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CHAPTER THREE
BANKS AND MONETARY POLICY
The level of interest rates has a substantial effect on financial markets, saving and wealth, output and
employment, investment, prices, and exchange rates. The Reserve Bank that through monetary policy
directly impacts on short-term interest rates. Understanding New Zealand’s monetary policy and its
tools helps us make sense of the ability the Reserve Bank has to influence the macroeconomic
indicators we discussed in Chapter 2. Reserve Bank announcements and actions are closely watched by
financial markets and other sectors in the economy. Monetary policy decisions have important
implications for the economy as a whole.
Chapter 3 is split into three major sections. The first section looks briefly at banking and money
in New Zealand. The second section examines the Reserve Bank of New Zealand, its role, and its
objectives. This leads to the final section, monetary policy in New Zealand. The key role of the Reserve
Bank, and the monetary policy tools used by the Reserve Bank will be discussed. In this final section we
will look more closely at the Official Cash Rate.
BANKING AND MONEY IN NEW ZEALAND
New Zealand is a country that has one of the fastest uptakes and usage of Electronic Funds Transfer at
Point Of Sale (EFTPOS) in retail and banking since its introduction in 1998. New Zealanders use of
on-line banking and telephone banking is among the highest internationally. No longer are as
many notes and coins found in New Zealanders wallets, rather we are more likely to find EFTPOS and
credit cards.
Figures 3.1 and 3.2 show the amount of M1 in the New Zealand economy in the form of notes
and coins, and EFTPOS transactions between 1996 and 2002.
Figure 3.1 Notes and coins in New Zealand 1996–2002
Notes and Coins in New Zealand 1996-2002
2,500
2,000
1,500
$ mill
1,000
500
0
1996
1997
1998
1999
2000
2001
2002
Year
Source: The Reserve Bank of New Zealand
Chapter 3: Banks and Monetary Policy
Figure 3.2 EFTPOS in New Zealand 1998–2002
EFTPOS in New Zealand 1998-2002
20,000
19,000
18,000
17,000
16,000
15,000
14,000
$ mill
13,000
12,000
11,000
10,000
9,000
8,000
7,000
1998
1999
2000
Year
2001
2002
Source: The Reserve Bank of New Zealand
The dollar amount of transactions since the inception of EFTPOS has been around 14 per cent more
than that of notes and coins. The use of EFTPOS for transactions had an overall growth rate during
the period 1998 to 2002 of 20.82 per cent. Certainly New Zealand is a country happy to use EFTPOS
as a main source of undertaking monetary transactions in the economy.
There were eighteen registered banks in New Zealand as of May 2003. This number has been fairly
stable since the late 1980s when the banking system in New Zealand was deregulated. Changes in
banks; however, have taken place as banks merge with other institutions, and new banks are registered.
A few examples of the banks that have ceased to be a registered bank due to merger and acquisition
processes are: Post Bank (integrated with ANZ Bank),1 the Rural Bank (integrated with the National
Bank),2 Trust Bank (integrated with Westpac Banking Corporation),3 and Countrywide Banking
(integrated with the National Bank). In terms of asset ranking the five largest banks in New Zealand
are: the National Bank, BNZ,4 WestpacTrust, ANZ, and ASB.5
In 2002 Kiwibank came into being, a government-sponsored (and government owned) bank. It
operates out of PostShop outlets, its goal to provide low cost and accessible banking. Progressive
Coalition MP and leader Jim Anderton is a strong advocate of this bank. In February 2003, the Reserve
Bank registered Leviathan Limited as a bank, which operates under the name ‘SuperBank’. It is a joint
venture between the Foodstuffs Supermarket group and Australia’s St George Bank.
Since April 1987 any financial institution that met the criteria can apply to the Reserve Bank to
become a registered bank. Before this, to become a bank in New Zealand required an Act of
Parliament. Deregulation has provided consumers new ways to access finance, and the financial
packages and products are far more flexible and competitive. The banking environment is very
competitive, banks work hard to attract and keep customers, and technological advances are
revolutionising how banking is done, and how consumers access their funds.
Registered banks are one type of bank in New Zealand. The other type is the central bank,
known in New Zealand as the Reserve Bank.
1
Owned by the Australia and New Zealand Banking Group Limited (Australia).
Owned by the Lloyds TSB Bank PLC (England).
3
Owned by the Westpac Banking Corporation (Australia).
4
Owned by the National Australia Bank Limited (Australia).
5
Owned by the Commonwealth Bank of Australia Limited (Australia).
2
Chapter 3: Banks and Monetary Policy
THE RESERVE BANK
In 1933 the Reserve Bank of New Zealand was founded after Sir Otto Niemeyer of the Bank of
England was in New Zealand advising the government on foreign exchange and currency. He made
three recommendations to the government with respect to the creation of an independent central bank
for New Zealand. He advised that the Reserve Bank be responsible for the stability of the New Zealand
currency, the sole issuer of currency, and hold the government’s account and the banking system’s
reserves. In 1936 the first Labour Government passed legislation to nationalise the Reserve Bank, and
give the control of monetary policy to the Minster of Finance. It was not until 1989, some 56 years
later, that the independence recommended by Niemeyer was given to the Reserve Bank.
The 1984 election was a key turning point for the Reserve Bank. The fourth Labour
Government began a review of monetary policy leading to an about face from that of the first Labour
Government on the role and direction of the Reserve Bank and monetary policy in New Zealand. The
1989 Reserve Bank Act was a world-leading piece of legislation. New Zealand was the first country to
stipulate that the general level of prices (inflation) be the sole objective of monetary policy. This Act
also gave independence to the Governor of the Reserve Bank to undertake the direction of monetary
policy, using whatever tools the Governor saw fit. The objectives of monetary policy; however, were
still set by the government, outlined in a document signed by both the Governor of the Bank and the
Minister of Finance, the Policy Targets Agreement (PTA). This agreement holds the Reserve Bank
Governor accountable to the government for the performance of monetary policy in New Zealand.
The Reserve Bank has a board of directors that are appointed by the government; however, the
board has no input in (nor responsibility for) the monetary policy used by the Bank. The Reserve Bank
Board interviews and recommends to the government the candidate for the position of Governor, the
government then signs off on the appointment. The first Governor under the 1989 Act was Dr Donald
Brash, who resigned in 2002.6 The new (as of May 2003) Governor of the Reserve Bank is Dr Alan
Bollard, who was the head of Treasury. Changes have been made in the structure of the Reserve Bank
with the creation of a Financial Stability Department, and the position of Assistant Governor.
In 2000 the government set up an independent review of monetary policy undertaken by
Professor Lars Svensson of Sweden. His report, ‘The Independent Review of the Operation of
Monetary Policy’ was released for comment in 2001. One of Svensson’s recommendations was the
creation of a formal Monetary Policy Committee responsible for monetary policy decisions. This was
not supported by the government, nor the Reserve Bank. The Governor of the Reserve Bank was to
remain the person solely responsible for monetary policy; however, more effort was to be made to
improve external input into the decision-making process. Another recommendation was the evaluation
of the inflation changes to take a more ‘medium term.’ We can see from the 2002 PTA that the
inflation target is now considered with respect to the ‘medium term.’
Prior to the 1989 Act, the role of the Reserve Bank was to:
 Be the central bank for New Zealand.
 Ensure that the availability and conditions of credit provided by financial institutions were not
inconsistent with the sovereign right of the Crown to control money and credit in the public
interest.
 Advise the government on matters relating to monetary policy, banks, credit, and overseas
exchange.
 Give effect to monetary policy, within the limit of its powers.
The 1989 Act listed one primary function of the Reserve Bank, which was: ‘To formulate and
implement monetary policy directed to the economic objective of achieving and maintaining stability in
the general level of prices’.
6
Dr Don Brash, as of May 2003, is the National Party’s spokesperson for Finance, and a list member of parliament.
Chapter 3: Banks and Monetary Policy
When joining the first coalition government under MMP in 1996 (which consisted of the National and
the New Zealand First Parties), New Zealand First made changes to the PTA. The two changes were:
 The inflation target was expanded to 0–3 per cent.
 The wording in the PTA was changed: ‘The Reserve Bank shall formulate and implement
monetary policy with the intention of maintaining a stable general level of prices, so that
monetary policy can make its maximum contribution to sustainable economic growth,
employment and development opportunities within the New Zealand economy.’ [new
wording in bold]
In 1999 a new PTA was signed and again changes were made to the wording: ‘In pursuing its price
stability objective, the Bank shall implement monetary policy in a sustainable, consistent and
transparent manner and shall seek to avoid unnecessary instability in output, interest rates and
the exchange rate.’ [new wording in bold]
After the 2002 election and with a new Reserve Bank Governor, a new PTA was signed. There were
three changes:
 The Bank was to take a more medium-term approach to achieving price stability (it was said to
improve flexibility).
 The inflation target was now 1–3 per cent, raising the lower target (it was now an ‘average over
the medium term’ target rather than a point).
 In the primary function of the Bank statement it included the phrase, the Reserve Bank will
seek to avoid ‘unnecessary instability in output, interest rates and exchange rate.’
There is acknowledgement in the PTA that unusual events may have a dramatic and short-term impact
on inflation in New Zealand that can hide the underlying trend in the price level. Inflation could move
outside the agreed on bounds due to effects such as: movements in the prices of goods traded in world
markets, changes in indirect taxes (for example GST), changes to government policy that would directly
affect prices, and natural disasters affecting a major sector/part of the economy. To this end the
Reserve Bank is required to operate in a way that prevents general inflationary pressures, but at the
same time to avoid unnecessary instability in output, interest rates, and the exchange rate. The Reserve
Bank could override its agreed on inflation bounds in the short-term to account for the unexpected
disturbances to the economy; however, it must be done in a transparent way and follow recognised
processes to ensure confidence and certainty in the financial markets and the economy.
The Reserve Bank does have other functions in addition to its key goal of achieving price stability.
They are as follows:
 To promote a sound and efficient financial system.
 To act as advisor and banker to the government.
 To operate as banker to the registered banks.
 To monitor the domestic foreign exchange market and manage foreign reserves.
 To provide registry services.
 To meet the currency needs of the economy.
 Other activities—for example, public information, overseas representation, and liaison.
New Zealand has a unique way of handling prudential supervision (that is maintaining a sound financial
system), as neither the Reserve Bank nor the government guarantees bank deposits. Instead, there is an
explicit legal process that makes bank directors personally responsible for how risk is managed by their
bank. The Reserve Bank also requires banks to keep their capital adequacy ratio above eight per cent.
On 25 November 2002, Reserve Bank Governor Alan Bollard spoke to the Rotary Club7 of Wellington,
Dr Alan Bollard, 25 November 2002, ‘The evolution of monetary policy in New Zealand’, speech to the Rotary Club
of Wellington.
7
Chapter 3: Banks and Monetary Policy
and during this speech he said that the ‘overall purpose of the Bank, as [he] sees it, is to maintain the
stability and efficiency of the New Zealand financial system.’ Through the monitoring of registered
banks, ensuring they comply with the financial disclosure regimes, the required capital adequacy ratios
and the loans limits they can make to related parties, all work towards creating a sound financial system
that both domestic and international users have confidence in.
The New Zealand government floated the dollar in 1985, and since then the Reserve Bank has
not used its foreign currency reserves to influence the New Zealand exchange rate. The Reserve Bank
maintains foreign reserves for three key reasons. First, to ensure an option if New Zealand faces a
serious liquidity problem in its foreign exchange market; second, so people who look to invest in New
Zealand can see the foreign reserves as an indication of New Zealand’s financial health. Third, it
enables the Reserve Bank to operate in the foreign exchange market, and get first-hand experience of
the market and its fluctuations, which is useful when conducting monetary policy in New Zealand.
Every six months the Reserve Bank is required by law to present a policy statement that
discusses its past performance and provides information about future monetary policy. The Reserve
Bank; however, produces its ‘Monetary Policy Statement’ every quarter (every three months) rather
than every six months. This policy statement is to ensure good information is available to the
government, the markets, and the economy about monetary conditions and policy performance. Future
economic conditions, the estimated path of economic indictors, and the Reserve Bank’s response to
them is outlined. Transparency and communication are key in New Zealand’s monetary policy
environment.
MONETARY POLICY
Pre-Official Cash Rate
From 1973 until February 1985, the supply of money was controlled by a reserve asset ratio system
(RAR). Banks in New Zealand were required to keep a percentage of the deposits they received
on reserve. When the RAR was removed as the major monetary policy instrument in 1985 it stood at
28.5 per cent.
The monetarist approach of controlling the quantity of money as a means of controlling
inflation was an internationally recognised approach in the late 1970s and 1980s. This approach
influenced the thinking at the Reserve Bank during the early years of financial liberalisation in
New Zealand.
Between the years of 1986 and 1999 the Reserve Bank used daily open market operations
(OMO) to set the foundation for the quantity-based monetary approach, with the banking system
working to a target level of settlement cash.
It became increasingly clear that monetary policy affected inflation (for the most part) by
influencing interest rates and exchange rates, which in turn affected spending and pricing in the
economy. To this end over the period 1997 to 1999, the Monetary Conditions Index (MCI) came to
play an increasing role in monetary policy. The MCI ratio operated on the basis that a 2 per cent change
in the Trade Weighted Index (TWI) would be about the same as a 1 per cent change in the 90-day bill
rate. As an indicator the MCI was very useful (and continues to be so). When the MCI began to be
used as a tool, providing a band for financial market to stay between, interest rates became more
volatile, and Reserve Bank statements became increasingly difficult for the financial sector, government
sector, and other sectors in the economy to interpret. In 1999 the position of the MCI as the leading
monetary policy instrument was diminished in favour of a new system—the Official Cash Rate (OCR).
The MCI; however, is still used as an indicator of monetary conditions. It was felt; however, that the
OCR provided better information and signalling to financial markets, and was easier to understand.8
8
Reserve Bank, 2000 ‘The evolution of monetary policy implementation’.
Chapter 3: Banks and Monetary Policy
The Official Cash Rate
On 17 March 1999, the first OCR of 4.50 per cent was announced. The OCR is formally reviewed eight
times throughout the year (every six weeks), but can be changed at any time if circumstances dictate.
The OCR is the overnight interest rate target that the Reserve Bank uses to control the price of money.
The Reserve Bank can either ‘lend’ money to registered banks at 25 basis points above the OCR (banks
taking money from the Reserve Bank) or, pay interest 25 basis points below the OCR on surplus
money deposited by banks in their settlement accounts at the Reserve Bank. The OCR effectively acts
as the financial system’s base interest rate. If the Reserve Bank changes the OCR, the other interest
rates in the financial system generally move in the same direction. The use of the OCR as the Reserve
Bank’s key monetary policy instrument brings practice at the New Zealand Reserve Bank in line with
central banks around the world.
The OCR also provides the Reserve Bank more influence over short-term interest rates (for
example, 90-day bills and floating mortgage rates), which have a major impact on the level of economic
activity in New Zealand, which in turn impacts on the rate and direction of inflation.
There is no limit set by the Reserve Bank on the amount of money registered banks can put in
or, take out of their settlement accounts. The banking system is therefore not focusing on a cash target
(or quantity); rather they pay (or receive) 0.25 per cent above (or below) the OCR for its money
transactions with the Reserve Bank. This system is considered much easier to understand and follow.
Instead of focusing on the quantity of money, the Reserve Bank focuses on its price (the interest rate).
The OCR mechanism allows the Reserve Bank to control the cost of liquidity for financial institutions,
which directly influences the interest rate that households and firms face.
The Reserve Bank uses the OCR to change the price of money. It can therefore impact on the
level of inflation in the economy. For example, if the Reserve Bank believed inflationary pressure was
building in the economy, the Governor would increase the OCR, thereby slowing economic activity,
and decreasing the price level. Or, if inflationary pressures were not present, and conditions were in fact
getting close to the lower inflationary target, the Bank would reduce the OCR, which would provide
stimulation to the economy.
