a sustainable and productive economy; and frame the issues in a way that leads to better decision making
• our work with other central agencies and other agencies has identified and provided advice on central government structures to support the sustainability agenda and economic adjustment, and on how to develop requisite capabilities

Climate change

• New Zealand meets national emissions targets at low economic cost
• the domestic carbon price is close to the international price

Water

• key regions set quality and use limits for water and nitrogen based on integrated goals
• allocation systems for water and nitrogen encourage their productive use.