Economic Policies
#13Key Findings
Aided by a quick recovery from the pandemic’s first wave, the country scores in the upper-middle ranks (rank 13) in terms of economic policy. Its score on this measure is unchanged relative to 2014.
New Zealand’s initial successes in eliminating COVID-19 allowed the economy to reopen more quickly than most. A sharp collapse in GDP in mid-2020 was followed by an even larger rebound, and modest growth in early 2021. Large-scale fiscal support to businesses, wage subsidies and a loose monetary policy helped prevent sweeping unemployment and insolvencies.
The unemployment rate plunged to 3.4% in mid-2021. The strong showing was partly due to travel restrictions preventing the arrival of migrants. Structural problems persist, with higher unemployment rates among young Māori and Pacific Islander people. The country’s tax-to-GDP ratio is significantly below the OECD average. The agricultural sector will soon have to start paying for emissions.
Government support spending pushed the budgetary balance to a deficit of 9.6% of GDP in 2020. Surpluses are expected again in 2023/2024. Debt is expected to peak at around 40.1% of GDP before declining again to around 30%. Public R&D investment strategies have been shifted to focus on green investment.
New Zealand’s initial successes in eliminating COVID-19 allowed the economy to reopen more quickly than most. A sharp collapse in GDP in mid-2020 was followed by an even larger rebound, and modest growth in early 2021. Large-scale fiscal support to businesses, wage subsidies and a loose monetary policy helped prevent sweeping unemployment and insolvencies.
The unemployment rate plunged to 3.4% in mid-2021. The strong showing was partly due to travel restrictions preventing the arrival of migrants. Structural problems persist, with higher unemployment rates among young Māori and Pacific Islander people. The country’s tax-to-GDP ratio is significantly below the OECD average. The agricultural sector will soon have to start paying for emissions.
Government support spending pushed the budgetary balance to a deficit of 9.6% of GDP in 2020. Surpluses are expected again in 2023/2024. Debt is expected to peak at around 40.1% of GDP before declining again to around 30%. Public R&D investment strategies have been shifted to focus on green investment.
Graph View
Graph View
How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
10
9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
8
7
6
7
6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
5
4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
New Zealand is generally rated relatively highly in terms of international economic competitiveness. For example, the latest World Economic Forum Global Competitiveness Index ranked New Zealand as the 19th most competitive nation in the world, giving the country first place in the area of macroeconomic stability, budget transparency, corporate governance, the time needed to start a business and social capital (World Economic Forum 2019). New Zealand also achieved positive ratings in the World Economic Forum’s Global Competitiveness Report Special Edition 2020, which analyzed 37 countries on the basis of their readiness for economic transformation and their ability to revive their economies in the wake of the COVID-19 pandemic. In particular, New Zealand was lauded for its delivery of public services –with this process marked by governance principles and transparency – and its financial stability (World Economic Forum 2020).
In fact, New Zealand’s economy rebounded much more rapidly from the COVID-19 pandemic than many other OECD countries. GDP surged by 2.8% in the three months through June 2021, Statistics New Zealand said, well ahead of a Reuters poll forecast of a 1.3% increase and the Reserve Bank of New Zealand’s (RBNZ) estimate of 0.7%. This rebound can be explained in part by New Zealand’s success in eliminating COVID-19 (at least until the arrival of the delta variant in late August 2021), which allowed the country to reopen its domestic economy well before other advanced nations did, boosting employment and consumer spending (Menon 2021).
Large-scale government support matters to explain New Zealand’s rapid economic recovery. The Labour government’s fiscal support package (among the largest in the world relative to the size of the economy) featured large wage subsidies to retain employment during the lockdown and beyond, allowing businesses to rapidly reopen once conditions permitted. Moreover, the RBNZ also played a key role by easing monetary policy and creating special facilities to ensure that credit continued to be available during the crisis. For the first time, New Zealand used unconventional monetary policy, featuring large-scale bond purchases to lower longer-maturity interest rates. Together, the unprecedented fiscal and monetary stimulus prevented large-scale unemployment and insolvencies while preserving financial stability (Raman et al. 2021).
However, beneath New Zealand’s V-shaped economic recovery lie deeper structural issues of international competitiveness. For one, the economy suffers from poor productivity. The Productivity Commission’s “Productivity by the Numbers” report released in May shows that New Zealanders worked an average of 34.2 hours per week, higher than the average 31.9 hours per week worked in other OECD countries, and produced $68 of output per hour, less than the $85 per hour in other OECD countries (New Zealand Productivity Commission 2021). Moreover, New Zealand has higher barriers to foreign direct investment (FDI) than other OECD countries, which impedes entry to foreign firms. The government passed a reviewed Overseas Investment Act in mid-2021, with the aim of streamlining approval procedures, but critics have noted that the changes do not go far enough in fixing the flaws in the current system (RNZ 2021). On the other hand, New Zealand has continued to take a lead in championing multilateralism rather than nationalism in its approach to free trade agreements (FTA), and has initiated new approaches to inclusive trade. In late 2021 the terms of the new Regional Comprehensive Economic Partnership (RCEP) were finalized, coming into force on 1 January 2022. The Agreement includes 15 regional economies, including seven of New Zealand’s top 10 trading partners, and is designed to address non-tariff barriers to trade in the Indo-Pacific and increase market access for New Zealand business. Alongside this, New Zealand continued to advance negotiations for FTAs with the United Kingdom and the European Union while also hosting APEC 2021. The latter resulted in agreement from all 21 APEC leaders to the Aotearoa Plan of Action, which details two decades of work to advance peace, prosperity and well-being. It represents a commitment to making trade more inclusive and sustainable. In all of these economic negotiations, the government has sought to preserve the state’s right to regulate in the public interest, while preserving the preeminence of the Treaty of Waitangi and Māori interests.
