The Treasury

Global Navigation

Personal tools

Treasury
Publication

Statement of Intent 2014-2019

Outcome: Improved Economic Performance

New Zealand performs well across a wide range of economic and social outcomes compared with higher income[2] countries. But our income levels are below the Organisation for Economic Co-operation and Development (OECD) average and below those societies that we often compare ourselves against.

This has not always been the case. New Zealand incomes began to slip from among the highest in the world in the mid-1950s (our gross domestic product [GDP] per person ranked third among OECD countries in 1950) - and fell quite dramatically in the latter half of the 1970s and in the 1980s. Economic performance has improved since the early 1990s and New Zealand's per capita GDP growth has subsequently broadly kept pace with other advanced economies.

However, this improvement has been insufficient to close the sizeable income gap that had opened up with other developed economies (New Zealand ranked 20 out of 34 OECD countries in 2012). New Zealand's GDP per capita remains around 15% below the OECD average. Our GDP per capita growth rate will need to be higher than the OECD average growth rate for an extended period to time for us to materially narrow this income gap.

New Zealand's "economic gap" reflects the low value of what it produces per hour (its labour productivity) which is only two-thirds of Australia's. There is a range of explanations for New Zealand's poor productivity performance and the underlying causes are contested.

The Treasury's assessment is that geography plays an important role in explaining New Zealand's persistent economic gap: a small home market and geographic distance from international markets. Distance also hampers international flows: we have weak outward foreign investment; we have low exports and imports as a share of GDP relative to other advanced small economies; and our low levels of business R&D may be a sign that firms face challenges in funding and leveraging R&D into world-wide returns.

This matters because productivity and international connections are intertwined. A productive economy - in both the tradable and non-tradable sectors - attracts international flows of goods and services, people, capital and ideas. International connections boost productivity by bringing scale, competition, investment and ideas.

Our geographical challenges do not mean New Zealanders should lower their aspirations. Instead, it means a greater focus on how New Zealand plays its role in a globalising world - and how to take advantage of the opportunities from an emerging Asia, Latin America and Africa.

Improving New Zealand's economic performance requires:

  • New Zealand to be more productive and internationally connected, with more competitive and knowledge intensive firms and exports
  • our growth to be more broad based, with exports and investment driving growth (tradable sector growth), and
  • all New Zealanders to be equipped to play a role in the economy and society.

Sustainable growth is "good growth"

While economic growth is a key indicator of economic performance it does not tell the complete story.

The Treasury recognises that economic growth is not a good measure of economic performance on its own. While we want the higher incomes and jobs that economic growth brings, we want that prosperity to be sustainable and inclusive. It is important that New Zealand's economy supports higher living standards for this and future generations, and that all New Zealanders can play their role in the economy and society.

Notes

  • [2] OECD countries.
Page top