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Opportunities and challenges for New Zealand's economic performance: a perspective from the Treasury Presentation to GEN November 2014 © The Treasury © The Treasury We’ve been thinking... 2004 2008-2010 • Growth State of Play 2013 • Economic narrative refresh • Series of productivity papers 2014 • BIM, including Holding On and Letting Go Dec 2010 • MicroMacro Narrative 2011 • Briefing to the Incoming Govt (BIM) - Engage externally (e.g. today). - Build our capability to provide better advice (e.g. BIM). - Help focus our resources (e.g. medium-term investment priorities). © The Treasury ...and we’ve been listening... Our work has been made much richer by the extensive dialogue we have had with a variety of New Zealanders around the country: Collaborative workshops Treasury Guest Lectures Seminars on alternative perspectives Crossgovernment panel Regional visits Ongoing engagement © The Treasury ...and this is what we’ve heard. We used what we heard to support us in broadening our strategic economic story to have a wider focus on a prosperous and inclusive New Zealand that is well prepared for the future. National vision Living standards framework Improved education Child poverty NZ is part of the global economy NZ is not your average country © The Treasury Global trends create challenges and opportunities for New Zealand… Projected changes in the world economy over time Percent share of world economy © The Treasury ...in lifting our economic performance and living standards. PROSPERITY Economic growth SUSTAINABILITY INCLUSIVENESS Social infrastructure Increasing equity 6 Economic growth Sustainability for the future Managing risks Social infrastructure Increasing equity Sustainability for the future Managing risks © The Treasury Inclusiveness is about helping all New Zealanders play their part... Expected years children will spend in benefit-dependent households Percent of total number of children aged between 0 and 14 years 6% of children spend their whole childhood (13 to 14 years) in a benefit dependent household. 7 to 12 years: 14% of children 3 to 6 years: 13% of children 0 to 2 years: 21% of children No contact: 45% of children ...and investment in quality public services has an important role to play. © The Treasury © The Treasury Sustainability is about good management of all our capital stocks... Breaking down tradable and non-tradable activity 9 © The Treasury ...to shift from a rock star to a rock solid economy. © The Treasury Making New Zealand more prosperous means overcoming the challenges of size and distance... New Zealand’s geographic challenge Selected countries distance from world markets and population © The Treasury ...to boost our international connections. © The Treasury Summary of our advice on policy priorities Short-term Inclusion: lifting outcomes for disadvantaged New Zealanders Sustainability: moving to export and investmentled growth Prosperity: boosting productivity and international connections Medium-term Long-term Reducing child poverty and supporting inclusion: expanding smart social sector investment and helping those on the lowest incomes. A continued shift towards investment in effective social sector interventions that improve long-term outcomes, reduce long-term economic, social and fiscal costs and focus on those most in need. Sustaining economic performance Managing pressure on interest and exchange rates in the upswing through fiscal restraint. Microeconomic and state sector reform Increasing the responsiveness of housing supply, improving natural resource management and lifting state sector effectiveness. Environmental and fiscal challenges Managing the risks and costs to New Zealand of climate change and demographic fiscal pressures. Internationallycompetitive business environment Continued strengthening of international connections and ‘behind the border’ policy settings. Long-term productivity Tertiary education and infrastructure are two key priorities for longterm productivity performance. Medium-term investment priorities INTERMEDIATE OUTCOMES Applying an Internationalisation Perspective Internationally connected & competitive business environment Productivity and Competitiveness People have the skills & support to participate in the economy Applying the international lens to other areas of domestic policy Understanding aggregate, industry and firm productivity performance Water allocation and quality Improving Resource Management Improving returns from tertiary education and skills Child Poverty & Inequality Improving Outcomes for Maori Identify key issues in tertiary education system (especially low public & private returns) and medium term policy responses Understanding vulnerable populations and how they interact with the system A focus on education, economic development, housing and water Improved outcomes for Maori Improving State Sector through a system-wide focus The State sector delivers results for New Zealanders The Crown Balance Sheet is Managed Efficiently and Effectively Treasury (State Sector) Narrative Crown Balance Sheet Capital Markets Managing the Cycle The economic cycle is managed so that pressures in interest rates and the exchange rate are moderated Housing Fiscal Policy Supporting effectiveness in social sector purchasing through coordination and advice; Develop a contestable Social Housing market Develop the 2013 State Sector narrative story to the BIM Asset performance metrics & aggregate risk modelling Understand how capital markets can support firms’ funding of investment Focus on the supply, demand and intermediation of financial capital. Options for reducing pressures on tradable sectors Address barriers to supply in Auckland Understand the impact of fiscal policy on the economy & vice-versa Developing appropriate tools