Citations:
Asia Pacific Economic Cooperation (2021) “Introducing the Aotearoa Plan of Action” ttps://www.apec.org/press/features/2021/introducing-the-aotearoa-plan-of-action-apec-s-playbook-for-the-next-two-decades
Menon (2021) “NZ economy surges as housing, retail drive post-COVID recovery.” Reuters. https://www.reuters.com/world/asia-pacific/nz-economy-surges-housing-retail-drive-post-covid-recovery-2021-06-16/
New Zealand Productivity Commission (2021) Productivity by the numbers. https://www.productivity.govt.nz/assets/Documents/productivity-by-the-numbers/Productivity-by-the-numbers.pdf
World Economic Forum (2019) The Global Competitiveness Report 2019. https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf
World Economic Forum (2020) The Global Competitiveness Report – Special Edition 2020: How Countries are Performing on the Road to Recovery. https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf
Raman et al. (2021) “The Land of the Long White Cloud: Turning New Zealand’s Recovery into Sustained Growth.” IMF. imf.org/en/News/Articles/2021/05/25/na052521-the-land-of-the-long-white-cloud-turning-new-zealands-recovery-into-sustained-growth
RNZ (2021) “OIO changes will address flaws, but could have gone further, law firm says.” https://www.rnz.co.nz/news/national/443494/oio-changes-will-address-flaws-but-could-have-gone-further-law-firm-says
In fact, New Zealand’s economy rebounded much more rapidly from the COVID-19 pandemic than many other OECD countries. GDP surged by 2.8% in the three months through June 2021, Statistics New Zealand said, well ahead of a Reuters poll forecast of a 1.3% increase and the Reserve Bank of New Zealand’s (RBNZ) estimate of 0.7%. This rebound can be explained in part by New Zealand’s success in eliminating COVID-19 (at least until the arrival of the delta variant in late August 2021), which allowed the country to reopen its domestic economy well before other advanced nations did, boosting employment and consumer spending (Menon 2021).
Large-scale government support matters to explain New Zealand’s rapid economic recovery. The Labour government’s fiscal support package (among the largest in the world relative to the size of the economy) featured large wage subsidies to retain employment during the lockdown and beyond, allowing businesses to rapidly reopen once conditions permitted. Moreover, the RBNZ also played a key role by easing monetary policy and creating special facilities to ensure that credit continued to be available during the crisis. For the first time, New Zealand used unconventional monetary policy, featuring large-scale bond purchases to lower longer-maturity interest rates. Together, the unprecedented fiscal and monetary stimulus prevented large-scale unemployment and insolvencies while preserving financial stability (Raman et al. 2021).
However, beneath New Zealand’s V-shaped economic recovery lie deeper structural issues of international competitiveness. For one, the economy suffers from poor productivity. The Productivity Commission’s “Productivity by the Numbers” report released in May shows that New Zealanders worked an average of 34.2 hours per week, higher than the average 31.9 hours per week worked in other OECD countries, and produced $68 of output per hour, less than the $85 per hour in other OECD countries (New Zealand Productivity Commission 2021). Moreover, New Zealand has higher barriers to foreign direct investment (FDI) than other OECD countries, which impedes entry to foreign firms. The government passed a reviewed Overseas Investment Act in mid-2021, with the aim of streamlining approval procedures, but critics have noted that the changes do not go far enough in fixing the flaws in the current system (RNZ 2021). On the other hand, New Zealand has continued to take a lead in championing multilateralism rather than nationalism in its approach to free trade agreements (FTA), and has initiated new approaches to inclusive trade. In late 2021 the terms of the new Regional Comprehensive Economic Partnership (RCEP) were finalized, coming into force on 1 January 2022. The Agreement includes 15 regional economies, including seven of New Zealand’s top 10 trading partners, and is designed to address non-tariff barriers to trade in the Indo-Pacific and increase market access for New Zealand business. Alongside this, New Zealand continued to advance negotiations for FTAs with the United Kingdom and the European Union while also hosting APEC 2021. The latter resulted in agreement from all 21 APEC leaders to the Aotearoa Plan of Action, which details two decades of work to advance peace, prosperity and well-being. It represents a commitment to making trade more inclusive and sustainable. In all of these economic negotiations, the government has sought to preserve the state’s right to regulate in the public interest, while preserving the preeminence of the Treaty of Waitangi and Māori interests.
