Outcome: Improved Economic Performance

What are we seeking to achieve?

New Zealand's average GDP per capita growth for the last six decades has been poorer than all other Organisation for Economic Cooperation and Development (OECD) countries. New Zealand's gross domestic product (GDP) per capita ranked third among OECD countries in 1950 and 22nd in 2011 (of 34 OECD member countries). In order to maintain New Zealand's living standards we need to materially narrow the income gap between New Zealand and the most advanced economies. In our 2011 Statement of Intent we indicated that to close the gap with Australia within 15 years would require average GDP per capita growth of above 4%. We still consider this is a relevant long-term target. Reflecting the current global economic environment, a more feasible target for the period of this Statement of Intent is real GDP per capita growth of 2% to 3%. For a country of New Zealand's size, much of this growth will need to be driven by strong export performance as reflected in tradable sector growth.

New Zealand's poor performance reflects its labour productivity, associated with relatively low levels of both capital intensity and multi-factor productivity. To reverse this decline requires policy changes with the potential to lift productivity across the economy and support a substantial lift in export performance. This will require:

• encouraging increased savings relative to investment to lower the cost of capital and reduce pressure on interest rates and the exchange rate (expanded under the A Stable and Sustainable Macroeconomic Environment outcome and below)
• improving the domestic business environment, including the regulatory environment, by raising the productivity performance of firms, minimising the cost pressures they face and maintaining their ability to adjust to changing circumstances (the Treasury’s role and focus in achieving this are outlined below)
• maximising the long-term value of New Zealand’s significant natural resource endowment, by providing certainty and efficient allocation (see below)
• improving international competitiveness and connections to overcome the disadvantages of size and remoteness and to increase incentives to invest and conduct business in New Zealand (see below)
• enhancing our human capital and labour supply to improve our labour productivity and utilisation (see below)
• improving the way the core public service works to improve overall economic and social outcomes (the Treasury’s role and focus in achieving this are outlined in A Higher Performing State Sector that New Zealanders Trust, Delivering Outstanding Results and Value for Money outcome as well as below)
• restoring fiscal buffers and supporting rebalancing of activity towards the tradable sector through continued restraint in government spending (expanded under the A Stable and Sustainable Macroeconomic Environment outcome), and
• avoiding macroeconomic instability (expanded under the A Stable and Sustainable Macroeconomic Environment outcome).

While the Treasury has a particular role to play in advising the Government on the economic dimensions of living standards we are committed to ensuring we understand the implications on the other Living Standards dimensions in achieving improved economic performance. We wish to pursue policies that promote equitable and sustainable economic growth - what we refer to as “good growth” policies.