Though the OCR is the key monetary policy instrument used by the Bank, other indicators such
as the MCI are still used in deciding what the OCR should be. Inflation in New Zealand is influenced
by interest rates, exchange rates, credit conditions, inflation expectations, and external conditions. Thus
the Reserve Bank, when setting the OCR, does so on the basis of what it estimates to be the effects of
the current economic conditions some six to eight quarters into the future.
When undertaking monetary policy, the Reserve Bank has to take account of the time lags that
affect the availability of information that exists to base their projections on, and the expectations of the
effects of its policy on the financial markets and economy. The Reserve Bank publishes their
projections to provide information on where they see the economy heading, and to communicate this
information to the various sectors in the economy. The Reserve Bank acknowledges that their
projections are invariably ‘wrong’ to a degree, because of the dynamic and complex nature of the
economy, and the reality of unforeseen external events (for example, dramatic changes in oil prices,
drought, changes in world trading patterns). The unpredictability of such events tend to be what causes
variation in Reserve Bank projections. The Reserve Bank has under-predicted the CPI in the mediumterm since 1994, with the largest under-predictions made during 1996–1997, and in 2000. The Reserve
Bank is not alone; however, in getting ‘wrong’ their predictions for the price level in the economy.
Between 1978 and 1988 Australia tended to under-predict year-ahead annual inflation by 0.4 per cent,
and since 1989 have over-predicted by the same amount. The International Monetary Fund between
1990 and 1996 when forecasting the following-year inflation for the G7 countries tended to overpredict by about 0.3 per cent. Between 1979 and 2001 the Federal Reserve Open Market Committee in
the United States over-predicted year-ahead inflation by around 0.4 per cent.9
Sharon McCaw and Satish Ranchhod, December 2002, ‘The Reserve Bank’s forecasting performance’, Reserve Bank
of New Zealand: Bulletin, Vol. 65 No. 4.
9
Chapter 3: Banks and Monetary Policy
Before 1997, Reserve Bank forecasts were based on the question: ‘What will happen to inflation
if we don’t change interest rates?’ Since mid-1997; however, the projections are now based on the
question: ‘What do we have to do to keep inflation consistent with the Policy Targets Agreement?’
The monetary policy process of the Reserve Bank operates in the following way. First, the
monetary policy target is agreed with between the Reserve Bank Governor and the Minister of Finance,
from there information is gathered about the current economic situation in New Zealand. Technical
assumptions made about things like exchange rates, external forecasts of world growth, and the fiscal
position are made. All these variables are put together in a formal model of the economy (FPS), which
incorporates the Reserve Bank’s understanding about the ‘normal’ economic relationships that exist.
From here, further discussion is had evaluating off-model ‘special factors’ that could affect the current
outlook and other issues. The Reserve Bank then publishes conditional economic projections, including
the interest rate path. An analysis of the risk factors facing the economy is then further evaluated and a
decision is made about the OCR. The effect the OCR would potentially have on the New Zealand
economy is then evaluated. After recognising that unforeseen events such as droughts or terrorist
attacks could cause the Reserve Bank projections to be ‘off,’ a decision is made, and the OCR is
announced. Figure 3.3 shows the changes to the OCR since its inception in March 1999 to April 2003.
Figure 3.3 OCR changes in New Zealand March 1999–April 2003
OCR Changes March 1999-April 2003
M
ar
M 99
ay
-9
Ju 9
l-9
Se 9
p9
N 9
ov
-9
Ja 9
n0
M 0
ar
M 00
ay
-0
Ju 0
l-0
Se 0
p0
N 0
ov
-0
Ja 0
n0
M 1
ar
-0
M 1
ay
-0
1
Ju
l-0
Se 1
p0
N 1
ov
-0
Ja 1
n0
M 2
ar
M 02
ay
-0
2
Ju
l-0
Se 2
p0
N 2
ov
-0
Ja 2
n0
M 3
ar
-0
3
7.00
6.50
6.00
5.50
5.00
% 4.50
4.00
3.50
3.00
2.50
2.00
Year
Source: The Reserve Bank of New Zealand
Between March 1999 and April 2003, the OCR has changed a number of times (15). Its highest level
was 6.50 per cent in May 2000 through to March 2001. Its lowest was the first 8 months of its existence
when it remained at 4.50 per cent. The median OCR rate over the March 1999 to April 2003 period
was 5.75 per cent, which was the OCR rate between July 2002 and April 2003. On 6 March 2003, the
Reserve Bank decided to leave the OCR unchanged at 5.75 per cent. The Reserve Bank Governor, Alan
Bollard said at the time ‘the domestic economy has been more robust than we thought. Rapid
population growth, rising employment and the earlier strength in the export sector have fuelled strong
household consumption and supported higher residential investment and housing market activity.’10 It
was expected; however, that the CPI inflation would fall in 2003–04, easing the inflationary pressure.
Alan Bollard did conclude his March 2003 ‘Monetary Policy Statement’ by saying that ‘when we see
reduced pressure on resources and medium-term inflation then there may be scope for a cut in the
OCR later in the year.’ This statement proved to be accurate with the announcement on 24 April of a
reduction in the OCR by 25 per cent, setting the OCR at 5.50 per cent. The Governor stated ‘while the
10
Dr Alan Bollard, March 2003, ‘Monetary Policy Statement,’ Reserve Bank.
Chapter 3: Banks and Monetary Policy
economy is progressing as expected, recent dry conditions in some parts of the economy, potential
electricity shortages and the SARS virus add additional downside risks to the economic outlook … we
have been prepared to adjust interest rates a little faster in response to the unfolding evidence of a
slowdown’.11
Table 3.1 and Figure 3.4 outline the relationship between the OCR, 90-day bank bill rates and
the floating mortgage rate, between 1997 and 2002.
Table 3.1 Ninety-day bank bill rate, floating mortgage rate, and the official cash rate 1997–2002
Year
90-day bank
Floating mortgage
bill rate
rate
(%)
(%)
1997
7.75
9.82
1998
7.10
9.43
1999
4.98
6.59
2000
6.65
8.35
2001
5.65
7.63
2002
5.78
7.56
Source: Reserve Bank of New Zealand
Official cash rate
(average over year)
(%)
Difference between the
floating mortgage rate and
the official cash rate (%)
4.570
6.188
5.690
5.420
2.02
2.16
1.94
2.14
Figure 3.4 Ninety-day bank bill rate, floating mortgage rate, and the official cash rate 1997–2002
Interest Rates 1997-2002
12
10
8
% 6
90-Day Bank Bill Rate
4
Floating Mortgage Rate
2
Official Cash Rate
0
1997
1998
1999
2000
2001
2002
Year
Source: Reserve Bank of New Zealand
Figure 3.4 presents in a clearer way the relationship between the 90-day bank bill rates and the floating
mortgage rates to changes in the OCR. The most noticeable thing is how the rates move together.
What is also clear to see is that the difference between the floating mortgage rates and the OCR
remained around 2 per cent. That is, the floating mortgage rate tended to be 2 per cent higher than the
OCR over the period 1999 to 2002. The 90-day bank bill rates; however, tend to track the OCR more
closely. We can see the influence the Reserve Bank has through the OCR on the interest rates in the
financial system, and thereby the interest rates households and firms face.
Under the latest PTA, monetary policy is to be ‘a little more flexible,’ such that the control of
inflation does not disrupt the economy unnecessarily. Dr Alan Bollard (2002)12 said ‘monetary policy
still needs to respond particularly assertively when inflation is expected to be well outside the target
range, or persistently outside it. But, at other times, if inflation is fairly stable and if we do not see
11
12
Dr Alan Bollard, 24 April 2003, OCR announcement.
Dr Alan Bollard’s speech to the Rotary Club of Wellington, New Zealand, 25 November 2002.
Chapter 3: Banks and Monetary Policy
pressures that have the potential to get out of control, then we have a mandate to be a little more
flexible in our response.’
By historical standards the level of interest rates in New Zealand is relatively low. Despite the
fact that the Reserve Bank has a substantial influence over short-term interest rates through the OCR, it
is still the influence of the people of New Zealand, who desire to save and borrow, that determines the
average level of interest rates. The reality is New Zealanders still maintain high levels of debt at most
interest rate levels, making New Zealand unique when compared to other countries.
We now move from monetary policy and the Reserve Bank to fiscal policy and the government
in Chapter 4. The Reserve Bank is an important institution in New Zealand that plays a major role in
influencing the economy through monetary policy. Another policy tool used in the macro economy is
fiscal policy. The changes the government makes to fiscal policy, and its contribution to New Zealand’s
GDP, society, and economy is substantial.
Chapter 3: Banks and Monetary Policy
CHAPTER FOUR
THE GOVERNMENT AND FISCAL POLICY
Government spending in the economy contributes just over 33 per cent of New Zealand’s GDP. The
government’s contribution in the economy is very important. The government provides core public
services such as health and education, policing and justice, defence, and roading for example. The
government also plays a key role in income distribution in the economy. The revenue the government
collects is nearly 35 per cent of New Zealand’s GDP.
In this chapter we look at the fiscal policy of the New Zealand government, specifically how
the government gets it revenue, and what it spends its money on. The chapter will then go on to
examine government deficits and debt or, the balancing of the government budget. Fiscal policy is
briefly reviewed, with a closer examination of the 1994 Fiscal Responsibility Act. The chapter then
concludes with a look at state-owned enterprises in New Zealand.
HOW DOES THE NEW ZEALAND GOVERNMENT RAISE REVENUE?
Taxation
New Zealand has a tradition of a progressive income tax system. This means that the marginal tax rate
rises as people’s income rises, and therefore as your income increases, the proportion of your income
paid to the government in taxes also increases.
After the 1984 election, the fourth Labour Government discussed the possibility of creating a
single income tax rate. At the time it was considered too controversial, so instead the government
introduced tax-cuts, with a top marginal rate set at 33 per cent. This top rate was increased on
1 April 2000 by the Labour-Alliance Government to 39 per cent on income over $60 000. As of May
2003 there were three steps in the income tax system, which are outlined in Table 4.1.
Table 4.1 New Zealand income tax rates
Taxable income ($)
Tax rate of every $1 Income
Tax rate of every $1 income
excluding earner levy (cents)
including earner levy (cents) a
Up to $38 000
19.50c
20.70c
$38 001 to $60 000
33.00c
34.20c
$60 001 and over
39.00c
40.20c
a
All employees must pay an ACC earner levy to cover the cost of non-work related injuries:
1 April 2002–31 March 2003
$1.20 per $100.00 (1.2%)
1 April 2001–31 March 2002
$1.10 per $100.00 (1.1%)
1 April 2000–31 March 2001
$1.30 per $100.00 (1.3%)
Source: The New Zealand Treasury
Income tax, along with taxes on wealth and company taxes are direct taxes, which until the 1980s was
the form of taxation that New Zealand governments predominantly used. Since 1986; however, there
has been a shift towards indirect taxation—taxes charged on goods and services when they are
purchased by people. On 1 October 1986, a Goods and Services Tax (GST) of 10 per cent was
introduced. It enabled government to reduce the marginal tax rates on income. The GST of 10 per cent
was charged on virtually all goods and services. In 1988, GST was increased to 12.5 per cent, and it has
remained at this level some sixteen years later. New Zealand did have a system of multi-rate sales taxes
before the introduction of GST; however, GST meant most of these taxes disappeared. Some excise
taxes do still exist, for example those on fuel, alcohol and cigarettes.
Chapter 4: The Government and Fiscal Policy
10
In 2000 the Labour Government established a Ministerial Review into the New Zealand tax
system. The outcome of the Review was to state that the broad structure of the tax system was solid,
and that major changes were unnecessary. The Review did make a number of suggestions; however,
including a tax on owner-occupied housing, and an international tax to encourage direct foreign
investment.
The Minister of Finance Michael Cullen said in March 200314 that the government was looking
at tax breaks to encourage foreign investment. Dr Cullen further confirmed that the government was
looking to lower the tax rate on superannuation funds targeted at retirement savings, as well as
eliminating the existing over-taxation of the savings of those earning under $38 000 a year.
The New Zealand government also receives income from fines, state-owned enterprises profits,
and other investments. As we can see from Table 4.2 the government received the most revenue from
direct taxation in 2001 and 2002, with income tax the single largest source of government revenue of
around 45 per cent of total government revenue. GST, the second highest earner of tax for the
government, brought in approximately 24 per cent of government revenue. Excise taxes on petroleum
and tobacco provide the government with just over 4 per cent of total revenue combined. Between
2001 and 2002 the revenue from income tax (5.9 per cent) and GST (7.9 per cent) were increasing;
however, revenue from corporate tax fell by 5.8 per cent. Investment income generated approximately
3.3 per cent of total government revenue in 2001 and 2002. This revenue source; however, showed a
decline between 2001 and 2002 of 8.69 per cent.
13
Table 4.2 New Zealand government revenue 2001 and 2002
Type
Direct taxation
Income tax
Corporate tax
Withholding tax
Estate tax
Total
Indirect tax
GST
Petroleum
Tobacco
Customs duties
Road user charges
Alcoholic beverages
Gaming duties
Motor vehicle fees
Energy resource levies
Stamp, cheque, credit card duties
Total
Other revenue a
Year end June 2001 ($million)
Year end June 2002 ($million)
17 126
5 662
1 073
2
23 863
18 251
5 332
1 020
2
24 598
9 126
810
764
648
532
436
206
181
111
61
12 875
9 849
856
810
679
580
449
242
189
107
61
13 822
2 754
3 222
Total
39 492
Per cent of GDP
34.5%
a
Recoveries from ACC, petroleum royalties, income from earthquake commission.
Source: The New Zealand Treasury
13
14
41 642
34.7%
The Review reported in October 2001.
Manawatu Evening Standard, 8 March 2003, ‘Tax breaks for foreign investment on the horizon’.
Chapter 4: The Government and Fiscal Policy
11
Between 2001 and 2002 we can see that revenue to government in the form of income tax, GST,
petroleum, tobacco and alcohol excise taxes, customs duties, road user charges, gaming duties, and
motor vehicle fees all increased, with an overall increase in total government revenue between 2001 and
2002 of 5.44 per cent. When considering the indirect taxes, a rise in this source of revenue may be
brought about by the government raising the excise tax levy (for example, on alcohol, petroleum or,
cigarettes) or, may be due to increased consumer spending in the economy. During periods of growth
in an economy, revenue from income tax and indirect taxes tend to increase, households have more
income (therefore pay more income tax), and consume more (therefore pay more indirect taxes). As a
percentage of GDP we can see from Table 4.2 that revenue received by the government increased from
34.5 per cent in 2001 to 34.7 per cent in 2002.
Having seen how the government raises its revenue we move to look at what the government
spends its money on.
WHAT DOES THE NEW ZEALAND GOVERNMENT SPEND ITS
MONEY ON ?
The New Zealand government has a long history of providing public goods such as housing, roading,
schools, hospitals, courts, defence, prisons, fire service, and universities for example. These are
examples of goods that the government purchases and are counted as part of government expenditure
(G). Another type of government spending is on transfer payments, 15 spending not considered
government expenditure as such, rather a redistribution of the nation’s income. For something to be
considered government spending, the government must receive a productive good or service in return.
The following table (Table 4.3) provides a snapshot of government spending in 2001 and 2002.
Social security and welfare was the single biggest category of government spending. Health and
education subsidies were the next largest categories. There was an increase in government spending
between 2001 and 2002 of 3.96 per cent. There was a 2.05 per cent increase in social security and
welfare, a 5.05 per cent increase in spending on health, and a 6.49 per cent increase in spending
on education.
Table 4.3 Spending by the New Zealand government in 2001 and 2002
Type
Social security and welfare
GSF pension expenses
Health
Education
Core government services
Other
Finance costs
Net foreign exchange losses/(gains)
Total
Per cent of GDP
Source: The New Zealand Treasury
2001 ($million)
13 216
855
7 342
6 690
1 817
5 830
2 483
(47)
38 186
33.4%
2002 ($million)
13 487
1 153
7 713
7 124
1 602
6 221
2 324
75
39 699
33.1%
From the table we can see that for the most part government spending increased in all of the categories
listed in 2001 and 2002. There are some exceptions; however, core government services and finance
costs both decreased. In 2002 the New Zealand government also experienced a net foreign exchange
loss on assets, whereas the year previously there had been a gain. As a percentage of GDP, spending by
the government decreased from 33.4 per cent in 2001 to 33.1 per cent in 2002.