Citations:
Asia Pacific Economic Cooperation (2021) “Introducing the Aotearoa Plan of Action” ttps://www.apec.org/press/features/2021/introducing-the-aotearoa-plan-of-action-apec-s-playbook-for-the-next-two-decades
Menon (2021) “NZ economy surges as housing, retail drive post-COVID recovery.” Reuters. https://www.reuters.com/world/asia-pacific/nz-economy-surges-housing-retail-drive-post-covid-recovery-2021-06-16/
New Zealand Productivity Commission (2021) Productivity by the numbers. https://www.productivity.govt.nz/assets/Documents/productivity-by-the-numbers/Productivity-by-the-numbers.pdf
World Economic Forum (2019) The Global Competitiveness Report 2019. https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf
World Economic Forum (2020) The Global Competitiveness Report – Special Edition 2020: How Countries are Performing on the Road to Recovery. https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf
Raman et al. (2021) “The Land of the Long White Cloud: Turning New Zealand’s Recovery into Sustained Growth.” IMF. imf.org/en/News/Articles/2021/05/25/na052521-the-land-of-the-long-white-cloud-turning-new-zealands-recovery-into-sustained-growth
RNZ (2021) “OIO changes will address flaws, but could have gone further, law firm says.” https://www.rnz.co.nz/news/national/443494/oio-changes-will-address-flaws-but-could-have-gone-further-law-firm-says
Graph View
How effectively does labor market policy address unemployment?
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9
9
Successful strategies ensure unemployment is not a serious threat.
8
7
6
7
6
Labor market policies have been more or less successful.
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4
3
4
3
Strategies against unemployment have shown little or no significant success.
2
1
1
Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Despite the ongoing COVID-19 pandemic, the unemployment rate in New Zealand plunged to a record low in 2021. In the three months through the end of the September, the unemployment rate dropped to 3.4% (down from 4% in the June quarter) – the lowest rate of unemployment the country has ever recorded (matching the rate in the three months to the end of December in 2007). The “underutilization” rate (which measures unemployment along with the proportion of people in work but who would like more hours, as well as those who want jobs but are either unavailable or not actively seeking work) also fell – from 10.5% (in the June quarter) to 9.2% (in the September quarter) (Pullar-Strecker 2021).
The historic drop in unemployment figures was partly due to travel restrictions on international arrivals, which prevented migrants from swelling the domestic labor supply. In particular, the COVID-19 pandemic worsened workforce shortages in the agricultural and horticultural sectors. While the government did provide exemptions to seasonal workers from Tonga, Samoa and Vanuatu to travel to New Zealand, industry representatives continued to complain about a lack of policy certainty (Tokalau 2021).
In addition, labor market figures have also been bolstered by the financial support provided by the government to employers with the goal of mitigating the negative impact of public health measures during the COVID-19 pandemic. During the delta lockdown in the second half of 2021, the government provided up to $940 million per fortnight to support businesses, paid at a base rate of $1,500 per eligible business and $400 for each full-time employee (FTE), up to a total of $21,500. In November, subsidies were increased to $3,000 per business and $800 per FTE, up to a maximum of 50 FTEs (New Zealand Herald 2021).
However, while aggregate unemployment figures look promising, they hide structural problems in the labor market. In particular, young Māori and Pacific Islander people have a consistently higher unemployment rate than do young New Zealanders of European descent. In the quarter ending in September 2021, youth unemployment rates were 7.8% among those of European descent, 15.5% for Māori and 11.2% for Pacific people (Sadler 2021). The Labour government has been trying to address these issues by increasing funding for targeted employment programs such as the Māori Trades and Training Fund ($18.6 million) and He Poutama Rangatahi ($5.6 million) (New Zealand Government 2021).
There has also been ongoing criticism of the current government’s lack of attention to the impact of COVID-19 on women workers. Evidence indicates that women’s underutilization rates were higher than men’s prior to the pandemic, but increased once job losses began in 2020 (Giovanetti, 2020). Moreover, the unemployment figures do not capture the many women who lost their jobs but then stopped looking for work because they were needed at home to provide care services. Women picked up much of this care work during New Zealand’s lockdowns in both 2020 and 2021. Finally, the economic response packages, financial support for workers and businesses, and stimulus packages were directed more toward physical infrastructure and trades jobs rather than social infrastructure (care work) (Curtin et al, 2021).
Citations:
Curtin, J. et al. (2021). The Conversation, 21 May 2021 https://theconversation.com/nz-budget-2021-women-left-behind-despite-the-focus-on-well-being-161187
Giovanetti, J (2020). https://thespinoff.co.nz/politics/01-10-2020/the-elections-message-to-women-losing-their-jobs-to-covid-19-pick-up-a-hammer
New Zealand Government (2021) “Government Delivering More Pathways Into Mahi For Jobseekers.” Scoop. https://www.scoop.co.nz/stories/PA2108/S00103/government-delivering-more-pathways-into-mahi-for-jobseekers.htm
New Zealand Herald (2021) “Covid 19 Delta outbreak: What Government’s business support package means.” https://www.nzherald.co.nz/business/covid-19-delta-outbreak-what-governments-business-support-package-means-940m-per-fortnight/OYNEKGRHCFUODPGJZPSGFBBP54/
Pullar-Strecker (2021) “Unemployment rate plunges to 3.4 per cent, matching record low in 2007.” Stuff. https://www.stuff.co.nz/business/126872476/unemployment-rate-plunges-to-34-per-cent-matching-record-low-in-2007
Sadler (2021) “Youth unemployment rate declines to 9.6 pct - but it’s still three times the national average.” Newshub.
Tokalau (2021) “Covid-19: Seasonal employment travel bubble with Pacific nations put on hold.” Stuff. https://www.stuff.co.nz/national/politics/126262274/covid19-seasonal-employment-travel-bubble-with-pacific-nations-put-on-hold
The historic drop in unemployment figures was partly due to travel restrictions on international arrivals, which prevented migrants from swelling the domestic labor supply. In particular, the COVID-19 pandemic worsened workforce shortages in the agricultural and horticultural sectors. While the government did provide exemptions to seasonal workers from Tonga, Samoa and Vanuatu to travel to New Zealand, industry representatives continued to complain about a lack of policy certainty (Tokalau 2021).
