Opportunities and Challenges
New Zealand's underlying economic performance has been poor for some time, pre-dating the onset of financial turmoil in 2008, with labour productivity and trend growth slowing over the past decade. New Zealand's longstanding large net external liabilities, high levels of private sector debt and currently large fiscal deficit expose the economy to financial risks, especially if the global economy deteriorates further. Building greater economic resilience and lifting trend economic growth is critical for preserving and increasing income.
While improving economic performance and increasing incomes is important, our vision requires us to think about how these incomes (as well as other factors that contribute to living standards) are distributed within the population. In particular, the Treasury is focused on how the Government can reduce the number of individuals and households that have persistently low living standards. These include individuals with low incomes, but also poor health, education and other social factors. In an environment of government budget restraint, the challenge will be to design policy that targets the limited resources towards these particular groups - where the potential for improvements in living standards is greatest.
In addition to these wider, persistent challenges, New Zealand has also faced, and continues to face, significant economic and social challenges arising from the Canterbury earthquakes.
New Zealand is well placed to respond to these challenges. We have strong institutional settings, dedicated and trusted public servants, low starting levels of government debt, credible monetary and fiscal policy and generally flexible microeconomic policy settings. While the global economy has been weak, growth in a number of our key trading partners in the Asia-Pacific region has been relatively strong. We need to leverage these advantages in order to achieve improvements in New Zealanders' living standards.