15
WINZ services approximately one million clients, the largest group being those receiving New
Zealand Superannuation.
Chapter 4: The Government and Fiscal Policy
12
If we look at a breakdown of the social security and welfare category we can get a better idea of
what this money is used for. Table 4.4 outlines the social security and welfare spending made by the
New Zealand government in 2001 and 2002.
Table 4.4 Social security and welfare spending by the New Zealand government 2001 and 2002
Type
Social assistance grants
New Zealand superannuation
Unemployment benefit
Domestic purposes benefit
Family support
Student allowances
Other social assistance grants
Total
Source: The New Zealand Treasury
Year end June 2001
($million)
5 388
1 849
1 444
878
391
4 121
14 071
Year end June 2002
($million)
5 582
1 406
1 486
870
411
4 885
14 640
The single largest destination for social assistance grants is to New Zealand Superannuation, with
average spending on New Zealand Superannuation between 2001 and 2002, increasing by 3.6 per cent.
Spending on the DPB and student allowance increased in 2002 by 2.9 per cent and 5.11 per cent
respectively. Two categories did receive less government spending in 2002, with the unemployment
benefit decreasing by 23.96 per cent and family support decreasing by 0.9 per cent. The decrease in
spending on the unemployment benefit is not unsurprising given the falling unemployment rate as we
discussed in Chapter 2. Overall, there was a 4.04 per cent increase in government spending on social
security and welfare in 2002.
Spending on transfer payments increased on 1 April 2003, with an increase of 2.72 per cent, a
cost of living adjustment for those receiving benefits.16 This additional spending will cost an estimated
$300 million per year, bringing the annual amount spent on transfer payments and subsidies to around
$14 billion, which is approximately 13 per cent of New Zealand’s annual GDP, and nearly 35 per cent
of total government spending in the economy.
Table 4.5 breaks down the total expenses of the government by functional classification over
the period 2001 to 2006. The table provides forecast figures of government spending.
16
From 1 April 2003: A single unemployed person aged 20–24 received $134.70 per week. A married couple on the
unemployment benefit without children received $269.40 per week. A single person over 18 on the invalids benefit
received $202.05 per week. A solo parent with one child on the DPB received $231.53 per week. A married couple who
both qualify for New Zealand superannuation received $377.38 per week (Source: Ministry of Social Development).
Chapter 4: The Government and Fiscal Policy
13
Table 4.5 Total crown expenses by functional classification 2001–2006
Social security and welfare
Health
Education
Core government services
Law and order
Defence
Transport and
communications
Economic and industrial
services
Primary services
Heritage, culture and
recreation
Housing and community
development
Other
Finance costs
Net foreign exchanges
losses/(gains)
Forecast for future new
spending
Total expenses
Source: The New Zealand Treasury
2001
($million)
2002
($million)
15 984
7 541
8 185
1 460
1 942
1 114
2003
forecast
($million)
16 706
7 853
8 556
1 498
1 936
1 112
2004
forecast
($million)
17 242
8 229
8 650
1 477
1 935
1 105
2005
forecast
($million)
17 731
8 596
8 801
1 492
1 926
1098
2006
forecast
($million)
18 328
8 713
8 914
1 522
1 921
1 101
16 323
6 802
7 719
1 688
1 796
1 225
2 335
4 362
6 051
6 318
6 604
6 729
2 404
919
3 008
1 002
2 672
1 018
2 862
1 015
2 855
1 031
2 936
1 045
975
1 017
1 006
1 043
1 079
1 120
445
75
2 572
489
109
2 289
536
114
2 532
552
110
2 591
559
110
2 626
574
110
2 663
50
141
45 328
48 643
204
51 794
622
53 751
1 049
55 557
1 849
57 525
Table 4.5 shows that with the exception of core government services and defence, all other major areas
will be receiving additional spending. Over the period 2001–2006, transport and communications will
have received a 188.18 per cent increase in spending, followed by health with a 56.19 per cent increase.
The additional spending on transport and communications is noteworthy, but it still only represents
11.70 per cent of total forecasted spending in 2006, as compared with social security and welfare
receiving just over 31 per cent of total forecast spending in that year. Housing and community
development (increasing by 29 per cent), economic and industrial services (increasing by
22.13 per cent), and education (increasing by 15.48 per cent) also see increasing expenditure over the
2001–2006 period. Core government services spending decreases by 9.83 per cent over the 2001–2006
period, and defence spending decreases by 10.12 per cent which runs contrary to the other sectors.
It is also interesting to note from Table 4.5 that over the 2003–2006 period, future new
spending is planned to increase by 806.37 per cent. How much of this additional spending is earmarked
for the superannuation fund (New Zealand Superannuation Fund (NZS Fund)), new investment and
the like remains to be seen.
These forecast figures for 2003 to 2006 are clearly subject to change depending on
circumstances that occur in society and the economy, and any external factors, which may impact on
the New Zealand economy. They do; however, provide some indication of future government
spending, government priorities in the economy, and the continued provision of public goods
and services.
We have seen what revenue the government receives, and what the government spends its
money on, now we move to look at the balancing of the government budget.
Chapter 4: The Government and Fiscal Policy
14
BALANCING THE BUDGET
Until 1993–94, the New Zealand government ran a long period of fiscal deficits—this means the
government spent more than it received in revenue. Table 4.6 outlines the revenue, expenditure and
operating balance of the New Zealand government from 1998 to 2002, and Table 4.7 provides forecast
figures for 2003–2006.
Table 4.6 The revenue, expenditure, operating balance and OBERAC of the New Zealand
government 1998–2002
Year Revenue Per cent
end
($million)
of GDP
June
(%)
1998
35 581
35.6
1999
36 357
35.7
2000
36 526
34.0
2001
39 492
34.5
2002
41 642
34.7
Source: The New Zealand Treasury
Expenditure
($million)
34 211
35 825
36 171
38 186
36 699
Per cent
of GDP
(%)
34.3
35.2
33.7
33.4
33.1
Operating
balance
($million)
2 534
1 777
1 449
1 409
2 327
Per cent
of GDP
(%)
2.5
1.7
1.3
1.2
1.9
OBERAC
($million)
2 191
246
884
2 107
2 751
Per cent
of GDP
(%)
2.2
0.2
0.8
1.8
2.3
Table 4.7 The forecast revenue, expenditure and operating balance of the New Zealand
government 2003–2006
Year
2003
2004
2005
2006
Source: The New Zealand Treasury
Revenue
($ million)
53 998
56 642
59 387
61 667
Expenditure
($ million)
51 794
53 751
55 557
57 525
Operating Balance
($ million)
2 204
2 891
3 830
4 142
Looking at the five years between 1998 and 2002, the New Zealand government ran an operating
surplus in every year. The surplus; however, was less in 1999, 2000, and 2001 with a 29.87 per cent fall
in the surplus between 1998 and 1999. Over the entire period (1998–2006) there was a 73.31 per cent
increase in government revenue, and a 68.17 per cent increase in government expenditure. Between
2001 and 2002 the operating balance increased by 65.15 per cent. There is; however, a forecast decrease
in the operating balance between 2002 and 2003, but it is predicted to increase into 2006. We can see
that the government is working to ensure they run government surpluses. We will discuss this further
when we examine the Fiscal Responsibility Act. Government expenditure as a percentage of GDP had
declined since 1999, and government revenue as a percentage of GDP had increased since 2000.
The Operating Balance Excluding Revaluations and Accounting Policy Changes (OBERAC) is
the figure that the Minister of Finance looks at when considering government expenditure and fiscal
management. OBERAC gives a better measure of the underlying financial condition of the
government’s position, with respect to an operating surplus (or deficit). When calculating the OBERAC
there are four revaluation effects that are taken out of the figure: net present valued assets and liabilities
(for example, GSF pensions, outstanding ACC claims and NZS Fund assets), market-valued financial
assets and liabilities (for example, tradeable marketable securities and deposits), gains or losses on sales,
and changes in accounting policy around the recognition of assets and liabilities.17 From Table 4.6 we
can see that the OBERAC was increasing as a percentage of GDP since 1999.
In March 2003, Minister of Finance Michael Cullen acknowledged that the government
expected that the $2.5 billion surplus for the 2002–2003 financial year would be exceeded, mostly due
to a high tax take. This increased surplus though was not likely to be spent. Dr Cullen said the
government is concerned that the surplus would not stand up to a potential downturn in the New
17
Fiscal Outlook Fiscal Indicator, Budget, ‘Economic and Fiscal Update 2001’, the New Zealand Treasury.
Chapter 4: The Government and Fiscal Policy
15
Zealand economy, and future revenue growth. When commenting on the 2003 budget, Dr Cullen
identified four priority areas:
 Higher living standards for all through growth and innovation.
 Supporting a productive and cohesive society through investing in health, education and social
services.
 Decreasing crime and the impacts of crime.
 Investing for the future through a broad-based capital programme.
Dr Cullen predicted continuing government surpluses across the 2003 to 2006 period, and stated that
the government borrowing programme would be reduced in 2003 to around $2.5 billion.
The 2003 Budget Policy Statement outlines three main components of government spending:
 $1.1 billion in 2003–04, and $1.05 billion on each of the next two years for new operating
expenditure.
 $800 million in 2003–04, $500 million in 2004–05, and $360 million in 2005–06 for capital
spending.
 $1.2 billion in 2002–03, $1.8 billion in 2003–04, $2.146 billion in 2004–05, and $2.310 billion in
2005–06 towards the New Zealand Superannuation Fund.
Dr Cullen said,18 ‘the 2003 Budget will reinforce the government’s reputation as a careful fiscal manager
and advance New Zealand further along the path to a strongly growing and socially cohesive society.’
In 2001 New Zealand Superannuation was legislated for in separate legislation that enabled
money to be put aside specifically for the provision of government superannuation in the future. The
tagging of funds for this purpose can be seen in the 2003 Budgetary Policy Statement (the third
bulleted point above), which indicates government spending to the NZSF over the 2002–03 to
2005–06 periods.
Another interesting aspect of government finance to look at are the levels of Net Crown Debt
and Overseas debt. Table 4.8 presents the Actual Net Crown Debt of the New Zealand Government in
2001 and 2002, and forecasts net debt in 2003 to 2006.
Table 4.8 Actual net crown debt of the New Zealand government 2001 and 2002, and forecast net
crown debt 2003–2006
2001
Net crown debt
17 021
($million)
Source: The New Zealand Treasury
2002
18 723
2003
forecast
20 925
2004
forecast
22 245
2005
forecast
22 497
2006
forecast
22 553
In 1992–93 net debt was 49 per cent of New Zealand’s GDP, by 2000–01 it had fallen to 18.1 per cent.
The government has run operating surpluses, and asset sales have financed debt repayments since the
mid-1980s. Until March 1985, New Zealand governments borrowed a considerable amount of money
under the fixed exchange rate system. In 1996; however, the government achieved a zero net foreigncurrency debt with the sale of the Forestry Corporation of New Zealand for $1.6 billion.
There is a forecast of a 32.5 per cent increase in net Crown debt over the 2001 to 2006 period.
Government purchases of Air NZ, and the creation of Kiwibank were expenditures funded out of
borrowing, therefore increasing the net debt of the government. If we then move to look at New
Zealand’s corporate sector and government sector overseas debt we can see some interesting
comparisons. Table 4.9 and Figure 4.10 show that changes in corporate sector and government sector
debt from 1993 to 2002.
Dr Michael Cullen commenting on 19 December 2002 on the release of the ‘2003 Budget Policy Statement’ and the
‘2002 December Economic and Fiscal Update’.
18
Chapter 4: The Government and Fiscal Policy
16
Table 4.9 New Zealand’s overseas debt 1993–2002
Corporate sector
Year end June
($million)
1993
44 687
1994
44 555
1995
49 403
1996
57 243
1997
60 651
1998
79 379
1999
85 029
2000
101 741
2001
110 871
2002
112 899
Source: The New Zealand Treasury
Per cent of GDP
(%)
59.37
54.67
56.58
61.76
62.17
79.66
83.97
95.64
97.83
92.90
Government sector
($million)
23 923
24 765
22 310
22 565
20 649
19 969
17 384
16 988
16 724
18 335
Per cent of GDP
(%)
31.78
30.39
25.55
24.35
21.17
20.04
17.17
15.97
14.76
15.09
Figure 4.1 Government and corporate sector overseas debt as a percentage of GDP 1993–2002
Government and Corporate Sector Overseas Debt as a Percentage
of GDP 1993-2002
100
90
80
70
60
% 50
40
30
20
10
0
Corporate Sector
Government Sector
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
Source: The New Zealand Treasury
In 2002 the corporate sector overseas debt was more than six times that of the government sector, with
an increase in corporate sector debt between 1993 and 2002 of 152.6 per cent. Government sector debt
over the 1993 and 2001 period; however, decreased by 23.36 per cent. Between 1997 and 1998, and
again between 1999 and 2000, there was a greater increase in corporate sector debt, 30.88 per cent and
19.65 per cent respectively. Conversely, the New Zealand government sector debt between 1997 and
1998 decreased by 3.29 per cent, and between 1999 and 2000 decreased by 2.28 per cent. There was;
however, an increase in government sector debt between 2001 and 2002 of 9.63 per cent, with future
debt projections expecting this upward trend to continue. Corporate sector debt also increased between
2001 and 2002 but by a lesser amount of 1.83 per cent.
We can see from Figure 4.10 that corporate sector overseas debt as a percentage of GDP
increased considerably from 1997. In 2001 corporate sector overseas debt was nearly 98 per cent of
GDP that year, while in the same year government sector overseas debt was 14.76 per cent; corporate
sector debt was 6.7 times more than that of government sector overseas debt.
The chapter now moves to look at fiscal policy, the Fiscal Responsibility Act, and state-owned
enterprises in New Zealand.
Chapter 4: The Government and Fiscal Policy
17
FISCAL POLICY
At the start of each parliamentary term the government sets its fiscal policy, including its long-term and
short-term fiscal objectives. The short-term spending intentions have formal reassessments at the start
of the annual Budget process around September, with a final ‘road-check’ against the latest fiscal
information before each Budget is finalised. In setting its short-term objectives, there are many factors
that the government needs to take account of, including the current macroeconomic outlook, the New
Zealand Superannuation Fund pre-funding requirements, the operating and capital budgetary
requirements and priorities, and changes in the operating and debt tracks.
In New Zealand the fiscal management framework has its foundation in four pieces of legislation:
 The Public Finance Act 1989, which sets fixed nominal baselines for fiscal policy; the
authorisation of spending done by appropriation, and lays out guidelines for reporting financial
results.
 The Fiscal Responsibility Act 1994, which sets out principles for formulating fiscal policy, and is
discussed in more detail later in the chapter.
 The State Sector Act 1988, which requires accountability arrangements between government
Ministers and departmental chief executive officers.
 The State Owned Enterprises Act 1986, which separates governance structures from commercial
operations.
This fiscal framework has a longer-term focus, requires transparent fiscal management, and establishes
a context for the development of an overall fiscal policy. Fiscal policy in New Zealand has a key anchor
that long-term gross Crown debt is not to be more that 30 per cent of GDP. To this end, the
government works to run budget surpluses which can meet the New Zealand Superannuation Fund,
the capital and operating requirements, and the government must manage debt at prudent levels. The
approach to fiscal management in New Zealand involves the setting of short-term spending intentions
that are communicated effectively, are reassessed in light of new economic and fiscal information, and
ensures that the government allocates spending across the competing priorities effectively. It is
important to note that the government does not just respond to economic ‘shocks’ in the economy
with changes to fiscal policy, instead it allows the automatic stabilisers in the economy to operate. The
intention of the Labour Coalition government to pre-fund superannuation indicates the need to take
account of long-term demographic changes in the New Zealand population. This is a good example of
the government setting and achieving long-term fiscal policy objectives.