In addition, labor market figures have also been bolstered by the financial support provided by the government to employers with the goal of mitigating the negative impact of public health measures during the COVID-19 pandemic. During the delta lockdown in the second half of 2021, the government provided up to $940 million per fortnight to support businesses, paid at a base rate of $1,500 per eligible business and $400 for each full-time employee (FTE), up to a total of $21,500. In November, subsidies were increased to $3,000 per business and $800 per FTE, up to a maximum of 50 FTEs (New Zealand Herald 2021).
However, while aggregate unemployment figures look promising, they hide structural problems in the labor market. In particular, young Māori and Pacific Islander people have a consistently higher unemployment rate than do young New Zealanders of European descent. In the quarter ending in September 2021, youth unemployment rates were 7.8% among those of European descent, 15.5% for Māori and 11.2% for Pacific people (Sadler 2021). The Labour government has been trying to address these issues by increasing funding for targeted employment programs such as the Māori Trades and Training Fund ($18.6 million) and He Poutama Rangatahi ($5.6 million) (New Zealand Government 2021).
There has also been ongoing criticism of the current government’s lack of attention to the impact of COVID-19 on women workers. Evidence indicates that women’s underutilization rates were higher than men’s prior to the pandemic, but increased once job losses began in 2020 (Giovanetti, 2020). Moreover, the unemployment figures do not capture the many women who lost their jobs but then stopped looking for work because they were needed at home to provide care services. Women picked up much of this care work during New Zealand’s lockdowns in both 2020 and 2021. Finally, the economic response packages, financial support for workers and businesses, and stimulus packages were directed more toward physical infrastructure and trades jobs rather than social infrastructure (care work) (Curtin et al, 2021).
Citations:
Curtin, J. et al. (2021). The Conversation, 21 May 2021 https://theconversation.com/nz-budget-2021-women-left-behind-despite-the-focus-on-well-being-161187
Giovanetti, J (2020). https://thespinoff.co.nz/politics/01-10-2020/the-elections-message-to-women-losing-their-jobs-to-covid-19-pick-up-a-hammer
New Zealand Government (2021) “Government Delivering More Pathways Into Mahi For Jobseekers.” Scoop. https://www.scoop.co.nz/stories/PA2108/S00103/government-delivering-more-pathways-into-mahi-for-jobseekers.htm
New Zealand Herald (2021) “Covid 19 Delta outbreak: What Government’s business support package means.” https://www.nzherald.co.nz/business/covid-19-delta-outbreak-what-governments-business-support-package-means-940m-per-fortnight/OYNEKGRHCFUODPGJZPSGFBBP54/
Pullar-Strecker (2021) “Unemployment rate plunges to 3.4 per cent, matching record low in 2007.” Stuff. https://www.stuff.co.nz/business/126872476/unemployment-rate-plunges-to-34-per-cent-matching-record-low-in-2007
Sadler (2021) “Youth unemployment rate declines to 9.6 pct - but it’s still three times the national average.” Newshub.
Tokalau (2021) “Covid-19: Seasonal employment travel bubble with Pacific nations put on hold.” Stuff. https://www.stuff.co.nz/national/politics/126262274/covid19-seasonal-employment-travel-bubble-with-pacific-nations-put-on-hold
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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9
9
Taxation policy fully achieves the objectives.
8
7
6
7
6
Taxation policy largely achieves the objectives.
5
4
3
4
3
Taxation policy partially achieves the objectives.
2
1
1
Taxation policy does not achieve the objectives at all.
Compared to other OECD countries, the New Zealand tax system performs relatively poorly in terms of revenue collection. In 2019, New Zealand’s tax-to-GDP ratio (32.3%) was significantly lower than the OECD average (33.8%). Not only that, but New Zealand’s tax-to-GDP ratio has declined by 1.6 percentage points since 2007 (OECD 2021).
In terms of government revenue structure, two things stand out. Relative to the OECD average, New Zealand relies heavily on personal income tax as well as a goods and services tax (GST) (OECD 2021). While the GST is generally speaking considered a regressive tax (because it falls disproportionately on lower-income people), New Zealand’s personal “broad base, low rate” income tax also lacks in progressivity. In short, despite the fact that the Labour administration introduced a new 39% personal tax rate on income above $180,000 in May 2021 (which affects 2% of earners), the New Zealand tax system exhibits weakness in achieving vertical equity and addressing inequality in society.
After entering government in 2017, Labour set up a tax working group, with the stated goal of exploring “further improvements in the structure, fairness and balance of the tax system.” The group published its report in February 2019, recommending a broad-based tax on capital gains from rental homes, second homes, business assets, land and shares – a recommendation that was echoed by the IMF in 2021 amidst discussions of how to cool down New Zealand’s housing market (Coughlan 2021a). However, Prime Minister Jacinda Ardern has to date ignored calls for a capital gains tax, even though the opposition accused her of introducing a “backdoor” capital gains tax by making profits from residential investment property sales taxable in May 2021 (Edmunds 2021).
