Top Document: The soc.culture.new-zealand FAQ Previous Document: B3.1 The Political Scene Next Document: B3.3 Life In General See reader questions & answers on this topic! - Help others by sharing your knowledge Since 1984 the government has been reorienting an agrarian economy dependent on a guaranteed British market to an open free market economy that can compete on the global scene. The government had hoped that dynamic growth would boost real incomes, reduce inflationary pressures, and permit the expansion of welfare benefits. The results have been mixed: inflation is down from double-digit levels, but growth has been sluggish and unemployment, always a highly sensitive issue, has exceeded 10% since May 1991. In 1988, GDP fell by 1%, in 1989 grew by a moderate 2.4%, and was flat in 1990-91. Current (1994) growth is around 2-4% and rising. The economy is based on agriculture (particularly dairy products, meat, and wool (68 m sheep, 2 m dairy cows)), food processing, wood and paper products, textiles, machinery, transportation equipment, banking and insurance, tourism, mining. Fish catch reached a record 0.5 m tonnes in 1988. Highly dependent on external trade, NZ is currently trying to move from being a primary to a secondary producer. -------------------- B3.2.1 Defence Against Silly Questions Lyndon Watson wrote: "Look in on sci.economics and sci.econ.research. In response to yet another request from abroad about NZ's supposedly interesting economic past and present structure, Lyndon Watson composed the following. What is it with these idiots from Canada? This garbage seems to come round three or four times a year - is some fool teaching it to students there? Some notes for these twits (and their teachers) - 1. New Zealand was not subsidized from England, or anywhere else. 2. The nation did not at any time go bankrupt (or default on its debts, or become subject to IMF or World Bank or any other outside economic direction). 3. Our terms of trade worsened catastrophically in the early 1970s (not the 1980s) as a result of (a) the oil shock that also affected our trading partners and (b) the erection of tariff and quota barriers against our trade by the U.K. 4. The Labour government of 1972-75 and the National government that followed it tried to deal with adverse terms of trade by borrowing in foreign markets, with the result that by the early 1980s we had (and we still have) a debt ratio that looked bad even by Third World standards. 5. The Labour government of 1984-90 and the current National government have restructured the economy by abruptly stopping all state subsidies, removing nearly all tariff and quota barriers against imports, greatly reducing income tax and substituting the Goods and Services Tax on the sale of goods and services, greatly reducing the the state's involvement in trading activities and social services, and the reform of labour laws to promote individual workplace agreements. 6. The removal of subsidies and import barriers saw many incompetent and uneconomic businesses, many of which were reliant on subsidies, fail and the official unemployment rate exceed 10% of the workforce. 7. After a decade of restructuring, our net terms of trade are in our favour and the official unemployment rate is the fourth lowest in the OECD (currently just over 7% for the country as a whole, 5.9% in most of the South Island). A major current problem is the shortage of skilled workers in many industries." ----- Kindly submitted by Paul Walker. These were published in the Christchruch Press on September 13th and 14th, 1995. Anyone prepared to archive these and the following references for ftp and such? BRINGING HOME THE CUP Michael Carter Senior Lecturer in Economics University of Canterbury When Australia wrested the America's Cup from the New York yacht club in 1983, Tom Schnackenberg was a member of the shore team (a sail designer). When New Zealand won the cup in San Diego, Tom was head of the design team and navigator on NZL 32. His progression from shore to ship was far less imposing than that in his native country. In 1983, a New Zealand challenge for the America's Cup would have been inconceivable. The domestic boat building industry was struggling. It had been decimated by the imposition of an ill-conceived sales tax in 1979, which cut turnover from $57 million to $8 million in two years. Like Schnackenberg, many of New Zealand's best talents lived and worked overseas, driven away by high tax rates and the lack of opportunity. Innovation was discouraged by regulations, import controls and selective taxes. The idea of a New Zealand team taking on the might of corporate America was laughable. At the end of 1984, I left Australia to return to New