When managing new operating spending there are a number of things that impact directly on the
amount spent through the budgetary process. These are government policy decisions (including those
over State Owned Enterprises and Crown Entities), the operating balance and debt impacts of the
baseline updates, demographic changes, changes in existing policy forecasts (for example, student loan
provisions), and any non-controllable events (either domestic or international). As fiscal management in
New Zealand is further developed and enhanced, it provides an actual and known constraint for
Ministers to budget against, and a change in the focus from one year to three years when making
decisions. It provides a more realistic spending profile in the fiscal forecasts, and gives a better guide to
the progress of the government’s long-term objectives, and more certainty in fiscal planning. More
account of the changeable nature of things that influence the Budgetary process are able to be taken
into account, and there is a greater ability to evaluate the impact of budget spending beyond the
parliamentary term.19
It is a complicated process setting and managing fiscal policy, in part due to the lags in the
information available to the government when making policy decisions and setting budgets, the lags in
the economy’s response to changes in fiscal policy, and the unexpected events that impact on a small
open economy like New Zealand in often a sudden and dramatic way. The other issue is that of the
The New Zealand Treasury, January 2003, ‘An Outline of the Changes Made to Further Integrate the Annual Budget
Process with the Government’s Fiscal Policy Approach’.
19
Chapter 4: The Government and Fiscal Policy
18
differences between the parliamentary cycle and the business cycle. There is a view that governments
tend to operate in the short-term (closer to their parliamentary term) than taking into account the
longer term, and the impacts of present spending and policy on future generations.
The Fiscal Responsibility Act 1994
This Act outlines five principles that the government is obligated by law to use as it puts together its
Budget every year. The aim is to achieve responsible fiscal management. The five principles are as
follows:
 To maintain prudent levels of debt—the Crown debt is to be reduced to ‘prudent’ levels.
 To have structural budget surpluses—on average the Crown is to ensure that its operating
expenses are not greater than its total operating revenues.
 To maintain positive net worth—the government is to ensure that it maintains levels of Crown
net worth.
 To manage risk prudently—the government is required to manage the fiscal risks that may
occur carefully.
 To ensure stable tax rates—the government is required to undertake policies that provide
predictability and stability of the tax system.
The Fiscal Responsibility Act also obligates the government to prepare accounts that meet standard
accounting practices, and provide a Budget Policy Statement each year (before the end of March), which
outlines the general expectations of the Budget that is to be delivered. The Act also requires that the
Minister of Finance and the Secretary to the Treasury sign statements confirming that there has been
full disclosure of information. A fiscal and economic update has to be published each December, and
at least 28 days before a general election. This is to ensure the transparency of the fiscal policy
undertaken by the government, and provide full information about Crown net worth, for example.
This Act ensures that the government of the time assesses and demonstrates in its annual
Budget the long-term objectives of the government. The government has to provide forecasts of future
operating and debt tracks both in the short-term, and over the longer ten-year time horizons, including
spending intentions factored into this information.
Table 4.10 outlines the financial position of the New Zealand government between
1998 and 2002.
Table 4.10 Statement of financial position 1998–2002
Assets
State-owned enterprises and crown entities
Property, plant and equipment
Other assets
Total assets
Liabilities
Gross debt
Gross debt as a percentage of GDP
Other liabilities
Total liabilities
Crown balance (net worth)
Per cent of GDP
Net crown debt
Per cent of GDP
Source: The New Zealand Treasury
Year end
June
1998
($million)
Year end
June
1999
($million)
Year end
June
2000
($million)
Year end
June
2001
($million)
Year end
June
2002
($million)
19 022
14 962
28 372
62 356
12 917
15 258
30 048
58 223
14 392
15 972
30 059
60 423
14 077
16 102
34 902
65 081
17 815
17 290
37 099
72 204
37 892
38%
14 543
52 435
9 921
9.9%
24 069
24.1%
36 712
36%
15 489
52 201
6 022
5.9%
21 701
21.3%
36 041
33.6%
15 799
51 840
8 583
8.0%
21 396
19.9%
36 761
32.1%
16 857
53 618
11 463
10.0%
19 971
17.5%
36 202
30.2%
17 746
53 948
18 256
15.2%
19 250
16.0%
Chapter 4: The Government and Fiscal Policy
19
Table 4.10 on the previous page shows that over the five-year period 1998 to 2002 the total assets of
the government increased by 15.79 per cent, and the total liabilities increased by only 2.89 per cent.
This meant that the Crown balance (net worth) improved by over 84 per cent during the period. At the
same time, net Crown debt decreased by over 20 per cent. The government was also on target to meet
its fiscal responsibility that long-term gross Crown debt should not to be more that 30 per cent of
GDP; in 2002 it was 30.2 per cent. On average over the 1998 to 2002 period, gross Crown debt was
33.98 per cent, the Crown balance was 9.8 per cent, and net Crown debt was 19.76 per cent. We can
see from Table 4.9 that net Crown debt was also falling, from 24.1 per cent of GDP in 1998 to 16 per
cent of GDP in 2002.
We end Chapter 4 by looking at State Owned Enterprises and Crown Entities (both listed as
assets in the statement of financial position of the government).
STATE OWNED ENTERPRISES
In 1986 the fourth Labour Government passed the State Owned Enterprises Act. This was the first of a
two-staged process in the privatisation of some nationalised industries. Fourteen SOEs were created in
1987 including: Coalcorp, Forestycorp, Telecomcorp, NZ Post, Postbank, Air New Zealand,
Petrocorp, Railwayscorp, and Electricity Corporation. Under this Act the Boards of the SOEs were
given autonomy on operational matters, and the SOEs were no longer responsible for continuing the
non-commercial operations of the Enterprise. If the government required this then it had to negotiate
an explicit contract with the SOE concerned (for example, the TVNZ Charter).
The State Sector Act (1988) defined the responsibilities of chief executives of departments and
their accountability to government Ministers. The key objectives of the State Sector Act included
productivity, flexibility, and accountability. The Public Finance Act (1989) created the basis to improve
the quality and transparency of financial management and information.
Some of these SOEs were sold, for example Telecomcorp, Air New Zealand, and Railwayscorp.
While others remained as companies owned by the government; however, with their own independent
board of directors who operated independently of the government. This created a clear division of the
business objectives that the managers of the SOEs followed, and the social (or other objectives) that
the government may wish to achieve. Table 4.11 outlines New Zealand’s state asset sales, their price,
the settlement date, and purchaser to the end of September 1999.
Table 4.11 New Zealand state asset sales to end September 1999
Business
New Zealand Steel
Petrocorp
Health Computing Service
DFC
Post Office Bank
Shipping Corporation
Air New Zealand
Landcorp Financial
Instruments
Rural Bank
- clawback
Sale Price
($ 000)
327 224
801 059
4 250
111 280
Settlement
Date
22/03/88
31/03/88
07/11/88
18/11/88
665 400
13 078
18 500
15 059
-1 825
28/02/89
31/10/89
03/04/89
19/03/90
12/10/93
23/12/93
17/04/89
20/03/89
05/10/89
05/02/90
31/10/89
30/09/92
660 000
15 740
34 260
27 000
500 000
137 500
Purchaser
Equiticorp
Rossport Investments Ltd
Paxus Information Services
National Provident Fund (80%) and
Salomon Brothers (20%)
Australia and New Zealand Banking Group
Limited
ACT (Z) Ltd
Mortgagors
Magneton Holdings Ltd
(continued)
Chapter 4: The Government and Fiscal Policy
20
Government Printing Office
National Film Unit
Communicate NZ
State Insurance Office
Tourist Hotel Corporation
(THC of NZ Ltd)
New Zealand Liquid Fuel
Investment Ltd
Maui Gas
Synfuels Stocks and
Current Assets
-clawbacks 1991/92
-clawbacks 1992/93
-clawbacks 1993/94
-clawbacks 1994/95
-clawbacks 1995/96
Telecom
Forestry Cutting Rights
NZ Timberlands Ltd
Export Guarantee Office
Ltd
Government Supply
Brokerage Corporation (NZ)
Ltd
20 000
18 156
425
1 500
1 000
64
735 000
71 850
1989/90
1990/91
31/03/93
23/03/90
21/09/90
08/12/90
28/06/90
15/06/90
-203 000
06/07/90
240 000
14 000
29 158
06/07/90
06/07/90
06/07/90
91 847
45 571
35 262
2 096
2 120
4 250 000
102 000
262 000
382 900
305
115 000
40 550
26 800
150
41 550
43 500
350
12 000
366 000
17 781
2 000
500
3 200
12/09/90
24/07/90
24/07/90
30/08/90
30/08/90
18/09/90
19/09/90
19/09/90
19/09/90
19/09/90
24/10/90
26/10/90
26/10/90
15/05/92
24/06/93
31/08/94
20/12/96
30/01/92
Various
Rank Group
TVNZ
DAC Group Ltd
Norwich Union
Southern Pacific Hotel Corporation NZ Ltd
Fletcher Challenge Canadian Investments
Ltd
Generate Development Ltd and Benhar
Holding Ltd
Fletcher Challenge Ltd
Ernslaw One Ltd
Fletcher Challenge
Carter Holt Harvey
Consortium of NZ Investors
Wenita Forestry Ltd
Juken Nissho
Baigents/Shell (NZ) Ltd
Golden Bay Forest
Juken Nissho
Juken Nissho
Waimea Sawmills
Winstones
ITT Rayonier
State Insurance Office
Professional Services Ltd
(continued)
Chapter 4: The Government and Fiscal Policy
21
Housing Corporation
Mortgages
29 684
420 352
46 000
12 877
7 929
7 137
99 465
280 584
34 000
4 000
10 900
185 500
45 100
44 500
80 000
8 200
183 100
18 100
5 900
3 500
30 100
74 100
521 700
5 900
17 300
177 400
61 100
25/11/91
27/07/92
28/09/92
Oct-Nov
1992
Feb 1993
09/03/93
29/03/93
29/03/93
30/01/95
29/02/95
30/03/95
30/04/95
30/05/95
01/07/95
11/09/95
18/09/95
30/01/96
25/03/96
03/05/96
06/05/96
27/05/96
17/06/96
24/06/96
28/07/96
23/09/96
21/09/98
22/01/99
06/04/92
TSB Bank Ltd
Postbank/Mortgage Corp
TSB Bank
Tower Corp
Postbank/Mortgage Corp
Mortgage Corp
Ichthus
ANZ Banking Group
ANZ Banking Group
ANZ Banking Group
Countrywide Bank
ANZ Banking Group
ANZ Banking Group
Countrywide Bank
Countrywide Bank
Countrywide Bank
ANZ Banking Group
Countrywide Bank
IHC
ANZ Banking Group
Westpac
ANZ Banking Group
ANZ Banking Group
WestpacTrust
WestpacTrust
Taranaki Petroleum Mining
Licences
- clawback
118 840
Bank of New Zealand
New Zealand Rail
849 946
328 191
31/08/92
01/03/93
09/11/92
30/09/93
Wrightsons Rights
Fletcher Challenge Limited
Ordinary Division and
Forestry Division Shares
GCS Limited
Waikato Regional Airport
Limited
3 449
418 059
25/11/93
23/12/93
46 991
2 125
18/11/94
29/03/96
Oamaru Airport
Te Kuiti Airport
Timaru Airport
Masterton Airport
Tauranga Airport
Hokitika Airport
Rotorua Regional Airport
Limited and Palmerston
North Airport Limited
Auckland International
Airport Limited
Wellington International
Airport
40
Nominal
Nominal
Nominal
1 061
Nominal
2 500
30/06/96
30/06/96
01/05/97
01/05/98
01/05/98
01/07/98
01/02/99
EDS holdings (NZ) Ltd
Hamilton City Council, Matamata/Piako
District Council, Otorohanga District
Council, Waikato District Council, and
Waipa District Council
Waitaki District Council
Waitomo District Council
Timaru District Council
Masterton District Council
Tauranga District Council
Westland District Council
Central Avion Holdings Limited
459 832
28/07/98
Public Share Float
96 380
14/08/98
Consortium led by Infratil NZ Ltd
2 296
Petrocorp/Southern Petroleum
Nomeco
Bligh Carpentaria
National Australia Bank
Wisconsin Central, Berkshire Partners, III
L.P., Fay Richwhite
Domestic and International Institutions
Domestic and International Institutions
(continued)
Chapter 4: The Government and Fiscal Policy
22
Maori Development
Corporation
The Radio Company
Limited
Forestry Corporation of
New Zealand
Works and Development
Services Corporation (NZ)
Limited
Capital Properties New
Zealand Limited (CPNZ)
First Instalment
Contact Energy Limited—
40% cornerstone
Contact Energy Limited—
60% float
VTNZ
Total
Source: The New Zealand Treasury
20 930
17/06/96
Maori Development Corporation
89 000
10/07/96
New Zealand Radio Limited
1 600 000
27/09/96
108 000
08/11/96
59 700
27/11/98
Fletcher Challenge Forests (37.5%),
Brierley Investments Ltd (25%), Citifor Inc
(37.5%)
Civil Construction to Downer and Co Ltd,
and Consultancy Services to Kinta Kellas
PLC
Public Share Float
1 208 000
14/05/99
Edison Mission Taupo Limited
1 123 000
4/04/99
Public Share Float
19 200
21/09/99
Motor Trade Association Investments
Limited
19 122 078
From Table 4.11 we can see the assets that were sold by New Zealand governments from the late1980s until the end of September 1999. We also get information about who bought the asset and the
price paid. Eleven assets sold by the government account for 83.93 per cent of the total revenue
received from the asset sales. The top eleven are: Telecom, Housing Corporation Mortgages, Contact
Energy, Foresty Corp, Forestry Cutting Rights, BNZ, Petrocorp, State Insurance, Landcorp, Post
Office Bank, and Air NZ. Combined these eleven asset sales generated over $16 billion of revenue to
the New Zealand government. The sale of Telecom alone represented 22.23 per cent of the total
revenue generated from asset sales. Housing Corporation Mortgages represented 12.63 per cent of asset
sale revenue, Contact Energy 12.19 per cent, Forestry Corp 8.37 per cent, and Forestry Cutting Rights
5.37 per cent. The selling of these industries did provide the government revenue, and a large chunk of
this money went to the repayment of government overseas debt. In recent times the New Zealand
government has bought back major holdings in Air New Zealand and some aspects of the regional
railway service.
As well as SOEs, the government also set up a series of Crown Entities (CE), which were agencies
created by the government for a specific reason, for example: the Accident Compensation Corporation,
the Lotteries Commission, the Commerce Commission, the Health Funding Authority, and every
public school board of trustees.
Having looked at the New Zealand domestic economy we move in the next chapter to the
international sector, its impact on the New Zealand economy, and the relationships New Zealand has
with overseas trading partners.
Chapter 4: The Government and Fiscal Policy
23
CHAPTER FIVE
THE INTERNATIONAL ECONOMY
New Zealand is a small open economy, most often a price-taker in international markets, and also for
the most part a policy-taker as well. The New Zealand economy is heavily reliant, and impacted on by,
the international economy and international situations such as geopolitical conflicts, diseases abroad,
and the economic conditions of other nations.
This chapter begins by looking at what we trade, to whom, and the trading partnerships and
relationships that New Zealand has. The chapter then moves to examine import and export policy in
New Zealand. Discussion of the balance of payments of New Zealand, the New Zealand dollar, and
foreign investment in New Zealand concludes the chapter.
EXPORTS AND IMPORTS
New Zealand is a signatory to a number of trading relationships and agreements. Before we look at
some of these relationships, an examination of what we trade and who we trade with is necessary.
Table 5.1 outlines New Zealand’s overseas merchandise trade (in actual values) from 1992 to 2002.
Merchandise trade is the trade in commodities (or goods), and this table shows the value New Zealand
gets for its export commodities and the amount New Zealand pays for its imported commodities.