While New Zealand’s tax system is not particularly effective in reducing social inequality, it is relatively successful in promoting the country’s global competitiveness. Independent assessments have lauded the very lean business environment and the simple policy framework. For example, the conservative Tax Foundation think tank ranks New Zealand third in terms of “tax competitiveness,” ahead of international financial centers such as Switzerland and Luxembourg (Tax Foundation 2021). In PwC’s 2020 Paying Taxes Index, which attempts to measure how easy it is for companies to discharge its tax obligations in a given jurisdiction, New Zealand was placed ninth out of 189 territories, situating it ahead of all other OECD member countries with the exception of Denmark and Ireland (PwC 2020). The World Bank even ranks New Zealand in first place in its most recent Doing Business Index (World Bank 2020). According to the World Bank, not only has New Zealand made paying taxes easier by improving the online portal for filing and paying general sales tax, it also has a single procedure that a prospective business need undertake to form, and the process is typically completed in less than a day.
New Zealand has a fairly poor record when it comes to tax policies steering economic activities toward environmental sustainability. As a share of GDP, New Zealand has the 5th lowest environmentally related tax revenue among all OECD countries. In 2014, environmentally related tax revenues were at 1.34% of GDP, compared to 2.0% on average among 34 OECD and partner economies (OECD n.d.). The tax working group identified taxes designed to improve environmental outcomes as a key policy focus. Specifically, in its 2019 report, the group recommended that immediate government priorities should include expanding the coverage and rate of the Waste Disposal Levy, strengthening the Emissions Trading Scheme (ETS) and advancing the use of congestion charging. Longer-term measures include a water abstraction and water pollution tax, a natural capital enhancement tax, changes to the existing concessions regime, and a high-level consideration of mechanisms that support Te Ao Māori (a worldview that considers everything living and non-living to be interconnected) (Tax Working Group 2019).
In 2019, the government announced that the country’s agricultural sector – New Zealand’s largest emitter of greenhouse gases – would have to start paying for emissions beginning in 2025, and that industry would be given time to develop a way to measure and price them. The government said if no credible alternative was put forward, agriculture would be made a part of the ETS (RNZ 2021). In mid-2021, the Clean Car Discount policy was rolled out, which means people buying new electric vehicles can receive a discount of up to almost $9,000. The scheme is funded by fees on polluting cars, commonly referred to as the “ute tax” (Coughlan 2021b).
Citations:
Sources:
Coughlan (2021a) “Capital gains tax on the table to fix NZ’s broken housing market, says IMF.” Stuff. https://www.stuff.co.nz/national/politics/300251210/capital-gains-tax-on-the-table-to-fix-nzs-broken-housing-market-says-imf
Coughlan (2021b) “Car taxes and rebates - who wins and who loses.” https://www.stuff.co.nz/environment/climate-news/300332848/car-taxes-and-rebates–who-wins-and-who-loses
Edmunds (2021) “New Zealand’s new 39% capital gains tax: ‘It’s pretty harsh’.” Stuff. https://www.stuff.co.nz/business/money/300305269/new-zealands-new-39-capital-gains-tax-its-pretty-harsh
OECD (n.d.) Environmentally related taxes. https://www.oecd.org/ctp/tax-policy/environmental-tax-profile-new-zealand.pdf
OECD (2021) Revenue Statistics in Asia and the Pacific 2021 ─ New Zealand. https://www.oecd.org/tax/tax-policy/revenue-statistics-asia-and-pacific-new-zealand.pdf
PwC (2020) Paying Taxes 2020. https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020.html
RNZ (2021) “Proposals to price agricultural emissions a failure, say environmental groups.” https://www.rnz.co.nz/news/country/456409/proposals-to-price-agricultural-emissions-a-failure-say-environmental-groups
Tax Foundation (2021) International Tax Competitiveness Index 2021. https://taxfoundation.org/publications/international-tax-competitiveness-index/
Tax Working Group (2019) Future of Tax. https://taxworkinggroup.govt.nz/sites/default/files/2019-03/twg-final-report-voli-feb19-v1.pdf
World Bank (2020) Doing Business 2020: Measuring Business Regulations – New Zealand. https://www.doingbusiness.org/en/data/exploreeconomies/new-zealand
In terms of government revenue structure, two things stand out. Relative to the OECD average, New Zealand relies heavily on personal income tax as well as a goods and services tax (GST) (OECD 2021). While the GST is generally speaking considered a regressive tax (because it falls disproportionately on lower-income people), New Zealand’s personal “broad base, low rate” income tax also lacks in progressivity. In short, despite the fact that the Labour administration introduced a new 39% personal tax rate on income above $180,000 in May 2021 (which affects 2% of earners), the New Zealand tax system exhibits weakness in achieving vertical equity and addressing inequality in society.
After entering government in 2017, Labour set up a tax working group, with the stated goal of exploring “further improvements in the structure, fairness and balance of the tax system.” The group published its report in February 2019, recommending a broad-based tax on capital gains from rental homes, second homes, business assets, land and shares – a recommendation that was echoed by the IMF in 2021 amidst discussions of how to cool down New Zealand’s housing market (Coughlan 2021a). However, Prime Minister Jacinda Ardern has to date ignored calls for a capital gains tax, even though the opposition accused her of introducing a “backdoor” capital gains tax by making profits from residential investment property sales taxable in May 2021 (Edmunds 2021).