Zealand. Some of my Australian colleagues laughed. They saw New Zealand as a basket case, a joke, small isolated islands drowning in a sea of debt. My Australian friends wondered when, not if, Australia would have to come reluctantly to the rescue. Ten years later, how things have changed. Our triumph in San Diego is due in no small measure to the changes which have be wrought in the New Zealand economy over the last 10 years. Moreover, bringing home the Cup was only the most visible sign of the new vigour, confidence and strength in New Zealand and its people. New Zealanders are justifiably proud of the performance of Team NZ in San Diego. They could be even more proud of the performance of home team, of the radical transformation of their economy over the last ten years. Domestic critics talk of the "New Zealand experiment" as though New Zealand has pursued a lone path in recent years. Nothing could be further from the truth. Massive economic change has occurred throughout the world over the last fifteen years. Deregulation and privatization are universal trends. No country remains untouched, from Britain and the US to the former constituents of the Soviet block to Latin America, Africa and Asia. Around the world, there is a feeling that New Zealand has done it better than most. The Australians are now looking cautiously over their shoulder, as their economy is consistently eclipsed by their Tasman rival. The Economist regularly cites New Zealand as exemplifying the benefits of economic reform. Monetary economists pay significant attention to the Reserve Bank Act. Experts on telecommunications watch with interest New Zealand's system of light regulation. New Zealanders are employed as consultants advising on economic reform all round the world. >From the laggard of the OECD, New Zealand has emerged to one of the strongest economies in the world. It is an achievement to be proud of, an accomplishment which surpasses even the yacht races in San Diego. That is not to say that we have got everything perfect. Mistakes have been made, implementation of some policies was less than perfect, and there is still much to be done. But, from an international perspective, New Zealand's transformation in a single decade has been remarkable. At a time when some politicians are promoting a return to the past, it is sobering to recall the changes which have been made and to reflect on the way we were ten years ago. It is also interesting to remark how the opponents of change have often become its most vocal advocates, as exemplified by Federated Farmers and recently the Manufacturers Federation. Much of the current political debate on economic policy is futile and distracting, driven by poor memories and wishful thinking. If only New Zealanders could achieve some consensus that we have been moving in the right direction, debate could turn to the more constructive issues of how to secure continued growth and equitable distribution. Prospective voters could do their part by signalling more clearly to aspiring politicians that they want to build on the present rather than return to the past. Tomorrow, we look back to the way we were in 1984 and review some of the changes which have been made in our economic lives. LOOKING BACK TO 1984 Michael Carter Senior Lecturer in Economics University of Canterbury Eleven years ago, the Fourth Labour Government came to power in a snap election. They inherited control of country whose economy had been devastated by years of mismanagement. Aided by a willing and able bureaucracy, they set about implementing an ambitious programme of economic reform. As New Zealand approaches its first MMP election, it is instructive to look back over these reforms, and to recall the way we were in 1984. One of the first changes was the freeing of the financial system from obstructive regulation and the floating of the New Zealand dollar. This has promoted a healthy, competitive and innovative financial system. People may rue market interest rates, but at least it possible to borrow when required. Remember the old days when obtaining a mortgage required appropriate obsequiousness before the bank manager, who exercised a patronizing and crucial power over investment decisions. Since it was floated, the Kiwi dollar has shown a remarkable stability in a world of stormy change. So stable has it been, that international bankers use it has a short term safe haven, and temporary resting place for funds. Why should we be alarmed at that vote of confidence? A strong currency is a manifestation of a strong economy. No country has every got rich by debasing its currency. One consequence of a floating currency is that New Zealander's are enabled to convert their currency at