Table 5.1 Overseas merchandise trade actual values 1992–2002
Year
Exports
end
($ million)
Dec
1992
18 208
1993
19 492
1994
20 519
1995
20 787
1996
20 876
1997
21 458
1998
22 416
1999
23 583
2000
29 257
2001
32 670
2002
31 026
Source: Statistics New Zealand
Change from the
previous year
(%)
9.2
7.0
5.3
1.3
0.4
2.8
4.5
5.2
24.1
11.7
-5.0
Imports
($ million)
17 131
17 781
19 981
21 251
21 399
21 964
23 348
27 114
30 736
31 682
32 355
Change from the
previous year
(%)
17.9
3.8
12.4
6.4
0.7
2.6
6.3
16.1
13.4
3.1
2.1
Trade balance
(exports minus
imports)
1 077
1 710
538
-464
-523
-506
-932
-3 531
-1 479
988
-1 330
From Table 5.1 it is clear to see that New Zealand had a positive trade balance (actual value of exports
was greater than the actual value of imports) in only three years over this period, in 1992, 1993, and in
2001. In terms of percentage growth over the 1992 to 2002 period there has been a 70.40 per cent
increase in the value of New Zealand’s exports. Over these years, however, the value of New Zealand’s
imports grew by 88.87 per cent. Factors such as the value of the New Zealand dollar (a low New
Zealand dollar means exporters get greater returns for their exported product), consumer demand,
world commodity prices, droughts and the like, all play a part in influencing the return for exported
commodities, and the value of imported commodities entering New Zealand.
Figure 5.1 outlines the trend in the value of imported and exported commodities in New
Zealand over the years 1992 and 2002. The changes in the trade balance over these years can be seen in
Figure 5.2. The largest deficit of the balance of trade is seen in 1999, but the trade balance improved in
Chapter 5: The International Economy
24
2001 to a surplus, before declining again in 2002. The average trade balance over the eleven years was a
deficit of just over $404 million.
Figure 5.1 Overseas merchandise trade actual values 1992–2002
Overseas Merchandise Trade
Actual Values 1992-2002
35,000
30,000
25,000
$ mill
20,000
Exports
15,000
Imports
10,000
5,000
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Source: Statistics New Zealand
Figure 5.2 Overseas merchandise trade balance (EX-IM) actual values 1992–2002
Trade Balance Actual Values 1992-2002
2,000
1,000
$ mill
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
-1,000
-2,000
-3,000
-4,000
Year
Source: Statistics New Zealand
Looking a little closer at both exports and imports provide a picture of what commodities New
Zealand actually exports and imports, who buys New Zealand’s commodities, and where the imported
commodities New Zealand purchases come from. We will begin by taking a snapshot at what
commodities New Zealand exported in 2001 and 2002, what their actual values were, and what their
percentage share of total commodity exports were.
Chapter 5: The International Economy
25
Table 5.2 Overseas merchandise trade exports (commodities) actual values 2001 and 2002
Commodity
Year end Dec
2001 ($million)
Commodity
share of all
merchandise
exports 2001
(%)
19.40
Year end Dec
2002 ($ million)
Commodity
share of all
merchandise
exports 2002
(%)
16.68
Milk powder, butter and
6 339
5 175
cheese a
Meat and edible offal b
4 316
13.21
4 284
13.81
Logs, wood and wood
2 255
6.90
2 499
8.05
articles
Fish, crustaceans and
1 349
4.13
1 370
4.42
molluscs
Mechanical machinery and
1 371
4.20
1 348
4.34
equipment
Aluminium and aluminium
1 227
3.76
1 114
3.59
articles c
Fruit and nuts
1 002
3.07
1 106
3.56
Casein and caseinates
1 318
4.03
1 027
3.31
Electrical machinery and
1 036
3.17
961
3.10
equipment
Wool
829
2.54
824
2.66
Raw hides, skins and
851
2.60
698
2.25
leather d
Textiles and textile articles
575
1.76
613
1.98
Petroleum and products
695
2.13
550
1.77
Wood pulp and waste paper
533
1.63
537
1.73
Iron and steel articles
588
1.80
511
1.65
Other commodities
8 220
25.16
7 301
23.53
Confidential data
167
0.51
1 069
3.45
Estimate for late data
40
0.12
All merchandise exports
32 670
100%
31 026
100%
a
The world price for dairy products increased in February 2003 by 1.3 per cent, representing a 37.8 per cent increase in
dairy prices since a low in July 2002. In March 2003, however, dairy prices fell, along with timber and wool.
Commodities such as pulp, logs and lamb saw their prices rise in March 2003.
b
In February 2003 the world prices for beef fell by 2.7 per cent.
c
In February 2003 the world prices for aluminium increased by 3.3 per cent.
d
In February 2003 the world prices for skins increased by 8.7 per cent.
Source: Statistics New Zealand
The competitive advantages of New Zealand are in agriculture, horticulture, forestry and fisheries,
which make up around 50 per cent of New Zealand’s exports of goods (its merchandise trade). This is
in contrast to the OECD average where these goods make up only 7.2 per cent of export receipts. The
difficult thing for New Zealand is the fact that the majority of these products face tariffs, quotas, other
trade barriers, and competition from heavily subsidised products in most of the markets they export to.
In the areas of dairy produce and sheep meat (and some small niche markets) New Zealand is a major
player in the international market, however, most of the time New Zealand is in fact a price-taker.
From Table 5.2 it can be seen that dairy products (milk powder, butter and cheese) had the largest
commodity share of total exported commodities at 19.40 per cent in 2001 and 16.68 per cent in
2002, followed by meat and edible offal. Logs, wood and wood articles represented 35.67 per cent of
dairy receipts in 2001, but their contribution was closer to 50 per cent in 2002, with an increase of
10 per cent in their receipts in 2002. Fruit and nuts, and textiles also returned increasing export receipts
in 2002, and their percentage share of total export commodity receipts increased as well.
Manufacturing in New Zealand is a sector that until the mid-1980s was one of the most
protected in the OECD. The removal of tariffs in the New Zealand manufacturing sector caused major
restructuring. There were job losses in the sector and a general loss of confidence. The manufacturing
Chapter 5: The International Economy
26
sector has, however, had improved labour productivity, and its export performance has also improved.
Between 2001 and 2002, the percentage share of mechanical machinery and equipment increased in
New Zealand despite the value of their export returns decreasing.
The export values of commodities had continued to fall in the December 2002 quarter, which
represented the third consecutive quarter to record a decrease in value. The commodities of fruit, dairy
products, logs and wood were the major commodities losing export value. The strong (and rising) New
Zealand dollar undoubtedly had a negative influence on export receipts.
The next issue to consider is where New Zealand sells its export commodities. The returns
from the top twenty countries of New Zealand exports by destination in 2001 and 2002 is in Table 5.3.
Table 5.3 Returns from exports by destination (top twenty countries) 2001 and 2002
Country
Australia
USA
Japan
UK
People’s Republic of China
Republic of Korea
Germany
Taiwan
Canada
Hong Kong
Belgium
Malaysia
Philippines
Indonesia
Italy
Mexico
Singapore
France
Thailand
Fiji
Total top twenty
Source: Statistics New Zealand
Year end Dec 2001
($million)
6 181
4 851
4 083
1 558
1 349
1 440
839
711
631
786
547
698
565
549
536
551
399
367
412
248
27 301
Year end Dec 2002
($ million)
6 217
4 763
3 566
1 493
1 430
1 369
909
679
649
628
626
592
467
466
465
456
386
383
353
285
26 182
Percentage change
(%)
0.6
-1.8
-12.7
-4.2
6.0
-4.9
8.4
-4.4
2.7
-20.1
14.5
-15.1
-17.3
-15.1
-13.2
-17.2
-3.2
4.4
-14.2
15.0
-4.1
In 2001 and 2002 Australia was the major single destination of New Zealand’s exported commodities.
What is interesting is that despite falling export receipts overall in 2002 from 2001, New Zealand
returns from exports to Australia did in fact increase, not decrease. Instead, it was export returns from
countries such as Hong Kong, Mexico, the Philippines, Indonesia, Thailand, Japan, and Italy that saw
double digit decreases in growth. A country like Belgium (eleventh on the top twenty list) saw export
returns increase by 14.5 per cent, and Fiji, twentieth on the list, saw export returns increase by 15 per
cent. These top twenty export destinations made up nearly 84 per cent of total commodity export
returns in 2001, and over 84 per cent in 2002.
Of these twenty nations, five were from Europe, three were from the Americas, two were
South Pacific nations, and the remaining ten were Asian countries. In 2001, over 33.5 per cent of total
export receipts to New Zealand came from the ten Asian countries listed in the top twenty export
destinations, with nearly 19 per cent coming from the South Pacific, over 18 per cent from the
Americas, and over 11 per cent from Europe. In 2002 the share of total export receipts from the top
ten Asian nations fell slightly to just over 32 per cent, the share of total export returns increased from
the South Pacific to nearly 21 per cent, the Americas to nearly 19 per cent, and Europe to nearly
12.5 per cent. It is too early to tell what possible effect SARS may have on New Zealand’s export
returns from Asia in 2003.
Chapter 5: The International Economy
27
From exports we take a snapshot of imports. First, we examine the actual values of the
imported commodities to New Zealand, and their percentage share of total imported commodities in
2001 and 2002, before discussing the top 25 countries that imported goods to New Zealand in 2001
and 2002.
Table 5.4 Overseas merchandise trade imports (commodities) actual values 2001 and 2002
Commodity
Vehicles, parts and accessories
Mechanical machinery and equipment
Petroleum and products
Electrical machinery and equipment
Textiles and textile articles
Plastic and plastic articles
Iron, steel and articles
Optical, medical and measuring equipment
Paper and paperboard and articles
Aircraft and parts
Pharmaceutical products
Inorganic chemicals
Other chemical products
Toys, games and sports requisites
Rubber and rubber articles
Books, newspapers and printed matter
Furniture, furnishings and light fittings
Essential oils, perfumes and toiletries
Miscellaneous edible preparations
Beverages, spirits and vinegar
Organic chemicals
Fertilisers
Tanning extracts, dyes, paints and putty
Aluminium and aluminium articles
Footwear
Salt, earths, stone, lime cement
Glass and glassware
Preparations of cereals, flour and starch
Fruit and nuts
Metal tools, implements and cutlery
Sugars and sugar confectionery
Preparations of vegetables, fruit and nuts
Cereals
Photographic films, papers and chemicals
Precious metals, jewellery and coins
Animal and vegetable fats and oils
Ceramic products
Soap and organic surface-active agents
Food residues, wastes and fodder
Logs, wood and wood articles
Other commodities
Confidential data
All merchandise imports
Source: Statistics New Zealand
Year end
Feb 2002
($million)
Commodity share
of all merchandise
imports (year end
Feb 2002) (%)
Year end
Feb 2003
($million)
Commodity share
of all merchandise
imports (year end
Feb 2002) (%)
4 221
4 273
3 055
2 954
1 694
1 338
984
979
932
983
776
561
354
404
422
346
409
355
346
346
382
413
307
259
253
260
217
203
203
186
231
166
141
175
149
172
142
161
157
142
2 069
13
32 132
13.14
13.30
9.51
9.19
5.27
4.16
3.06
3.04
2.90
3.06
2.42
1.75
1.10
1.26
1.31
1.08
1.27
1.10
1.08
1.08
1.19
1.29
0.96
0.81
0.79
0.81
0.68
0.63
0.63
0.58
0.72
0.52
0.44
0.54
0.46
0.54
0.44
0.50
0.48
0.44
6.43
0.04
100%
4 847
4 425
2 977
2 674
1 657
1 291
1 005
975
898
849
763
468
406
399
394
386
383
369
357
348
323
317
311
269
244
236
229
222
215
190
184
178
170
168
164
160
153
153
147
145
2 061
80
32 187
15.06
13.75
9.25
8.31
5.15
4.01
3.12
3.03
2.79
2.64
2.37
1.45
1.26
1.24
1.22
1.20
1.19
1.15
1.11
1.08
1.00
0.98
0.97
0.84
0.76
0.73
0.71
0.69
0.67
0.59
0.57
0.55
0.53
0.52
0.51
0.50
0.47
0.47
0.46
0.45
6.40
0.25
100%
The major imported goods to New Zealand in actual values were vehicles, parts and accessories, and
mechanical machinery and equipment, followed closely by petroleum and products, and electrical
Chapter 5: The International Economy
28
machinery and equipment. Together, these four import commodities groups made up just over
45 per cent of the total imported commodity values in 2001, and over 46 per cent in 2002. Around
53 per cent of total imported commodity values were made up of goods used in the production of
other goods and services, products like mechanical machinery, rubber and rubber articles among
others. The fact that New Zealand does not have an automobile producing industry means a large
percentage of New Zealand’s imports are vehicles. When the New Zealand dollar is stronger against the
countries we buy imports from, prices of imports become cheaper (we can buy more imports for our
New Zealand dollar), so there tends to be greater expenditure on imported products.
So where does New Zealand receive imported goods from? Table 5.5 lists the top twenty-five
countries that sourced New Zealand’s imports in actual values in 2001 and 2002.
Table 5.5 Imports by source (top twenty-five countries) actual values 2001 and 2002
Country
Australia
United States of America
Japan
People's Republic of China
Germany
United Kingdom
Italy
Republic of Korea
Malaysia
France
Taiwan
Singapore
Thailand
United Arab Emirates
Indonesia
Canada
Oman
Belgium
Sweden
Netherlands
Saudi Arabia
Switzerland
India
Spain
Austria
Total top twenty-five
Source: Statistics New Zealand
Year end Feb 2002
($million)
7 054
5 086
3 573
2 283
1 549
1 232
742
747
939
613
660
621
530
246
444
473
317
332
365
296
520
211
193
168
125
29 320
Year end Feb 2003
($ million)
7 304
4 248
3 874
2 622
1 680
1 161
837
798
795
705
665
582
551
449
426
383
375
366
325
323
235
225
191
162
159
29 442
Percentage
change (%)
3.5
-16.5
8.4
14.9
8.5
-5.7
12.7
6.8
-15.4
14.9
0.7
-6.3
3.8
82.7
-3.9
-19.1
18.4
10.1
-11.0
9.2
-54.9
6.7
-1.0
-3.7
27.0
0.4
In 2001 and 2002 Australia was the single largest source of New Zealand’s imports in actual values,
followed by the United States and Japan. This is the same order of countries as New Zealand’s major
export destinations. In 2001, these top twenty-five received just over 91 per cent of New Zealand
import spending on commodities, and nearly 91.5 per cent in 2002.
Of the top twenty-five countries who supplied New Zealand’s commodity imports, ten were
from Europe, nine from Asia (including India), three were from the Middle East, two from the
Americas, and one from the South Pacific—Australia. Australia received nearly 22 per cent of New
Zealand’s total import expenditure on commodities in 2001, and 22.7 per cent in 2002. The largest
share, however, went to the nine Asian countries listed in the top twenty-five, receiving just over
31 per cent of total import spending on commodities in 2001, and 32.6 per cent in 2002. The ten
European nations received 17.5 per cent and nearly 18.5 per cent, in 2001 and 2002 respectively. The
two countries from the Americas, and the three Middle Eastern nations actually saw a decrease in New
Zealand spending on imported commodities. The Americas received a 17.3 per cent share of total
Chapter 5: The International Economy
29
import spending on commodities in 2001 and 14.4 per cent in 2002, while the Middle Eastern countries
fell from 3.4 per cent in 2001 to 3.3 per cent in 2002.
We can see from the previous tables that New Zealand’s major merchandise trading partner is
Australia, with bilateral trade representing around twenty per cent of total exports and imports. Since
1998 the United States has been New Zealand’s second largest trading partner. Further development of
trade with the United States is hampered by quotas on dairy products, and in recent years the
impositions of new tariffs on lamb and steel. There is hope for a free trade agreement between New
Zealand and America, but this too may be constrained by political considerations (for example,
agricultural products, the nuclear issue, and special interest groups in the United States).20
It is also clear from the tables of exported and imported commodities that Asian countries are
important to New Zealand’s trade. To this end New Zealand has further developed trading
relationships in Asia, which are discussed later in this chapter.
The discussion on trade now moves from New Zealand’s trade in commodities to New
Zealand’s trade in services. Table 5.6 outlines the actual values of New Zealand’s trade in services in
2001 and 2002.