While New Zealand’s tax system is not particularly effective in reducing social inequality, it is relatively successful in promoting the country’s global competitiveness. Independent assessments have lauded the very lean business environment and the simple policy framework. For example, the conservative Tax Foundation think tank ranks New Zealand third in terms of “tax competitiveness,” ahead of international financial centers such as Switzerland and Luxembourg (Tax Foundation 2021). In PwC’s 2020 Paying Taxes Index, which attempts to measure how easy it is for companies to discharge its tax obligations in a given jurisdiction, New Zealand was placed ninth out of 189 territories, situating it ahead of all other OECD member countries with the exception of Denmark and Ireland (PwC 2020). The World Bank even ranks New Zealand in first place in its most recent Doing Business Index (World Bank 2020). According to the World Bank, not only has New Zealand made paying taxes easier by improving the online portal for filing and paying general sales tax, it also has a single procedure that a prospective business need undertake to form, and the process is typically completed in less than a day.
New Zealand has a fairly poor record when it comes to tax policies steering economic activities toward environmental sustainability. As a share of GDP, New Zealand has the 5th lowest environmentally related tax revenue among all OECD countries. In 2014, environmentally related tax revenues were at 1.34% of GDP, compared to 2.0% on average among 34 OECD and partner economies (OECD n.d.). The tax working group identified taxes designed to improve environmental outcomes as a key policy focus. Specifically, in its 2019 report, the group recommended that immediate government priorities should include expanding the coverage and rate of the Waste Disposal Levy, strengthening the Emissions Trading Scheme (ETS) and advancing the use of congestion charging. Longer-term measures include a water abstraction and water pollution tax, a natural capital enhancement tax, changes to the existing concessions regime, and a high-level consideration of mechanisms that support Te Ao Māori (a worldview that considers everything living and non-living to be interconnected) (Tax Working Group 2019).
In 2019, the government announced that the country’s agricultural sector – New Zealand’s largest emitter of greenhouse gases – would have to start paying for emissions beginning in 2025, and that industry would be given time to develop a way to measure and price them. The government said if no credible alternative was put forward, agriculture would be made a part of the ETS (RNZ 2021). In mid-2021, the Clean Car Discount policy was rolled out, which means people buying new electric vehicles can receive a discount of up to almost $9,000. The scheme is funded by fees on polluting cars, commonly referred to as the “ute tax” (Coughlan 2021b).
Citations:
Sources:
Coughlan (2021a) “Capital gains tax on the table to fix NZ’s broken housing market, says IMF.” Stuff. https://www.stuff.co.nz/national/politics/300251210/capital-gains-tax-on-the-table-to-fix-nzs-broken-housing-market-says-imf
Coughlan (2021b) “Car taxes and rebates - who wins and who loses.” https://www.stuff.co.nz/environment/climate-news/300332848/car-taxes-and-rebates–who-wins-and-who-loses
Edmunds (2021) “New Zealand’s new 39% capital gains tax: ‘It’s pretty harsh’.” Stuff. https://www.stuff.co.nz/business/money/300305269/new-zealands-new-39-capital-gains-tax-its-pretty-harsh
OECD (n.d.) Environmentally related taxes. https://www.oecd.org/ctp/tax-policy/environmental-tax-profile-new-zealand.pdf
OECD (2021) Revenue Statistics in Asia and the Pacific 2021 ─ New Zealand. https://www.oecd.org/tax/tax-policy/revenue-statistics-asia-and-pacific-new-zealand.pdf
PwC (2020) Paying Taxes 2020. https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020.html
RNZ (2021) “Proposals to price agricultural emissions a failure, say environmental groups.” https://www.rnz.co.nz/news/country/456409/proposals-to-price-agricultural-emissions-a-failure-say-environmental-groups
Tax Foundation (2021) International Tax Competitiveness Index 2021. https://taxfoundation.org/publications/international-tax-competitiveness-index/
Tax Working Group (2019) Future of Tax. https://taxworkinggroup.govt.nz/sites/default/files/2019-03/twg-final-report-voli-feb19-v1.pdf
World Bank (2020) Doing Business 2020: Measuring Business Regulations – New Zealand. https://www.doingbusiness.org/en/data/exploreeconomies/new-zealand
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To what extent does budgetary policy realize the goal of fiscal sustainability?
10
9
9
Budgetary policy is fiscally sustainable.
8
7
6
7
6
Budgetary policy achieves most standards of fiscal sustainability.
5
4
3
4
3
Budgetary policy achieves some standards of fiscal sustainability.
2
1
1
Budgetary policy is fiscally unsustainable.
In 2020, due to the COVID-19 economic crisis, the budget swung from a surplus to a deficit of $28 billion (9.6% of GDP). However, in 2021, New Zealand’s government reported a marked improvement in its finances. The New Zealand Treasury said it had a budget deficit $4.6 billion in the year to end June 2021, compared with a shortfall of $15.1 billion forecast just a few months earlier. Revenue was higher and expenditure lower than forecasted, as economic activity rebounded strongly and unemployment fell much more quickly than expected (RNZ 2021a).
The centerpiece of the 2021 budget is a $3.3 billion boost to working-age benefits, which are set to rise between $32 and $55 a week per adult. The payment increases began in July 2021 and were slated to increase again in April 2022. According to government projections, those changes will lift between 19,000 and 33,000 children out of poverty. According to the latest figures, 157,800 children in New Zealand live below the poverty line. The boost to benefits also brings welfare payments into line with recommendations from a 2019 report that the Labour government commissioned, but was subsequently criticized for failing to implement (Cooke 2021). However, there has been little movement toward being more systematically inclusive of diverse groups of women in the process of government budgeting. The OECD has been advocating on behalf of gender responsive budgeting for some years now, but the current government has resisted providing a systematic intersectional gender lens to their budget allocation process (Curtin et al, 2021)
According to the latest forecast, the government expects annual GDP growth to average 2.9% over the next five years. Net debt is now forecast to peak at 40.1% of GDP in 2023 before declining to nearly 30%, while the budget is forecast to be back in surplus in 2023/24 (RNZ 2021b).