will. Remember the days when foreign exchange had to be squirreled away, carefully collected to finance meagre purchases. Funds for overseas travel were limited. Obtaining funds for small purchases such as magazine subscriptions required hoarding post office money orders. Similarly, ten years ago, there were an enormous range of import controls and prohibitive tariffs. Overseas trips where often shopping trips. Travelers would return laden with booty which was too expensive to purchase in New Zealand. The main beneficiaries were foreign distributors and retailers. It was a very inefficient way of restricting consumption of luxury goods to the rich. Exchange and import controls spawned a variety of ingenious rackets. Under one scheme, those with access to foreign currency could go to the top of the queue for a new car, while ordinary people had to spend three or four years on a waiting list. Consequently, the favoured few were enabled to buy a new car every year, and then sell it to the less fortunate for more than they paid for it. Such rorts are almost inevitable under a system of controls. The most spectacular result of the abolition of import controls was the flood of second-hand Japanese cars. The quality of the New Zealand vehicle fleet improved dramatically, and the cost of transportation declined. Of course, there has been a down side. Traffic congestion has also increased dramatically. But at least congestion is egalitarian. Vehicle ownership is widespread and not restricted to the rich and powerful. The relaxation of import controls and tariffs has also had a dramatic impact on clothing, footwear and consumer goods. The range of clothing readily available in New Zealand has increased dramatically, and prices have fallen. Since families spend a higher proportion of their budgets on clothing and transport, freer trade has been especially valuable to the less well off. This makes the Alliance's wish to reverse this change all the more imponderable. In 1984, New Zealand's production was guided by a system of subsidies, through which New Zealand taxpayers funded the lifestyles of those with political clout. Most pernicious were the agricultural subsidies such as SMPs. Naturally, farmers produced were the subsidies were highest, which tended to be were demand was lowest. The subsidies became capitalized in land values, another windfall gain for those of means. When the government abolished subsidies in 1984, land prices halved. For many individual farmers, this was devastating. But farmers as a whole soon recognised that the subsidy system was untenable. They soon became the most vocal advocates of deregulation, and New Zealand could mount a credible campaign against protection in world agricultural markets. Much political flak was attracted by the privatization of public owned businesses. Yet, this was part of world-wide trend. A recent book on privatization which I reviewed for the Press cited 120 countries. Privatization in New Zealand seems to have been handled more sensibly than in some other countries. This is because serious thought was given to post-sale market structure, which it is more important than ownership. For example, Ansett was permitted to fly in New Zealand before Air New Zealand was floated. Similarly, competition was permitted in telecommunications before Telecom was sold. The benefits in these cases are clear. New Zealand enjoys one of the best and cheapest telephone systems in the world. Competition in transport has certainly improved the quality of service. It is plausible to argue that current impasse between Telecom and Clear stems primarily from the Kiwi share obligation imposed on Telecom, which was explicitly designed to impede the consequences of competition in the residential market. The Kiwi share may have been one of the less fortunate ideas. A keystone of economic reform has been the Reserve Bank Act, which has succeeded in controlling inflation in New Zealand. Inflation adds to the uncertainty of investment decisions, and leads to arbitrary redistributions of wealth. Admittedly, the rapid reduction in inflation was achieved at considerable cost. However, nothing would be gained now by loosening the controls on inflation embodied in the Reserve Bank Act. Reform of the tax system was also important. In 1984, the top marginal tax rate was 66%, which left little incentive for additional effort. It provided ample incentive for avoidance and evasion which were widespread. The imposition of GST had two major advantages: avoidance was almost impossible and the tax fell on consumption and not saving. By cutting the rates but broadening the base, tax receipts have actually increased, which is why New Zealand is now repaying debt rather