Table 5.6 Trade in services actual values (exports and imports) quarters ended 2001 and 2002
Total exports of
services
Transportation
Travel
Other services
Personal, cultural and
recreational
Government services
Total imports of
services
Transportation
Travel
Other services
Personal, cultural and
recreational
Government services
Balance on services
Source: Statistics New Zealand
Sept 2001
($ million)
Dec 2001
($ million)
June 2002
($ million)
Sept 2002
($ million)
Dec 2002
($ million)
2 616
March
2002
($million)
3 653
2 115
2 507
2 336
2 998
624
985
430
38
633
1 447
456
44
794
2 248
523
52
536
1 280
617
43
548
1 095
616
41
681
1 662
569
50
38
2 489
38
2 582
36
2 272
31
2 608
35
2 585
36
2 633
853
816
769
14
892
793
852
11
824
635
744
30
860
895
788
23
923
813
799
14
947
844
791
11
37
-375
35
34
40
1 380
42
-101
36
-269
40
365
It is clear from Table 5.6 that travel was the largest single export earner for New Zealand, making up,
on average, 52.8 per cent of total export receipts of services over the six quarters to the end of 2002.
This is followed by transportation, which on average made up 23.83 per cent of total export returns of
services from the September quarter 2001 to the end of 2002. Other services, which includes education,
was increasing in importance to New Zealand as an export earner, and averaged 20.34 per cent of
export receipts for the eighteen months to the end of 2002.
20
In April 2003 a WTO panel told the United States that the tariffs imposed on steel imports in 2002 (and set to last for
three years) broke global trading rules. New Zealand steel imports to the United States have faced up to an additional
30 per cent on a range of its steel products. Though this is an interim ruling, the United States have said they will appeal
if the ruling does not change. Australia, however, appealed directly to the United States and was granted exemptions
from the tariffs that were imposed. In September 2003 a review will take place in the United States to see if the tariffs
will remain in place for the three years or, come off early. (Source: Ministry of Foreign Affairs and Trade).
Chapter 5: The International Economy
30
From the point of view of imports, the big three imports of services in terms of their actual
values were transportation, travel, and other services. On average over the period of the September
quarter 2001 to the end of 2002, transportation accounted for 34.96 per cent of total import spending,
31.54 per cent was spent on travel, and 31.30 per cent was spent on other services.
On average over the September quarter 2001 to the end of 2002 the balance of services was
positive at over $175 million (that is, New Zealand received more from the export of services than it
spent on the import of services).
Visitor numbers to New Zealand have continued to increase on average from the late 1990s to
2003. In March 1999 international tourism accounted for $4.7 billion of total tourism expenditure in
New Zealand, and together with domestic tourism contributed $8.4 billion to New Zealand’s GDP
either directly or indirectly.21 As an industry tourism is a substantial earner of New Zealand’s export
receipts. In February 2003 short-term overseas visitor numbers had continued to increase, up
5 per cent on the same time in 2002. There were increasing visitor numbers from Australia, the United
Kingdom, Korea, China, and the United States. The number of days these visitors stayed in New
Zealand was also increasing. To the year ended February 2003, 2.071 million international visitors came
to New Zealand, up 7 per cent on the year ended February 2002. Factors such as a relatively low New
Zealand dollar, New Zealand being a relatively safe country internationally, New Zealand’s ‘clean and
green’ image, and New Zealand’s adventure tourism market all impacted positively on the tourism
industry. There are factors, however, that impact negatively on international tourism such as increases
in airline ticket prices, the threat of terrorism, the availability and ease of international travel, and things
like SARS. Some of these factors may cause a decline in the number of people willing to travel
internationally. Any possible impact of SARS on visitor arrivals (or New Zealand travel abroad) is still
to be seen.
Another services industry that generates for New Zealand large export earnings is education.
Export education is considered to be a ‘green’ product, and it slots into the New Zealand knowledgebased economy emphasis. In 2002, export education contributed $1.7 billion to the New Zealand
economy, with an expectation that over the next ten years this figure could rise to between four and
five billion dollars.22
In 2002 around 1.8 million students attended an educational facility outside their home country.
It is predicted that this number will increase to 7.2 million by 2025.23 It has been estimated that New
Zealand has the capacity for 120,000 places per year for international students. In 2002, New Zealand
had over 80,000 international students studying in New Zealand education facilities, with most of these
students coming from China, South Korea, and Japan.
A government policy change in 1989 meant that public education institutions were able to
charge full fees to international students, thereby encouraging them to have more international students
attend their facilities. Students coming from China were limited between 1989 and 1999 due to quotas
set by New Zealand. These quotas were lifted in 1999, and New Zealand was endorsed by China as an
acceptable education destination. Numbers of students entering New Zealand to study from China
have grown considerably. Based on 2002 figures the makeup of international students studying in New
Zealand was as follows: China 39.6 per cent, South Korea 19.5 per cent, Japan 16.5 per cent, the
Americas 2.9 per cent, Europe 3.3 per cent, and the rest of the world 5.4 per cent.24 Asia 2000 in its
April 2003 paper ‘The Export Education Industry: Challenges for New Zealand,’ stated that there were
over 1,100 education providers in New Zealand for international students.25
21
Source: Tourism Research Council of New Zealand.
Asia 2000, April 2003, ‘The Export Education Industry: Challenges for New Zealand’.
23
Asia 2000, April 2003, ‘The Export Education Industry: Challenges for New Zealand’.
24
Source: Asia 2000.
25
As of 1 July 2003, all private educational providers in New Zealand had to be registered with the NZQA which would
ensure better accuracy of the number of institutions providing education to international students.
22
Chapter 5: The International Economy
31
The New Zealand government introduced an Export Education Levy in 2003.26 Education
institutions have to pay a percentage of the revenue they receive from international students to the
government. This levy, expected to raise $2.8 million in 2003, is projected to raise $3.76 million in 2004,
and $3.9 million in 2005.
Many issues surround the export education industry. Issues of capacity, staffing,
accommodation, the quality of students entering New Zealand, the degree of English competency, and
student well-being, particularly very young international students who may not have sufficient parental
support or supervision. In April 2003, the Minister of Education Trevor Mallard launched a public
discussion document to examine the Code of Practice for the Pastoral Care of International Students.
We have discussed trade in goods, and now trade in services, next we look at the terms of trade.
Figure 5.2 shows New Zealand’s Terms of Trade Index between 1994 and 2002. The terms of trade is
the average price of goods and services exported from New Zealand, divided by the average price of
goods and services imported into New Zealand. Increasing terms of trade means that New Zealand’s
export prices are rising at a faster rate than the prices of imported goods and services.
Figure 5.3 The terms of trade index 1994–2002 (base: year end June 1989 = 1000)
Terms of Trade Index 1994-2002
1180
1160
1140
1120
Index 1100
1080
1060
1040
1020
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
Source: Statistics New Zealand
Over the period 1994 to 2002 the average terms of trade index figure was 1104. There was a relatively
flat period between 1996 and 2000 where the terms of trade index ranged between a high of 1094 (in
1996) to a low of 1075 (in 1999), with an average of 1083. In 2001, the terms of trade index rose by
7.36 per cent, indicating New Zealand’s export prices were rising at a faster rate than those of the prices
of imported goods and services. The terms of trade index, however, declined in 2002 by 3.5 per cent.
The chapter now moves to look at the trading relationships New Zealand has with a number of
countries and its membership in international trading groups.
26
In 2003 the levy is a flat fee of $185 (GST exclusive) payable by every provider, and 0.45 per cent of the total tuition
and course fee income (GST exclusive).
Chapter 5: The International Economy
32
TRADING PARTNERSHIPS AND RELATIONSHIPS
This next section examines the relationship between New Zealand and Australia (CER), the South
Pacific and Asian relationships, Closer Economic Partnerships, and the GATT/WTO.
Australia–New
(ANZCERTA)
Zealand
Closer
Economic
Relations
Trade
Agreement
In 1966 Australia and New Zealand signed the New Zealand–Australia Free Trade Agreement
(N[Z]AFTA), which evolved into the Australia–New Zealand Closer Economic Relations Trade
Agreement (CER) in 1983. This agreement encouraged increasing trade between the two nations.
N[Z]AFTA reduced many of the duties on goods traded between the two countries. CER, however,
saw further liberalisation of market access with the removal of tariffs and quotas on trade.
The key objectives of CER were, and still are to:
 Strengthen the relationship between New Zealand and Australia.
 Develop a closer economic relationship with the mutually beneficial expansion of free trade.
 Eliminate barriers to trade in a gradual progressive manner.
 Develop trade under conditions of fair competition.
CER adopted a negative list; it timetabled the removal of trade interventions, which applied to all
commodities except those specifically exempted.27 Another aspect of the relationship between New
Zealand and Australia was in the makeup of the two countries’ exports to each other, which is very
different from the makeup of their global exports. Internationally, both countries merchandise exports
are dominated by primary goods; however, their bilateral trade is dominated by manufactured goods.
CER achieved:
 The elimination of all quantitative restrictions on trade by 1990.
 The ending of anti-dumping actions.
 Free trade in all goods and services unless specifically exempted.
 An agreement not to subsidise exports into each other’s country.
 The free movement of people.28
 The harmonisation of a number of regulatory and business practices, including aspects of
customs and business law.
 The Trans-Tasman Mutual Recognition Arrangement.
 The Australia/New Zealand Joint Food Standards System.
The Trans-Tasman Mutual Recognition Arrangement means that a product that can be legally sold in
one country may be legally sold in the other. It does not have to meet any other sales-related regulatory
requirements. Some goods, however, are not currently part of the TTMRA, including gas appliances,
road vehicles, hazardous substances, and industrial chemicals. The Recognition Agreement continues
this further by stating that a person who is registered to carry out an occupation in one country
(excluding medical practitioners) is entitled to practise an equivalent occupation in the other.
New Zealand had two items on its ‘negative list’ on air services and coastal shipping. Australia had six items: air
services, broadcasting and television (x2), third party insurance, postal services and coastal shipping.
(Source: Ministry of Foreign Affairs and Trade).
28
The Trans-Tasman Travel Arrangement lets Australians and New Zealanders visit, live, and work in each country
without restriction. There are also social agreements between New Zealand and Australia, such as the Social Security
Agreement, the Reciprocal Health Agreement, and the Child Support Agreement. In 2002 the New Zealand
Government paid $NZ159 020 000 to Australia for benefits for New Zealanders living in Australia
(Source: 2002 Annual Report, Ministry of Social Development.)
27
Chapter 5: The International Economy
33
The Joint Food Standards System makes it easier for food producers to trade their products, as
it establishes a harmonised set of standards for both countries to follow. This also means lower costs
for food products.
The relationship between New Zealand and Australia does, from time to time, have issues to
resolve, for example: aspects of social security, people gaining citizenship in New Zealand and easily
entering Australia, airlines,29 bio-security and GE products, the single dollar, and common business
practices and business law. There are also areas of the CER relationship between New Zealand and
Australia that can be further enhanced, such as extending CER to other countries or regional groups.
Australia is New Zealand’s most important economic partner, and bilateral trade between the
two have doubled in real terms since the signing of CER in 1983. The trade balance has certainly
moved in New Zealand’s favour. Two-way investment between the countries is around $4 billion per
year, with the total investment stock being around $32 billion. New Zealand is the fourth largest
destination for Australian foreign investment, and Australia is the largest investor in New Zealand.
New Zealand is the eighth largest investor in Australia, and Australia is the largest destination for New
Zealand’s investment expenditure.30 A lot of work is being done to further integrate and reduce
business transaction costs, co-ordinate business law, securities, taxation, competition policy, and
intellectual property. There has also been talk of a merger of the Australian and New Zealand stock
exchanges, and an ANZAC dollar.
South Pacific and Asian Relationships
In 1971 the South Pacific Forum was established which encouraged economic and trading
relationships between the South Pacific Island nations. New Zealand and Australia formulated a new
trade and economic agreement for co-operation which as known as the South Pacific Regional Trade
and Economic Co-operation Agreement (SPARTECA). New Zealand and Australia agreed to provide
free and unrestricted entry for most of the goods exported from the Island nations of the Forum.
Another Asia–Pacific regional grouping is the Asia–Pacific Economic Co-operation
(APEC). APEC encompasses three continents, 42 per cent of the world’s population, 57 per cent of
the world’s economy, and 46 per cent of the world’s merchandise trade. 31 APEC, in May 2003, had
twenty-one members.32 In recent years it has broadened its scope to focus on trade liberalisation,
business facilitation, economic and technical co-operation, youth development, and the place and
status of women. APEC is not a formal trade agreement or a common market. It operates as a cooperative group of nations who work toward achieving trade and investment liberalisation, and
economic and technical assistance. The basis for APEC is a process of consultation and consensus.
In 1994, New Zealand signed the Bogor Declaration. This Declaration, signed by the APEC
members, moved to improve freer trade and investment for developed countries by 2010, and by
2020 for less developed nations.
29
In 1992 the Australian government began seeking buyers for Australian Airlines, then owned by the Australian
government. Air NZ worked through due diligence and lodged a non-binding bid, of $AUS400 million. Within days of
this offer the Australian government said it would sell Australian Airlines to Qantas at the same price Air NZ offered.
Qantas wanted a domestic arm to meet the demands of British Airways who eventually bought a 25 per cent share
of Qantas. Air NZ was shut out of the deal and New Zealanders were also ruled out of the bidding for a shareholding in Qantas. In October 1994 Air NZ was to begin operations in Australia in its own right. The day before Air NZ
was due to gain domestic access to Australia, however, the then transport Minister Laurie Bereton sent a fax to New
Zealand’s transport Minister Maurice Williamson rescinding the offer. The only avenue into the Australian domestic
airlines market would now be through buying into Ansett, and Air NZ did so. A few years later this too ended in
disaster, resulting in the New Zealand government having to buy a majority share of Air NZ to prevent its collapse,
effectively nationalising the industry.
30
Source: Ministry of Foreign Affairs and Trade.
31
Source: Ministry of Foreign Affairs and Trade.
32
Australia, Brunei, Darussalam, Canada, Chile, the People’s Republic of China, Hong Kong China, Indonesia, Japan,
South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Chinese
Taipei, Thailand, the United States of America, Vietnam.
Chapter 5: The International Economy
34
New Zealand was made a member of the Association of South East Nations (ASEAN)
Regional Forum (ARF) in 1994. Prior to this (since 1975), New Zealand had been a ‘dialogue partner’
with ASEAN. New Zealand attends the annual ASEAN Post Ministerial Conference. It is expected that
in 2003 ASEAN will expand its membership to include all South East Asian countries. ASEAN was
established in 1967 as a regional grouping of Indonesia, Malaysia, the Philippines, Singapore, and
Thailand. Initially the group focused on regional stability and political dialogue, however, in more
recent years, economic co-operation and integration has been emphasised.
Closer Economic Partnerships
In 2001, New Zealand signed an agreement with Singapore, a Closer Economic Partnership 33
(Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP)).
This CEP has improved the trading relationship between the two nations, Singapore has exported more
petroleum and petrochemical products to New Zealand, and the exports from New Zealand to
Singapore have diversified, specifically mechanical machinery, optical instruments, and iron and steel
products. There are further commitments to progressively liberalise trade in services between the two
nations. New Zealand is particularly interested in telecommunications, postal services, credit reporting
services, and disaster insurance. Work is continuing with the CEP to confirm the recognition of
professional qualifications and registrations between the two nations, as well as further facilitating
investment opportunities.
From 2000, the possibility arose of New Zealand being part of a ‘Pacific Three’ (P3) involving
New Zealand, Singapore, and Chile. This would be an extension of the existing CEP New Zealand has
with Singapore. From New Zealand’s point of view it would further diversify its trading relationships
and give it a foothold in Latin America. From Chile’s point of view it would enable Chile to move into
the Asia–Pacific region. Chile and New Zealand are both members of the Cairns Group (which is
discussed below), and already work together on trade liberalisation with respect to agriculture. For the
year to the end of December 2001, Chile was the forty-sixth most important export destination to New
Zealand, and the fiftieth most important source of imports to New Zealand.