Citations:
Cooke (2021) “Budget 2021: Labour spends big on benefits, health in its first unleashed Budget.” https://www.stuff.co.nz/national/politics/300312294/budget-2021-labour-spends-big-on-benefits-health-in-its-first-unleashed-budget
Curtin J. et al (2021). The Conversation, 21 May 2021 https://theconversation.com/nz-budget-2021-women-left-behind-despite-the-focus-on-well-being-161187
RNZ (2021a) “Govt books: 2020 / 2021 financial statements show deficit of $4.6 billion.” https://www.rnz.co.nz/news/political/453386/govt-books-2020-2021-financial-statements-show-deficit-of-4-point-6-billion
RNZ (2021b) “Covid-19 outbreak and lockdown hits government coffers.” https://www.rnz.co.nz/news/business/457971/covid-19-outbreak-and-lockdown-hits-government-coffers
The centerpiece of the 2021 budget is a $3.3 billion boost to working-age benefits, which are set to rise between $32 and $55 a week per adult. The payment increases began in July 2021 and were slated to increase again in April 2022. According to government projections, those changes will lift between 19,000 and 33,000 children out of poverty. According to the latest figures, 157,800 children in New Zealand live below the poverty line. The boost to benefits also brings welfare payments into line with recommendations from a 2019 report that the Labour government commissioned, but was subsequently criticized for failing to implement (Cooke 2021). However, there has been little movement toward being more systematically inclusive of diverse groups of women in the process of government budgeting. The OECD has been advocating on behalf of gender responsive budgeting for some years now, but the current government has resisted providing a systematic intersectional gender lens to their budget allocation process (Curtin et al, 2021)
According to the latest forecast, the government expects annual GDP growth to average 2.9% over the next five years. Net debt is now forecast to peak at 40.1% of GDP in 2023 before declining to nearly 30%, while the budget is forecast to be back in surplus in 2023/24 (RNZ 2021b).
Citations:
Cooke (2021) “Budget 2021: Labour spends big on benefits, health in its first unleashed Budget.” https://www.stuff.co.nz/national/politics/300312294/budget-2021-labour-spends-big-on-benefits-health-in-its-first-unleashed-budget
Curtin J. et al (2021). The Conversation, 21 May 2021 https://theconversation.com/nz-budget-2021-women-left-behind-despite-the-focus-on-well-being-161187
RNZ (2021a) “Govt books: 2020 / 2021 financial statements show deficit of $4.6 billion.” https://www.rnz.co.nz/news/political/453386/govt-books-2020-2021-financial-statements-show-deficit-of-4-point-6-billion
RNZ (2021b) “Covid-19 outbreak and lockdown hits government coffers.” https://www.rnz.co.nz/news/business/457971/covid-19-outbreak-and-lockdown-hits-government-coffers
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
New Zealand’s lack of commitment to technological innovation has been visible for a long time (OECD 2007). In 2021, New Zealand ranked 25th in the Bloomberg Innovation Index, which scores countries using seven criteria including R&I spending and concentration of high-tech public companies. This came off the back of a four-place drop in 2018, which saw New Zealand slip out of the top 20 with a fall from 19th to 23rd place, and a drop to 24th place in the subsequent Bloomberg Innovation Index (Jamrisko et al. 2021).
The 2020 COVID-19 budget pledged more than $401 million for research and innovation, including $196 million for Crown Research Institutes, $150 million for an R&I loan scheme, and $33 million for Māori research and development opportunities. However, the 2021 budget is considered a “disappointing” step back by many stakeholders: while the $300 million top-up for Green Investment Finance to accelerate investment in low-carbon technologies has been welcome, critics have pointed out that the latest budget flat-lines and even cuts research funds, including the Endeavour Fund and the Health Research Fund (Science Media Centre 2021). In 2021 the government released its Future Pathways Green Paper on Research, Science and Innovation (MBIE, 2021), which is likely to make significant changes to the way hundreds of millions of dollars of scientific research funding is allocated in New Zealand. The government argued change was necessary to address environmental challenges, include Treaty-led research, and increase productivity and other measures of economic well-being.