than accumulating it. The reformed system is also much fairer, since the opportunities for avoidance under the former system were very unevenly distributed. Reform reached beyond market institutions. "Tomorrow's Schools" revolutionized the ways our schools are run. There have been some hiccups, but by and large this seems to have been a successful and welcome reform. A recent review in the Press could find no one who wanted to return to the former system of centralized Ministry control. Similar decentralization in the health system has provoked more debate. However, it is notable that a recent careful survey by Consumer magazine detected widespread satisfaction with the health system. Much of the criticism comes from those working in the system, with a vested interest in protecting their working conditions. As in similar countries, the process of immigration was changed, from a system of regional quotas to a points system. Points are awarded to prospective immigrants for various criteria, and those with the highest points are admitted. The advantage of this system is its openness and transparency. On the whole, it is much fairer to immigrants. Other changes which come to mind include deregulation of shopping hours, the huge change in planning process embodied in the Environmental Protection Act, the auctioning of property rights in spectrum and fisheries and of course the Employment Contracts Acts. The changes which have been wrought have been massive. They have been guided by the desire to introduce openness, accountability and rationality into public decision making. It would be silly to pretend that all the changes and their implementation have been beyond criticism. We live in an uncertain world characterized by imperfect information and human frailty. Mistakes have been made and improvements are available. Inevitably, there have been winners and losers from change. Nevertheless, we need to look at the larger picture. Those with nostalgia for a lost past need to colour their memories with a degree of realism. Do we really want to return to the days of import and exchange controls, inefficient state monopolies, old broken-down cars, a gray, dull uniformity of relative poverty and quaint backwardness. That is the direction in which some politicians wish to lead. ----- Following are a collection of references on the changes from Paul Walker who added: "The one problem they all have is that they were out of date by the time they were published. For a quick overview of the last 10 years or so check out": http://www.canterbury.ac.nz/econ/mike.htm Australian Economic Review; 0(104), Oct.-Dec. 1993 Len Bayliss Prosperity Mislaid: Economic Failure in New Zealand and What Should be Done About it. GP Publications, Wellington NZ, 1994 A. Bollard New Zealand Economic Reforms: 1984-91, Country Study No. 10. International Center for Economic Growth, 1992 Alan Bollard The Political Economy of Liberalisation in New Zealand. New Zealand Institute of Economic Research Working Paper WP93/2 Alan Bollard and Robert Buckle (eds) Economic Liberalisation in New Zealand. Allen and Unwin, 1987 Alan Bollard and David Mayes Corporatization and Privatization in New Zealand in The Political Economy of Privatization. Thomas Clarke and Christos Pitelis (eds) Routledge, London, 1993 Jonathan Boston Reshaping Social Policy in New Zealand. Fiscal Studies; 14(3), August 1993, pages 44-85. Jonathan Boston and Paul Dalziel (eds) The Decent Society?: Essays in Response to National's Economic and Social Policies. Oxford University Press, Auckland, N.Z., 1992 Jonathan Boston and Martin Holland (eds) The Fourth Labour Government: Radical Politics in New Zealand. Oxford University Press, Auckland, N.Z., 1987 Jonathan Boston and Martin Holland (eds) The Fourth Labour Government: Politics and Policy in New Zealand 2nd Ed. Oxford University Press, Auckland, N.Z., 1990 Pat Colgate and Joselyn Stroombergen A Promise to Pay: New Zealand's Overseas Debt and Country Risk. New Zealand Institute of Economic Research Research Monograph 58 Ajit Dasgupta Is New Zealand Slipping up? Some Borda Condorcet Measures of Relative Performance. Economics discussion Papers No.9311 Uinversity of Otago. Ian Duncan and Alan Bollard Corporatization and Privatization. Oxford University Press, 1992 Stephen Gale The New Zealand Experience of Liberalisation and Deregulation. New Zealand Institute of Economic Research Working Paper WP 90/13 G. Hawke (ed) A Modest Safety Net? The Future of the Welfare State. Institute of Policy Studies, 1991 Warren E. Johnston and Gerald A. G. Frengley The Deregulation of New Zealand Agriculture: Market Intervention (1964-84) and Free Market Readjustment (1984-90). Western Journal of Agricultural