New Zealand


Key Challenges

GDP growth
expected to slow
New Zealand is well positioned to tackle current and future challenges. Observers expect the coalition to serve a full term in office (the next elections are scheduled for 2020). Real GDP growth is forecast to slow to 2.6% in 2019, due to lower global trade growth and a weakening of domestic demand. The former is mostly related to economic slowdown in Europe and the threat of deepening trade conflicts between the United States and China. The latter reflects domestic concern that the economic “golden weather” that New Zealand has experienced is coming to an end, combined with the negative economic impact of reduced immigration and missed housing targets. The current account deficit is expected to shrink in the period 2019-2023.
Skills shortage likely
due to migrant policies
A tighter immigration policy is likely to result in skill shortages in some sectors, including construction, teaching and health care. New Zealand has an aging population. The scarcity of labor – due to the low natural increase in population – had initially led New Zealand and Australia to encourage immigration, with past policies ensuring that most immigrants were young and skilled. High labor productivity has enabled New Zealand to achieve solid economic growth over time. However, private consumption accounts for more than 50% of GDP, and a slowdown in population growth, which is likely if the government continues on its path of curtailing immigration, will see a shift in New Zealand’s demographic profile and is likely to reduce this component of GDP.
Long-term policy challenges have not changed during the review period.
Growth depends on workforce gains
First, New Zealand’s economic well-being strongly depends on developing a larger, more highly skilled and better paid workforce. This will require new initiatives and further investment in education and training, as well as a stronger commitment to research and development. Whereas New Zealand has demonstrated relative success with integrating immigrants, greater investment is needed to advance improved education outcomes and skills training among the Māori and Pasifika populations. New Zealand also needs to develop stronger links with its neighbors in the Pacific region.
Curbing property speculation critical
Second, the Labour-led government needs to tackle the politically sensitive issue of extending from two to five years the “bright line” tax introduced by the previous government – a mild form of capital-gains tax –in order to reduce the impact of property speculation on the housing market. The country has one of the highest rates of home ownership in the world and a more robust capital-gains tax on everything but the family home would cool the property market, especially in Auckland (population 1.5 million).
Large and increasing urban-rural divide
Third, regional development and governance structures: the economy is characterized by a large and increasing urban-rural divide, particularly in the areas of regional economic growth, labor productivity and population. The government needs to create a focused regional policy in metropolitan and rural areas. Regional economic policies should be accompanied by governance structures that fit the problem area geographically. The establishment of a unitary Auckland authority with an elected all-Auckland council has been a good starting point, but this should not be the end of local government reform.
Political system design needs overhaul
Fourth, the political system is still characterized by majoritarian design. There are no stakeholders with an institutional veto whose policy positions the government must consider, such as provincial or state governments, second chambers, constitutional courts or local governments with constitutionally guaranteed powers. However, the change to a mixed-member proportional electoral system has led to a multiparty system, the emergence of several minor political parties with de facto veto powers, and the formation of minority and coalition governments. After more than a decade, this governing arrangement has proven relatively positive, and recent governments have been able to proactively pursue their respective policy-reform agendas with noticeable success. However, the process has been very time-consuming and occasionally produced contradictory policy initiatives.
Ambitious goals
remain on horizon
Finally, the Labour-led government is defining itself as a “government of change.” It is striving to make rapid progress with policies offering immediate and highly visible positive outcomes for New Zealand. While the government is introducing new measures to help particularly needy constituencies – the young, the elderly and the homeless – the principal challenge for 2019 will be to demonstrate that it is able to work toward some of its more ambitious goals, such as ending child poverty, reducing inequality and strengthening climate change policy, while protecting a strong and competitive economy.
Statistics New Zealand ‘Dwelling and Household Estimates: December 2016 Quarter,’ 10 January 2017.
Raymond Miller, Democracy in New Zealand, Auckland, Auckland University Press, 2015, pp. 78-81.
Baker, Nicola 2018. Aid, influence and ‘strategic anxiety’ in the Pacific. East Asia Forum, 20 April 2018.

Party Polarization

Post-materialist issues are area for political conflict
Political party polarization is greater in New Zealand than in Australia, Japan or South Korea, as indicated by data (2008) from the Comparative Study of Electoral Systems (CSES). While no party fundamentally challenges the paradigm shift caused by the neo-liberal economic transformation since the mid-1980s, post-materialist issues now represent the arena for ideological and political conflict in parliamentary politics. The post-materialist dimension is usually interpreted in terms of a simple liberal-conservative dimension, whereby the liberal side of the spectrum is associated with progress, modernity, libertarianism, and the conservative side is associated with order, tradition and authoritarianism. Post-materialist values – or “new politics’” –increasingly dominate and reshape party politics, and this spectrum mostly involves “societal” and “cultural’” issues but is largely differentiated from economic issues through the materialist/non-materialist divide.
Divisions created by identity, values, not class
This new political cleavage is characterized by identity, values, and culture rather than class background. The socially liberal-conservative spectrum is usually overlaid on the left-right scale so that “liberal” equates with “left” and “conservative” equates with “right,” and although it is true that there is often a strong correlation in politics that makes this appear warranted, there is nothing intrinsically related between the two dimensions, and there are plenty of examples that contradict it, for example, the New Zealand First party.
Polarization only minor hindrance to policymaking
This said, it seems fair to conclude that polarization is only a minor obstacle for policymaking. Following negotiations between parties, agreements are regularly reached, although most governments would feel only partially able to implement their legislative agenda. (Score: 6)
Edwards, Bryce 2009. The changing nature of ideological conflict in New Zealand electoral politics (1996-2008): The rush to the center & the rise of post-materialist issues.
Lee, Nae Young 2016. Party Polarization and Political Consequences in South Korea.
Ridout, Travis N. and Annemarie S Walter. 2015. Party system change and negative campaigning in New Zealand. Party Politics 21(6),
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