Citations:
Jamrisko et al. (2021) “South Korea Leads World in Innovation as U.S. Exits Top Ten.” Bloomberg. https://www.bloomberg.com/news/articles/2021-02-03/south-korea-leads-world-in-innovation-u-s-drops-out-of-top-10
Junn, (2019) “The frustrating complexity of the new R&D tax scheme.” The Spinoff. https://bit.ly/3eFUkal
MBIE, (2021), Future Pathways Green Paper, https://www.mbie.govt.nz/dmsdocument/17637-future-pathways-green-paper
New Zealand Government (2018) Budget 2018: Foundations for the Future. https://bit.ly/2Kg9192
OECD (2007) OECD Reviews of Innovation Policy: New Zealand. https://www.oecd.org/newzealand/oecdreviewsofinnovationpolicynewzealand.htm
Pullar-Strecker (2018) “Tax break for R&D upped to 15pc, with stop gap help for startups.” Stuff. https://bit.ly/35DfdA9
Science Media Centre (2021) Budget 2021: Expert Reaction. https://www.sciencemediacentre.co.nz/2021/05/20/budget-2021-expert-reaction/
The 2020 COVID-19 budget pledged more than $401 million for research and innovation, including $196 million for Crown Research Institutes, $150 million for an R&I loan scheme, and $33 million for Māori research and development opportunities. However, the 2021 budget is considered a “disappointing” step back by many stakeholders: while the $300 million top-up for Green Investment Finance to accelerate investment in low-carbon technologies has been welcome, critics have pointed out that the latest budget flat-lines and even cuts research funds, including the Endeavour Fund and the Health Research Fund (Science Media Centre 2021). In 2021 the government released its Future Pathways Green Paper on Research, Science and Innovation (MBIE, 2021), which is likely to make significant changes to the way hundreds of millions of dollars of scientific research funding is allocated in New Zealand. The government argued change was necessary to address environmental challenges, include Treaty-led research, and increase productivity and other measures of economic well-being.
Citations:
Jamrisko et al. (2021) “South Korea Leads World in Innovation as U.S. Exits Top Ten.” Bloomberg. https://www.bloomberg.com/news/articles/2021-02-03/south-korea-leads-world-in-innovation-u-s-drops-out-of-top-10
Junn, (2019) “The frustrating complexity of the new R&D tax scheme.” The Spinoff. https://bit.ly/3eFUkal
MBIE, (2021), Future Pathways Green Paper, https://www.mbie.govt.nz/dmsdocument/17637-future-pathways-green-paper
New Zealand Government (2018) Budget 2018: Foundations for the Future. https://bit.ly/2Kg9192
OECD (2007) OECD Reviews of Innovation Policy: New Zealand. https://www.oecd.org/newzealand/oecdreviewsofinnovationpolicynewzealand.htm
Pullar-Strecker (2018) “Tax break for R&D upped to 15pc, with stop gap help for startups.” Stuff. https://bit.ly/35DfdA9
Science Media Centre (2021) Budget 2021: Expert Reaction. https://www.sciencemediacentre.co.nz/2021/05/20/budget-2021-expert-reaction/
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
As a globally oriented country with a high degree of international economic integration, including financial market integration, New Zealand has a strong interest in promoting a stable, efficient and transparent international financial system. There is a commitment to preventing criminal financial activities, including tax evasion. To this end, New Zealand passed the Anti-Money Laundering and Counter Financing of Terrorism Act (AML/CFT) in 2013. Initially, the law only applied to banks and financial institutions, but in 2018, legislation was also extended to include accountants, real estate agents, lawyers and conveyancers in an effort to ensure that illegal funds are not washed through property purchases. Since 2016, New Zealand has been a member of the OECD initiative to allow all participating tax jurisdictions to exchange information on the economic activity of multinational corporations among participating countries. In 2017, New Zealand signed the OECD Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit-Shifting (known as the Multilateral Instrument).
In April 2021, the Paris-based Financial Action Task Force (FATF) – a global money laundering and terrorist financing watchdog – released a report on New Zealand, finding that the country had achieved notable results in tackling money laundering, but highlighting the continued room for improvement. Key areas in need of further improvement include supervision of the private sector, financial institutions, lawyers and accountants, so as to enable detection and prevention of money laundering (Owen 2021). In September 2021, New Zealand’s Financial Market Authority (FMA) published its AML/CFT Monitoring report, which showed that in the 2018-2021 time period, the Authority issued 27 private warnings, three public warnings and initiated its first-ever court proceedings against a firm; this compares with just one public warning and 17 private actions between 2016 and 2018 (RNZ 2021).
Citations:
Owen (2021) “Tackling of money laundering ‘adequate’ but more can be done, watchdog finds.” Stuff. https://www.stuff.co.nz/national/crime/124984177/tackling-of-money-laundering-adequate-but-more-can-be-done-watchdog-finds
RNZ (2021) “FMA taking harder line on anti-money laundering rule breaches.” https://www.rnz.co.nz/news/business/452624/fma-taking-harder-line-on-anti-money-laundering-rule-breaches
In April 2021, the Paris-based Financial Action Task Force (FATF) – a global money laundering and terrorist financing watchdog – released a report on New Zealand, finding that the country had achieved notable results in tackling money laundering, but highlighting the continued room for improvement. Key areas in need of further improvement include supervision of the private sector, financial institutions, lawyers and accountants, so as to enable detection and prevention of money laundering (Owen 2021). In September 2021, New Zealand’s Financial Market Authority (FMA) published its AML/CFT Monitoring report, which showed that in the 2018-2021 time period, the Authority issued 27 private warnings, three public warnings and initiated its first-ever court proceedings against a firm; this compares with just one public warning and 17 private actions between 2016 and 2018 (RNZ 2021).
Citations:
Owen (2021) “Tackling of money laundering ‘adequate’ but more can be done, watchdog finds.” Stuff. https://www.stuff.co.nz/national/crime/124984177/tackling-of-money-laundering-adequate-but-more-can-be-done-watchdog-finds
RNZ (2021) “FMA taking harder line on anti-money laundering rule breaches.” https://www.rnz.co.nz/news/business/452624/fma-taking-harder-line-on-anti-money-laundering-rule-breaches