Economics; 16(1), July 1991, pages 132-43. Susan K. Jones The Road to Privatization; The issues involved and some lessons from New . Zealand's Experience. Finance and Development, March 1991. Tim Maloney Has New Zealand's Employment Contracts Act Increased Employment and Reduced Wages? Working Papers in Economics No.135 July 1994, Department of Economics, University of Auckland. Peter Nicholl New Zealand's Monetary Policy Experiment. University of Western Ontario Papers in Political Economy: 31 October 1993 Susan St John Tax and Welfare Reforms in New Zealand. The Australian Economic Review, 4th Quarter 1993 Robert Stephens Radical Tax Reform in New Zealand. Fiscal Studies; 14(3), August 1993, pages 45-63. The Old New Zealand and the New New Zealand Business Roundtable, Wellington N.Z., 1994 Simon Walker (ed) Rodgernomics: Reshaping New Zealand's Economy. GP Books, Wellington, N.Z., 1989 Graeme Wells Economic Reform and Macroeconomic Policy in New Zealand. Australian Economic Review; 0(92), Oct.-Dec. 1990, pages 45-60 P. C. Dalziel A decade of radical economic reforms in New Zealand British Review of New Zealand Studies 7, forthcoming (it may be out by now). Patrick Massey New Zealand: Market Liberalization in a Developed Economy Macmillan Press, 1995 You could also check out the last 10 years or so of "New Zealand Economic Papers" and the "Reserve Bank of New Zealand Bulletin". Paul -------------------- B3.2.2 Current Status Govt: going into surplus Business confidence: on the up and up Building: both business and residental are doing very well. Unemployed, welfare, students, solo parents feeling hard done by. Business (particular exporters), overseas investors very pleased. GNP 1988 (millions) $25,856 GNP per Capita $7,734 GDP: purchasing power equivalent - $46.2 billion, per capita $14,000; real growth rate - 0.4% (1991 est.) Inflation rate (consumer prices): 1.1-1.4% (1993) Unemployment rate: 11% (mid 1994) Budget: revenues $17.6 billion; expenditures $18.3 billion, including capital expenditures of $NA (FY91 est.) Economic aid: donor - ODA and OOF commitments (1970-89), $526 million Exports: $9.4 billion (f.o.b., FY91) commodities: wool, lamb, mutton, beef, fruit, fish, cheese, manufactured goods, chemicals, forestry products, beer, wine Imports: $8.4 billion (f.o.b., FY91) commodities: petroleum, consumer goods, motor vehicles, industrial equipment Natural resources: natural gas, oil, iron sand, coal, timber, hydropower, gold, grass Land use: arable land 2%; permanent crops 0%; meadows and pastures 53%; forest and woodland 38%; other 7%; includes irrigated 1% --------- For an up-to-date outline on the current state of NZ's economy, look out for one of Brian Harmer's excellent weekly WYSIWYG news reports in s.c.n-z. -------------------- B3.2.3 Currency Decimal system based on New Zealand dollar, with cent denominations. Coins are 5, 10, 20, and 50 cents, 1 and 2 dollars Notes are 5, 10, 20, 50, and 100 dollars Major credit cards are accepted widely. -------------------- B3.2.4 Stockmarket Same structure as overseas. Ours tends to fluctuate depending on the state of the world markets. -------------------- B3.2.5 Exchange/Interest Rates Information on exchange rates is available from many daily papers, or you can get the information through www on: http://www.ora.com/cgi-bin/ora/currency?New_Zealand It's updated weekly, so it's usually a little out of date, but it's a good guide mostly. Current figures for main currencies (10/6/95): NZ$ Aust$ 93.63c Pounds 42.56p US$ 67.65c Yen 57.78 Interest rates are fluctuating between 6 and 10% depending on overseas markets. Fixed interest (1/4/95): % call rates 9.00 % 90-day bank bills 9.04 % July 1998 Govt Stock 8.21 -------------------- B3.2.6 Taxes New Zealand operates a Goods and Services Tax of 12.5% on ALL goods and services sold and this is usually included in the display price. The exceptions are purchases at duty free shops. Visitors cannot claim refunds on this tax however when a supplier agrees to export a major item to a visitors home address then GST will not be charged on the goods or the freight. Income tax (as at May 96): $1 - $9,500 - 15% (allowing for the low income rebate) $9,501 - $30,875 - 28% $30,876 + - 33% changing to: $1 - $9,500 - 15% (allowing for the low income rebate) $9,501 - $34,200 - 24% (up to $38,000 and down to 21% on July 1st 1997) $30,876 + - 33% on the July 1st 1996. Apparently family support will also increase with a guaranteed minimum family income, and a new independent family tax credit. For wage and salary earners virtually nothing is tax-deductible except the first $1500 of donations to churches, schools, and other charities, and then only at a 33% rate (ie max $500). There are