The Treasury's Three Outcomes
Improved overall economic performance
The Government has set itself the overarching goal of delivering greater prosperity, security and opportunity for all New Zealanders. Improving our economic performance helps in several ways. First, better economic performance means higher incomes, brought about primarily by improving productivity - how we combine our labour and capital more efficiently to produce and sell the goods and services that are demanded both domestically and overseas. Second, it also means greater security, by progressively shifting resources to, and creating new jobs in, the productive and economically-sustainable sectors of the economy. Third, it means more opportunity for firms and individuals, by reducing barriers to the investment and entrepreneurial endeavour that underpins dynamic growth in the economy, which in turn flows through to opportunities for individuals to realise their potential by participating in the labour force. In the wake of last year's financial crisis, and recognising the pervasive contribution of economic growth to raising living standards, the Government has identified lifting economic growth as its top priority for 2010.
Improving economic performance is integrally linked to the Treasury's other outcomes. A strong macroeconomic foundation is critical to a credible growth programme; firms and investors need certainty about the long-term prospects for their investments. This includes confidence in the basic institutions and rules that underpin economic activity, including property rights, the Government's fiscal plan and its overarching regulatory practice. A strong economic performance also serves macroeconomic stability by reducing the vulnerability of the economy to further shocks, which would otherwise put pressure on the Government's borrowing and spending programme. Economic growth and macroeconomic stability are mutually dependent on each other.
A strong growth programme requires that the Government has its own house in order. The public sector is such a significant component of the New Zealand economy that its own performance and productivity matters for the overall performance of the economy.In the 2008/09 financial year, core Crown expenses amounted to 35.5% of Gross Domestic Product (GDP). Growth in government expenditure over recent years has exacerbated the vulnerability of the economy caused by an over-reliance on domestic consumption and external borrowing. This must be turned around to an economy that is driven instead by investment, saving and growth in exports, if we are to achieve sustainable growth on a par with or better than that of countries, like Australia, with which we typically compare ourselves. Achieving such a transformation requires a shift in resources from the non-tradeable to tradeable (competition-exposed) parts of the economy. This is a two-way relationship: stronger economic growth will in turn make the Government's other objectives, including its social policies, easier to achieve. Successful State sector reform is complementary to strong economic growth; one cannot happen readily without the other.
What will we do to achieve improved overall economic performance?
Reflecting these inter-linked outcomes, the Government has articulated an economic growth agenda based around the Government's priority policy drivers. The Treasury will contribute to these drivers through the results set out below:
|Government's policy driver||The Treasury's result|
|Growth-enhancing tax system: Support growth and productive investment by reducing the distortionary effects of taxation, and making the system as fair and efficient as possible.||
Medium-term economic strategy: Lift economic growth by supporting a dynamic environment for firms in which they are given every opportunity to expand and shift their activities in line with market signals. We will do this by providing well-integrated, analytically robust and persuasive advice on policies to deliver:
|Better and less regulation: Make New Zealand more internationally competitive and attractive by removing roadblocks to growth, increasing competition, reducing compliance costs, giving greater certainty to investors and enabling resources to shift to their most productive use.|
|Improved education and skills: Ensure New Zealand has both the quantity and quality of skills needed to support growth in the economy, with a focus on literacy and numeracy, youth achievement and tertiary system performance.|
|Support for science, innovation and trade: Support firms to overcome barriers to enterprise and access the ideas, finance and skills they need to grow and succeed.|
Better public services: Significantly lift the performance of the public sector by improving both the efficiency and effectiveness of spending, and the sustainability of fiscal policy. This includes:
Macro and fiscal advice to achieve a stable economic environment: Provide integrated advice across fiscal, monetary, regulatory and tax policy which is aimed at:
State sector performance: Improve the overall performance of the State sector by focusing on:
|Management of Crown risks and balance sheet: Ensure that the Crown's balance sheet is fit-for-purpose, and is managed in a way that protects value, enhances performance and reduces risk.|
Investment in productive infrastructure: Maximise the contribution of infrastructure to growth by
investing in high-quality public projects that have net economic benefits, and improving the regulatory environment in which local government and private sector investment decisions are made.
Infrastructure: We will focus on optimising the contribution of infrastructure to economic growth by ensuring that:
In supporting this overall economic growth agenda, the Treasury will focus in particular on:
- assisting the Government to develop a clear and informed economic strategy
- providing advice that enables the Government to make significant policy decisions to boost growth
- supporting broad public debate about, and agreement on, what drives growth, and
- ensuring that the Government is well informed about the equity impacts of policy choices.