New Zealand is also exploring the possibilities of further diversifying its trading relationships
with countries such as Hong Kong, the United States, and the ASEAN group. A CEP with Hong Kong
is at the discussion phase. It could result in a potential boost to New Zealand’s profile in
Hong Kong particularly in the areas of tourism and investment, as well as the trade in goods into North
Asia. Textile and footwear manufacturers in New Zealand are concerned about this move, particularly
with respect to ensuring that ‘rules of origin’34 are enforced.
General Agreement on Tariffs and Trade (GATT)/World Trade Organisation
(WTO)
The 1947 General Agreement on Tariffs and Trade (GATT) was created to improve free trade between
nations by decreasing international trade barriers. New Zealand was one of the original signatories to
this agreement. GATT (now the World Trade Organisation – WTO) enables international
trading disputes to be brought before it and settled under WTO rules. In April 2003, 146 nations were
WTO members.
Near the end of 2002 New Zealand won a dispute with Canada over its illegal export subsidies
through the WTO tribunal. Canada had to remove the subsidies to make it compliant with WTO rules.
These export subsidies were costing New Zealand approximately $US35 million a year. New Zealand is
33
A CEP is a comprehensive trading agreement aimed at improving the opportunities for trade in goods and services,
and investment.
34
The percentage of the content of the product that has to be made in the home country. For example, in the CEP with
Singapore 40 per cent is the minimum content requirement to qualify for duty-free entry, also the last process of
manufacture has to occur in the exporting country.
Chapter 5: The International Economy
35
a smaller economy than that of Canada, but through the WTO New Zealand has been able to settle
trading disputes successfully, and has brought a number of cases to the WTO. Trade disputes with the
United States over lamb tariffs, with the EU over butter, and with South Korea over beef are three
further examples of New Zealand using the WTO system to resolve trade disputes successfully.
New Zealand is a member of the Cairns Group, 35 a group of fifteen nations focusing on the
trade liberalisation of agricultural produce. New Zealand on its own does not have a lot of international
or economic muscle to drive change in agricultural trade liberalisation; it is a policy-taker. Collectively,
however, by building coalitions with other countries New Zealand is able to be part of a coalition of
interest at an international level working toward agricultural trade reform.
The Uruguay Round of the GATT was the first to make a real effort to begin reforming
agricultural trade. Agricultural trade negotiations are contentious and fraught with difficulty due to
strong agricultural groups in the EU and United States (in particular). The OECD average tariff rates
for manufactured good is around 4 per cent, for agricultural products it is around 60 per cent. New
Zealand desires agricultural trade to be treated the same as the trade in other commodities. New
Zealand faces the highest tariff rates in the export of dairy products and meat products (both sheep and
beef), which from an agricultural point of view are New Zealand’s two largest exported commodities.
In February 2003, WTO members commented on a paper released by the WTO to guide the
negotiations in the area of agriculture. The EU saw the paper as unbalanced, and were (and are)
reluctant to cut farm protection. On the other side of the debate, the trade ministers for Australia
(Mark Vaile) and New Zealand (Jim Sutton) also thought the paper had some limitations. The WTO
want to eliminate all export subsidies over a nine-year period, too slow for some and too soon for
others. In April 2003, the United Nations Secretary General Kofi Annan encouraged developed nations
to decrease their agricultural subsidies.36 The WTO did not reach agreement on the freeing up of trade
in agricultural products by the end of March 2003 as part of the three year Doha Trade Round due to
end in November 2005. It has been estimated by the World Bank that the OECD members spent
$US330 billion in 2001 on farm subsidies.37 It is estimated that agricultural tariffs cost New Zealand at
least $NZ750 million per year, and those on non-agricultural exports cost $NZ133 million per year.38
As well as tariffs and quotas, New Zealand exports face substantial non-tariff barriers (NTBs),
which impact on the amount of product able to be supplied to a market, and/or impact on the cost of
exporting the product. Some of the NTBs include health and safety regulations, packaging and
wrapping requirements, bio-security rules, and customs regulations. It has been estimated that NTBs
cost New Zealand around $1 billion per year.39 From October 2003 the United States Customs Service
requires customs entries to be lodged by airlines twelve hours before American-bound planes leave
New Zealand. Exporters of perishables, such as seafood and flowers for example, will suffer a loss of
shelf life. Decisions about what freight travels on what flight is often only made two hours before
takeoff. Similar restrictions surround shipping lines, with customs documentation being requested four
days before ships sail, as opposed to 12–24 hours previously.
The General Agreement on Trade in Services (GATS) was signed in 1994 by 140 countries
including New Zealand. The aim of this agreement is to remove government regulations, unnecessary
barriers, and anti-competitiveness in the trade in services. For New Zealand a quarter of its total export
income comes from the trade in services—tourism, transport, education, consulting, and computing.
GATS applies to 160 service sectors, but there is pressure to increase the range of services that is
covered by the agreement. New Zealand has said it does not want free trade in some areas of services
such as local government, public health, and public education. The Labour Coalition government also
said there will be no further privatisation of central government services.
35
The Cairns Group includes Australia, and most of the South American, and South-East Asian countries.
In the United States and Japan farmers receive half of their income from the government in the form of farm support.
Support for farmers in the EU is also very high. In 2002 the United States tariff on sugar was 129 per cent, and the EU
tariff on grain was 162 per cent (Source: Ministry of Foreign Affairs and Trade).
37
Manawatu Evening Standard, 15 April 2003, ‘Farm Subsidy Call’.
38
Source: Ministry of Foreign Affairs and Trade.
39
Source: Trade Liberalisation Network.
36
Chapter 5: The International Economy
36
IMPORT AND EXPORT POLICY
New Zealand has a history of implementing and using tariffs and quotas. Since 1987, however, tariff
reviews and trade liberalisation has resulted in the removal of most of the tariffs in New Zealand. In
1998, tariffs on motor vehicles were removed, and parallel import restrictions were also abolished.
Tariffs still remain in the textile, clothing and footwear sectors;40 however, they are also due to be
phased out as well. Approximately 95 per cent of all goods coming into New Zealand are tariff-free.
Since 2001, New Zealand has allowed the imports of goods from the forty-eight poorest nations of the
world to enter tariff-free. Until July 2005 all remaining tariffs in New Zealand are frozen, with an
agreement that they will not be removed before then without a reciprocal agreement from a particular
country (or group of countries).
The events of the 1970s (see Chapter 1) forced New Zealand to diversify and adapt its export
products, which it did in two key ways, by further processing primary produce and getting more
involved in semi-manufactured goods, for example aluminium ingots, furs, leather, pulp and paper. The
services sector too has become increasingly important in New Zealand’s export strategy.
Despite the high tariff walls surrounding the EU, New Zealand still exports wool, leather, hides
and skins, lamb and butter into the EU. Special access for New Zealand lamb and butter was
negotiated for entry into the EU in 1971 (see Chapter 1). Since 1980, however, New Zealand has
limited its exports of sheep meat to the EU under a voluntary export agreement.
New Zealand has used (and still uses) a number of export promotion and incentive
programmes to encourage increased export development and new market development. In the past
New Zealand has also used a system of Supplementary Minimum Prices (SMP) to provide income
compensation to farmers in particular. The SMP system was, however, discontinued after 1985. The
fourth Labour Government had a different approach to international trade, the philosophy of trade
liberalisation, deregulation, and competitiveness began.
It has been estimated that in New Zealand six out of ten jobs are in some way dependent on
international trade and investment.41 Returns from exports of both commodities and services make a
major contribution to New Zealand’s GDP. The chapter will now examine New Zealand’s balance of
payments, before moving to look at exchange rates and foreign investment.
THE BALANCE OF PAYMENTS
The New Zealand Balance of Payments (NZBOP) compiled by Statistics New Zealand has two major
accounts, the current account and capital account. The current account has three balances within it, the
merchandise trade balance (goods), the balance on services, and the balance on invisibles (the balance
on services plus or minus net income from foreign investment).
The capital account includes direct investment by non-New Zealanders in New Zealand, and by
New Zealanders overseas, other long-term private capital movements, and capital transactions
of the government (except borrowing). Table 5.7 outlines New Zealand’s BOP figures between 1998
and 2002.
40
41
The clothing and some footwear items have a 19 per cent tariff when entering New Zealand.
Source: Statistics New Zealand.
Chapter 5: The International Economy
37
Table 5.7 Balance of payments major balances in New Zealand 1998–2002
Year end
Sept
Balance on
goods
($million)
Balance on
services
($million)
Balance on
Balance on
Balance on
Balance on
investment
current
current
capital
income
transfers
account
account
($million)
($million)
($million)
($million)
1998
1 755
-1 490
-5 352
517
-4 570
-237
1999
524
-683
-5 156
584
-4 730
-398
2000
141
-220
-7 277
387
-6 968
-429
2001
3 682
210
-7 845
387
-3 566
623
2002a
1 814
1 031
-6 717
144
-3 950
1 709
a
The December 2002 quarter showed that for both export and imports their volumes were increasing. The price of both
merchandise imports and exports during this quarter, however, fell. The merchandise terms of trade in the December
quarter fell by 2.8 per cent, with export prices falling more than import prices. The fall in export prices was reflected by
a 4.8 per cent rise in the value for the New Zealand dollar. Specifically, prices for dairy products (decreased by 4.8 per
cent), meat (decreased by 6.4 per cent), and chemical and chemical products (decreased by 7.6 per cent). The volumes
of export merchandise did, however, rise over the quarter, by 2.2 per cent. The increasing volumes were across the
board in export products, but dairy products, non-food manufactures, and wool and meat were the main contributors.
Imports also showed growth, with the importation of a number of large aircraft (total value of $200 million) being the
main contributor to the rise.
Source: Statistics New Zealand
For the most part since 1971 New Zealand has had a current account deficit. If we look at the BOP in
New Zealand over the five years from 1998 to 2002 we can see that there was an improvement in the
balance on goods, and the balance on services. There was, however, a decline in the balance on
investment income and the balance of current transfers over the same period.
The balance on services has shown improvement over the period, reflecting the increasingly
important role that tourism, transportation, education, and financial services have on the New Zealand
economy. The growth rate of the balance on services was certainly greater than that of the balance on
goods. The balance on the current account between 2000 and 2001 fell by nearly 5 per cent, before
improving in 2002. The balance of the capital account showed a dramatic improvement from 2001 to
2002 of 174 per cent. Changes in the investment income balance in New Zealand’s BOP reflects the
repatriation of profits from foreign-owned businesses in New Zealand.
Figure 5.4 further shows the changes in New Zealand current account balances over the period
1994 to 2002 by outlining the current account deficit as a percentage of New Zealand’s GDP.
Figure 5.4 Current account as a percentage of GDP 1994–2002
Current Account as a Percentage of GDP
1994-2002
0.00
-1.00
1994
1995
1996
1997
1998
1999
2000
2001
2002
-2.00
%
-3.00
-4.00
-5.00
-6.00
-7.00
Year
Source: Statistics New Zealand
Chapter 5: The International Economy
38
The current account deficit over the 1994 to 2002 period averaged 4.84 per cent as a percentage of
GDP. The figure for the year ending December 2002 of 3.10 per cent of GDP is an improvement on
2000 and 1997, which were both over 6 per cent of GDP. The question for the upcoming year is what
effect the stronger New Zealand dollar will have on the current account, along with other factors such
as SARS. A continued fall in New Zealand export receipts impacts on the balance of trade, and thereby
the current account. Improvement has been seen in the balance on investment income, which is in part
due to better returns for New Zealand’s overseas investment.
We move now to look at exchange rates and foreign investment in New Zealand.
EXCHANGE RATES AND FOREIGN INVESTMENT
In 1984 the New Zealand dollar was devalued by twenty per cent, and it was subsequently floated in
1985.42 Exchange controls were effectively eliminated and the liberalisation of funds flowing in and out
of New Zealand encouraged a further opening up of the New Zealand economy. This has prompted
net inflows of capital. In New Zealand there are no additional performance requirements, nor are there
any restrictions on the repatriation of profits. There is also no longer any limit on the amount of
foreign exchange transactions completed by New Zealanders or non-residents of New Zealand. Since
1985 neither the Reserve Bank nor government have directly intervened to affect the value of the New
Zealand dollar in the foreign exchange market.
Over the recent past the value of the New Zealand dollar has fallen sharply. In 2001 the
New Zealand dollar was trading at US39 cents, which was 30 per cent less than the average
for the New Zealand dollar over the previous ten years. In general terms it can be said
that if productivity in New Zealand is better than other countries then the exchange rate tends to rise,
and if the level of inflation in New Zealand is higher than other countries then the exchange rate will
tend to fall. In a small open economy exchange rate changes tend to be far more complicated than this.
Changes in the financial markets (the supply of funds into New Zealand), tend to be the cause of most
changes to the New Zealand exchange rate,
Since 2002 the New Zealand dollar has been on the rise, particularly against the American
dollar. There are said to be three key contributors to the New Zealand dollar’s recent appreciation.
First, the weakness of the American dollar; second, good economic growth in the New Zealand
economy relative to other countries; and thirdly, relatively high interest rates in New Zealand when
compared to other countries. In 2002 the American dollar fell against most currencies, falling by over
20 per cent against the New Zealand currency (15 per cent against the Australian). The New Zealand
dollar was also relatively high against the Australian dollar. Compared with the Australian economy
New Zealand’s economy has shown continuing positive economic growth. The continued weakness
of the American dollar, the continued strong relative growth in the New Zealand economy, and
the relatively high interest rates may see further strengthening of the New Zealand
dollar. There are a number of possible factors, however, that could restrain this, including a widening of
the current account deficit, a decrease in interest rates, uncertainty created by international geopolitical
issues, and a lack of capital mobility. New Zealand has not suffered from a lack of investor interest in
the economy and country to date, and the Moody’s AAA rating (2003) is also positive for encouraging
future investment.
Exchange rates are not something that are easily accurately predicted, however, after-the-fact it
can be relatively straightforward to determine what has caused the exchange rate fluctuation. There is
an expectation that the New Zealand dollar will rise further, mostly due to the prediction of further
falls in the American dollar, however, predictions about fluctuations in the exchange rate are very much
subject to change.
42
No longer was the exchange rate set by the Reserve Bank (or government), nor did it control the supply of, and
demand for, foreign exchange.
Chapter 5: The International Economy
39
The balance of payments financial accounts shows the amount of New Zealand investment
abroad and foreign investment in New Zealand. New Zealand investment abroad has four categories:
direct investment (which is the largest category), portfolio investment, other investment, and reserve
assets. The foreign investment in New Zealand falls into three categories: direct investment, portfolio
investment, and other investment. Table 5.8 presents the balance of payments financial accounts from
the June quarter 2001 to the end of 2002 in New Zealand.