various rebates for things like low incomes, children, donations, Housekeeper, Home/Farm/Vessel Ownership, and others. Government Revenue Source(1990) How it was expected to be spent(1990) Income Tax $16,950 Education $3,912.5 Goods and Service Tax $5,500 Health $3,791.1 Other Direct Taxes $360 Transport $711.6 Excise Duties $1,670 Administration $2,769.0 Highway tax $670 Development of Industry $1,231.3 Other Indirect Tax $790 Government Borrowing $575.1 Foreign Relations $1,733.7 Social Services $10,292.1 Total $25,940 Total $25,016.4 On a regional scale, all local authorities fund their activities (with some limited back-up from central government) from 'rates'. These are taxes on land owners, assessed annually as a fraction of the 'unimproved' (i.e. land only) value of the land. Each local authority sets its own rates and they can be challenged as unreasonable in court - some Wellington City rates for the current year have just been thrown out by the High Court. Note that we do not have overlapping local authorities as in the U.S. Any given place is controlled by one, and one only, local authority - either a "city" or a "district" - and so the only taxes that people pay are local authority rates and central government taxes. There are still some anomalous levies and taxes on certain goods - a high excise duty on wine, for example - that should not really exist in the GST environment. -------------------- B3.2.7 Miscellaneous Prices litre of petrol; $0.90 - 0.96 loaf of bread (700gm/1.5 pound loaf); $1.60 - 1.90 butter (500gms); $1.60 (on special) milk (2 litre bottle); $2.70 eggs (dozen) $3.20 apples (1kg/2lb); $0.60 - 1.20 depending on season fresh fruit/veges - much cheaper than US city and much nicer/fresher frozen chicken (2 kg/4 pounds); $6 (good special price) sausages (3 kg/6 pounds); $10 steak; $10/kg often much more. coffee (kg, beans) $22 ice cream (2 litres); $3 cheapest hamburger at McDonalds; $0.95 (a LOT more for a big mac) 12 cans of beer; $13. restaurant prices; much less than the US clothes/shoes; much more expensive than the US 60 watt light bulbs; $1 each university textbooks; $80+/- queen size mattress (without base, reasonable quality); $500 Sony G14 34cmv TV 14 inch; $439 top-loading automatic washing machine (5 kg loads); $919 cars: used Holden Commodore VL automatic 1987 (i.e. 8 years old); $12,700 new Honda Civic (fairly typical for NZ size cars); $33,170 auto insurance for that car; $250/annum (depending on policy, age of owner) electrician charges; $30 per hour doctor - standard consultation; adult $35, child $10-20 treatment in public hospital (eg maternity unit, 3 days); free. The trick is to have something so urgent that they let you in. That's not so easy unless you're pregnant. Waiting lists can be months long. For housing rental - see under 'cost of living'. ----- House prices. The following table is taken from the New Zealand Herald, Wed 20 Dec, 1995. Median price ($) by district of real estate for November 1995. Dwelling total District House Unit Section 1995 1994 1993 Northland 110,000 89,000 35,000 108,000 97,500 96,250 Auckland 212,000 182,500 75,000 200,000 178,000 150,000 Waikato/ 128,000 120,000 45,000 127,000 120,000 110,000 Bay of Plenty/ Gisborne Hawkes Bay 118,000 115,000 35,000 118,000 118,000 118,000 Manawatu/ 102,500 86,250 45,000 101,000 102,750 96,750 Wanganui Taranaki 94,000 93,500 52,555 93,750 95,000 90,000 Wellington 145,000 115,000 54,250 140,000 140,000 132,500 Nelson/ 130,000 117,750 60,000 130,000 135,000 120,000 Marlborough Canterbury/ 129,000 120,900 52,750 128,000 125,000 115,000 Westland/ SouthCant'y Otago 91,500 113,000 38,750 91,500 101,000 90,750 Southland 79,500 140,000 76,000 84,000 84,000 74,250 Average for 143,000 157,000 55,000 146,000 118,000 107,600 New Zealand ----- For more info, try: http://www.govt.nz/ps/min/stats Follow the "New Zealand" link on the home page. Ewan McKissock wrote: It's interesting what items they list (and what they don't). This is either very revealing about life in NZ, or about life in Statistics New Zealand, I'm not sure which. Odd that they quote annual Tennis club subscription, but no mention of other sports. Russell Turner wrote: You could try looking at New Zealand newspapers. The dominion or evening post would be a could source of adverts for household gizmos and houses, rent, cars etc. Try phoning (04) 474 0100 to speak to the newspaper publisher. to which Charles Eggen added: The Weekly Wellington - City Voice is on-line at http://nz.com/NZ/Commerce/NetEdit/VOICE.HTM (watch those Caps in the above address). It will give you some current info and you can subscribe to the fully paper at a reasonable cost. 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