NCPA - National Center for Policy Analysis


June 1, 2004

Over the past two decades, New Zealand's free market reforms have had positive economic effects, says former cabinet minister and ambassador to Canada, Maurice P. McTigue.

New Zealand, vurrently one of the most economically free countries in the world, was not always a bastion for capitalism. In 1984, its per capita income had sunk to 27th in the world, its unemployment rate was 11.6 percent, and the nation's debt had grown to 65 percent of gross domestic product (GDP).

There were price controls on all goods and services; there were wage controls, and massive subsidies to support domestic industries. One could not even buy shares in a foreign company without surrendering one's citizenship. However, in 1984 reformers were elected and began the radical transformation of New Zealand's government, including:

  • Gutting departments that were not effective -- for example, the Department of Transportation saw its number of employees fall from 5,600 to 57; the Forest Service, from 17,000 to 17, and the Ministry of Works from 28,000 to just 1 employee.
  • Reducing the number of government employees by 66 percent.
  • Selling assets that were not necessary, such as telecommunications, airlines, insurance companies, banks, mortgages, railways, bus services and hotels, among others.
  • Slashing spending from 44 percent of gross domestic product (GDP) to 27 percent, while income taxes were cut in half and incidental taxes were eliminated.

The impact on New Zealand's economy has been remarkable. The government assets that were sold off became more productive and the costs of services when down -- instead of costing taxpayers $1 billion every year, they produced about $1 billion annually in revenues and taxes. Similarly, tax revenues have increased by 20 percent, unemployment has fallen to 4.7 percent, and government debt has fallen to just 17 percent of GDP.

Source: Hon. Maurice P. McTigue (Mercatus Center at George Mason University), "Rolling Back Government: Lessons from New Zealand," Imprimis, Volume 33, Number 4, April 2004, Hillsdale College.


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