Table 5.8 Balance of payments financial accounts
2001 (Quarter ended)
June
Sept
Dec
($million)
($million)
($million)
New Zealand
investment
abroad
Direct
investment
Equity
capital
Reinvested
earnings
Other
capital
Portfolio
investment
Equity
securities
Debt
securities
Other
investment
Trade
credits
Loans
Deposits
Other
instruments
Reserve
assets
Special
drawing
rights
Reserve
position in
the fund
Foreign
exchange
Other
reserve
asset
claims
March
($million)
2002 (Quarter ended)
June
Sept
($million)
($million)
Dec
($million)
3 969
1 844
499
3 013
1 001
3 473
-1 177
1 426
-852
-120
322
-201
393
183
-243
-243
324
75
75
97
-33
-33
286
-238
-344
267
581
1 303
-150
1 342
674
179
1 161
-942
1 086
-289
532
651
651
416
-550
216
139
142
-472
-472
745
-392
1 255
2 595
-882
2 497
799
1 657
-2 554
382
939
55
-279
3 090
-381
2 068
268
272
594
272
594
-202
1 669
321
-155
-2 248
-466
-121
165
-132
314
-14
251
2
2
126
-38
-274
132
159
-480
224
263
2 136
2
2
3
2
19
115
115
-35
-20
444
-1 205
58
58
-357
2 105
-158
-181
705
50
653
(continued)
Chapter 5: The International Economy
40
49
2001 (Quarter ended)
June
Sept
Dec
($million)
($million)
($million)
Foreign
investment
in New
Zealand
5 698
Direct
Investment
1 922
Equity
capital
69
Reinvested
earnings
274
Other
capital
1 579
Portfolio
investment
2 074
Equity
securities
535
Debt
securities
1 540
Other
investment
1 702
Trade
credits
Loans
436
Deposits
1 623
Other
instruments
Source: Statistics New Zealand
March
($million)
2002 (Quarter ended)
June
Sept
($million)
($million)
Dec
($million)
5 978
-135
3 818
-559
3 072
-844
-91
-937
-140
1 267
-1 374
1 045
82
724
-219
-304
-1 726
799
386
319
513
721
151
689
-560
-1 980
-434
850
196
-444
-1 403
77
2 497
-1 403
4 671
-269
306
393
-246
-99
2 120
-153
-1 709
-316
2 743
-1 304
2 551
-116
7 473
725
1 461
-423
-220
-1 619
-34
6 720
673
-55
1 269
-427
-11
314
990
-64
-841
648
158
-699
206
268
-3 133
1 182
114
-62
168
-166
85
63
Table 5.8 provides a snapshot of the balance of payments financial accounts for the June 2001 quarter
to the December quarter 2002. Over this period New Zealand investment abroad on average was
$1 803.14 million per quarter, and foreign investment in New Zealand was on average $2 432.57 million
per quarter. Over these seven quarters between June 2001 and the end of 2002, there was on average
each quarter $629.43 million more foreign investment in New Zealand than New Zealand
investment abroad.
If we move to look at direct investment over the period, from the June quarter 2001 to the end
of 2002, New Zealand direct investment abroad averaged $164.43 million each quarter, whereas foreign
direct investment into New Zealand averaged at $241 million per quarter. Portfolio investment from
New Zealand overseas was on average $509.57 million each quarter, foreign portfolio investment in
New Zealand averaged $892 million per quarter, on average $382.43 million more than New Zealand’s
portfolio investment abroad.
Chapter 5: The International Economy
41
The top three largest contributors of foreign direct investment to New Zealand are Australia,
the United States, and the United Kingdom (in that order).
Increasingly there has been a push to encourage foreign investment since the 1980s. Through
trading links and trading agreements, issues of investment have been increasingly discussed and
encouraged. The deregulation in the banking sector has seen an increase in off-shore money coming
into the New Zealand banking system, the privatisation in the New Zealand economy has seen foreign
companies purchasing New Zealand businesses, and the opening up of the New Zealand economy to
increasing tourism and foreign students in our education system, has seen increasing numbers of
immigration into New Zealand. The New Zealand government has (and is) still working to encourage
increased foreign investment in New Zealand. In March 2003, Minister of Finance Michael Cullen
stated that the government was looking at providing tax breaks to encourage foreign investment. One
proposal was to provide a temporary tax exemption for the foreign-sourced income of new migrants.
Another possibility was the introduction of an 18 per cent tax rate for new foreign direct investment.43
43
Manawatu Evening Standard, 8 March 2003, ‘Tax breaks for foreign investment on the horizon’.
Chapter 5: The International Economy
42
CONCLUSION
By way of summary, New Zealand’s macro economy is dynamic and complex. Its sectors are
interrelated and interdependent. A change in monetary policy for example, impacts on the financial
sector, households, businesses, government, and the trade sector. Equally, an external event like a
terrorist attack in the United States or SARS, impacts on the New Zealand economy, its GDP,
employment, level of production, and employment, among other things.
With a domestic population of four million, New Zealand is reliant on trade as a major source
of earning GDP, recognising that the size of New Zealand in the international economy makes it most
often a price-taker and a policy-taker. New Zealand is a small island nation geographically a long way
from major markets (with the exception of Australia), exporting commodities that face some of the
highest tariffs internationally. Despite this, New Zealand competes successfully internationally, and
New Zealanders have been at the head of some of the world’s most important organisations,
such as the WTO.
New Zealand faces certainly challenges, and good previous growth does not ensure future
growth. The ever-changing nature of the international economy and how it might influence and affect
the New Zealand economy in the future is unknown.
This snapshot of the New Zealand macro economy hopefully provides insight into how some
of the institutions in the economy operate, provides an understanding of the economic indicators
(both what they do tell us and what they do not), and puts in context macroeconomics in the New
Zealand setting. It is also hoped that you have learned a little about New Zealand as a country as well
as an economy.
Chapter 5: The International Economy
43
APPENDIX
Table A.1 Permanent and long-term migration to New Zealand by country of last or next permanent
residence 1985–2002
Year
ended
June
Australia
UK
1985
-13 618
-3 014
1986
-23 778
-1 415
1987
-19 321
1 140
1988
-28 228
351
1989
-31 016
-2 229
1990
-7 360
-2 559
1991
1 910
890
1992
-2 842
150
1993
-3 979
1 402
1994
-3 889
3 208
1995
-7 723
3 381
1996
-9 880
3 390
1997
-12 481
946
1998
-14 738
-2 408
1999
-22 219
-4 370
2000
-25 526
-512
2001
-30 965
-815
2002
-13 707
4 920
Source: Statistics New Zealand
China,
PR
25
45
115
206
305
314
475
353
610
737
2 270
3 996
3 397
2 547
2 464
4 128
7 250
13 756
India
-9
65
87
136
113
109
26
-21
217
499
1 329
2 077
1 930
1 181
1 245
1 829
2 899
5 786
Japan
109
95
288
724
1 030
1 268
1 125
1 136
1 175
1 788
2 013
2 639
2 466
2 121
2 202
1 935
1 742
2 343
USA
7
1
640
546
-46
286
88
-396
-51
522
929
786
164
-464
-529
-630
-943
513
Korea,
Republic
of
19
45
52
299
138
355
425
538
1 754
2 444
3 410
3 557
1 397
125
-64
62
393
1 910
South
Africa
107
424
680
456
121
74
106
59
430
2 606
2 011
1 851
2 703
2 363
2 179
2 080
2 358
3 179
Other
3 110
2 682
4 344
7 228
7 449
10 098
7 377
4 614
7 144
8 900
15 109
21 090
16 248
9 725
7 723
6 874
8 815
14 115
Total
-13 264
-21 836
-11 975
-18 282
-24 135
2 585
12 422
3 591
8 702
16 815
22 729
29 506
16 770
452
-11 369
-9 760
-9 266
32 815
Table A.2 Real and nominal GDP, real GDP growth rate, and GDP deflator 1993–2002
Year end
March
Nominal GDP
($million)
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source: Statistics New Zealand
75 274
81 502
86 686
92 680
97 553
99 653
101 263
106 380
113 328
121 527
Real GDP ($million)
(1995/96 prices)
79 406
84 521
89 000
92 680
95 922
97 317
97 744
102 584
105 323
108 993
Real GDP growth
rate (%)
(1995/96 prices)
6.4
5.3
4.1
3.5
1.5
0.4
5.0
2.7
3.5
GDP deflator
948
964
974
1 000
1 017
1 024
1 036
1 037
1 076
1 115
Appendix
44
Table A.3 Unemployment rate, employed, full-time employed, and part-time employed 1990–2002
Unemployment rate
(%)
1990
7.10
1991
8.40
1992
10.60
1993
10.10
1994
9.30
1995
7.50
1996
6.20
1997
6.20
1998
6.80
1999
7.50
2000
5.87
2001
5.33
2002
5.20
Source: Statistics New Zealand
Employed
(000)
1 470.00
1 479.00
1 461.00
1 481.00
1 530.00
1 606.00
1 686.00
1 734.00
1 736.00
1 727.00
1 783.47
1 823.38
1 867.30
Full-time employed
(000)
1 193.00
1 178.00
1 147.00
1 165.00
1 205.00
1 259.00
1 323.00
1 346.00
1 342.00
1 322.00
1 380.33
1 409.50
1 441.00
Part-time employed
(000)
277.00
301.00
314.00
316.00
325.00
347.00
363.00
388.00
394.00
405.00
404.00
413.25
431.50
Table A.4 Terms of trade and the current account 1994–2002
Terms of trade index
Year end Dec
(base year 1989=1000)
1994
1 123
1995
1 105
1996
1 094
1997
1 075
1998
1 083
1999
1 075
2000
1 087
2001
1 167
2002
1 126
Source: Statistics New Zealand
Current account balance
(annual total) ($million)
-3 363
-4 454
-5 470
-6 474
-4 570
-4 730
-6 968
-3 566
-3 950
Current account as a
percentage of GDP
-4.03
-4.98
-5.78
-6.58
-4.70
-4.70
-6.20
-3.53
-3.10
Appendix
45
FURTHER INFORMATION AND READING
INTERNET SITES:
Asia 2000
http://www.asia2000.org.nz/
CIA World Factbook
http://www.odci.gov/cia/publications/factbook/index.html
The Independent
http://www.theindependent.co.nz/
Ministry of Foreign Affairs and Trade http://www.mft.govt.nz/for.html
Ministry of Labour
http://www.dol.govt.nz/
Ministry of Social Development
http://www.dsw.govt.nz/
NZIER
http://www.nzier.org.nz/
The Reserve Bank of New Zealand
http://www.rbnz.govt.nz/
Statistics New Zealand
http://www.stats.govt.nz/
Stuff Zealand
http://www.stuff.co.nz/stuff/
Tourism Research Council of NZ
http://www.tourism.govt.nz/research/
Trade Liberalisation Network
http://www.tln.co.nz/
The New Zealand Treasury
http://www.treasury.govt.nz/
BOOKS:
Birks, S. and S. Chatterjee (eds), The New Zealand Economy Issues and Policies, 4th edn, Palmerston North:
Dunmore Press, 2001.
Dalziel, P. and R. Lattimore, The New Zealand Macroeconomy: A Briefing on the Reforms and their Legacy, 4th
edn, Melbourne: Oxford University Press, 2001.
Taylor, J. and P. Dalziel, Macroeconomics (NZ edn), Milton: John Wiley and Sons Australia Ltd, 2002.
Wooding, P. Macroeconomics: A New Zealand Introduction, 2nd edn, Sydney: Prentice Hall Australia Pty Ltd,
1997.
Further Information and Reading
46
INDEX
A
agriculture
7, 13, 61, 70–71
America, see United States of America
America’s Cup
14, 15, 19, 34
APEC
69
Anderton, Jim
13, 37
Asia
62, 64–65
Asian
2, 18, 62, 64–65, 68–69
Asia (South East)
70, 71
asset sales
51, 55, 58
Australia
1–4, 7–8, 11–15, 32, 37, 41, 55, 57, 62, 64–69, 71, 75–76, 78
B
Balance of payments
13, 59, 72–73, 75–76
benefits (type of government)
3,4, 8, 10,19–21, 26, 30–32, 48, 68
Bolger, James (Jim)
5, 13–14
Bollard, Alan
15, 38–39, 42–43
Brash, Donald
15, 38
C
Capital Goods Price Index
29
Cartwright, Dame Silvia
4
Census
2, 19–21
Closer Economic Partnerships (CEP) 70
Closer Economic Relations (CER)
8, 12, 68–69
Clark, Helen
4–5, 15
Consumers Price Index (CPI)
27–29, 41–42
consumption
16, 27, 29, 30, 32–34, 42
Index
47
credit cards
32–33, 36
Cullen, Dr Michael
4, 46, 50–51, 77
D
dairy
6, 11, 19, 61–62, 65, 71, 73
Douglas, Roger
5, 12
E
economic growth
9, 16, 18, 32, 34, 39, 74
education
4, 6–7, 25–27, 45, 47, 49, 51, 65–67, 71,73, 77
employment
8–10, 16, 19–20, 24–27, 30, 36, 39, 42, 78
Employment Contracts Act (ECA)
10, 14 –15, 26
Employment Relations Act (ERA)
10, 15, 25
European Union (EU)
8, 71–72
exchange rate
6–7, 9, 36, 39, 40–42, 51, 72, 74
export subsidies
70–71
exports
8–9, 29, 59, 60–63, 65, 68, 70–73
F
Farm Expense Index
27, 29
fiscal policy
1, 9, 15, 44–45, 52–54
Fiscal Responsibility Act
10, 14, 45, 50, 52–54
fortress economy
5
G
GATT
68, 70–71
Goods and services tax (GST)
29, 39, 45–47
government debt
10, 45, 51–55
government expenditure
47, 50
government revenue
46–47, 50, 58
Gross domestic product (GDP)
6–8, 15–19, 34, 44–48, 50–55, 66, 72–74, 78–79
Index
48
H
Holyoake, Keith
5
health
3–4, 14, 27, 34, 40, 45, 47, 49, 51, 58, 68, 71
Household Labour Force Survey (HLFS)
housing
I
19–21, 25
4, 14–15, 27, 29, 33–34, 42, 46–47, 49, 58
immigration
34, 77
imports
8–9, 29, 59–60, 63–66, 70, 72–73
industry
6–7, 18, 26, 28–29, 34, 64, 66–67
inflation
1, 9–10, 12, 15–16, 18, 27–29, 38–43, 74
interest rates
12, 29, 35–36, 39–44, 74
international trade
1, 8, 15, 70, 72
investment
12, 16, 27, 29–30, 32, 34–36, 42, 46, 49, 59, 69–70, 72–77
K
Kirk, Norman
L
Lange, David
M
5, 12
5, 13
manufacturing
7, 61
Maori
2–4, 11–14, 21, 24–25, 58
migrants
2, 77
minimum wage
4, 26–27
Ministry of Social Development
3, 20, 25, 48, 68
Mixed-member proportional system (MMP) 4, 13–14, 39
monetary policy
1, 10, 15, 27, 29, 35–36, 38–44, 78
Moore, Mike
13, 15
Muldoon, Sir Robert
5, 9–10, 12
Index
49
N
N[Z]AFTA
11, 68
Nash, Walter
5, 11
Non-tariff barriers to trade (NTB)
71
New Zealand System of National Accounts (NZSNA)
O
OBERAC
50
OECD
10, 14, 61, 71
Official cash rate (OCR)
40–44
overseas debt
51–52, 58
Overseas Terms of Trade Indexes
29
P
Palmer, Geoffrey
13
Peters, Winston
14
Policy target agreements (PTA)
38–39, 43
Powell, Colin
4
privatisation
9, 13, 55, 71, 77
Producers Price Index (PPI)
29
R
16
reserve asset ratio system (RAR)
40
Reserve Bank
10, 13, 15, 27, 29, 33, 36–44, 74
Richardson, Ruth
10, 14
S
SARS
35, 43, 62, 66, 74, 78
Savage, Michael Joseph 5
savings
15–16, 29, 30, 32–33, 46
services sector
6, 72
settlement cash
40
Index
50
Shipley, Jenny
5, 14–15
Singapore
7, 62, 64, 69–70
social welfare
4, 10
State Owned Enterprises (SOEs)
13, 53, 55, 58
State Owned Enterprises Act
13, 53, 55
State Sector Act
13, 53, 55
superannuation
12, 15, 20, 27, 31–33, 46–49, 51, 53
Svensson, Lars
15, 38
T
tariffs
8, 13, 61, 65, 68, 70–72, 78
taxation
8, 11, 13–15, 17–18, 27, 29, 30–33, 39, 45–46, 50, 54, 69, 77
terms of trade
12, 29, 67, 73
Think Big
9, 12
tourism
6–7, 66, 70–71, 73, 77
Trade unions
10, 13, 25
Treasury
38, 45–54, 58
Treaty of Waitangi
3–4, 14
U
underground economy
18
unemployment
1, 3–4, 8, 15–16, 19–25, 27, 48
United Kingdom
7–9, 12, 15, 18, 64, 66, 76
United States of America
4, 15, 64, 69, 79
W
WINZ
19–20, 47
wool
6, 11, 61, 72–73
World Trade Organisation (WTO)
15, 65, 68, 70, 71, 78
Index
51