NCPA - National Center for Policy Analysis

Government Policies Slow Kiwis' Economic Growth

February 19, 2003

Economic liberalization has improved the performance of the New Zealand economy, but its potential growth has been undermined by unstable and inconsistent policies, a failure to increase economic freedom, a weak "constitutional attitude," and social welfare policies incompatible with fast growth, according to Wolfgang Kasper.

The major economic reforms implemented in the second half of the 1980s and early 1990s spurred growth:

  • During that time, the New Zealand economy achieved average annual growth of 3.3 percent for 10 years up to 2002.
  • The economy's continuing momentum in the face of an international slowdown owes much to actions taken by governments 10 to 15 years ago.

Nevertheless, its performance has not matched that of countries such as Ireland and Australia which also implemented programs of economic liberalization. The reasons for the different outcomes have little to do with New Zealand's size or location, say observers:

  • A large proportion -- perhaps 85 percent -- of the differences in income between rich and poor countries can be explained by differences in economic and political freedom.
  • New Zealand lacks stability and predictability in its institutions and policies -- among other things the electoral system has changed, and labor and accident insurance markets were deregulated and then re-regulated.

Australia, by comparison, instituted more complete and consistent reforms which yielded an average annual growth rate of 4.1 percent for a decade up to 2002.

Source: Wolfgang Kasper, "Losing Sight of the Lodestar of Economic Freedom: A Report Card on New Zealand's Economic Reforms," New Zealand Business Roundtable, December 2002.


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