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Economy of New Zealand

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Economy of New Zealand
The Auckland central business district
Currency1 New Zealand dollar (NZD$) = 100 cents
1 April – 31 March
Trade organisations
APEC, WTO and OECD
Statistics
GDP$181.1 billion (2013 est.)[1]
GDP growth
2.7% (2013 est.)[2]
GDP per capita
$30,396 (2013 est.)[1]
GDP by sector
Agriculture (4.7%), industry (24%), services (71.3%) (2011 est.)
0.7% (YTD June 2013 Statistics New Zealand)[3]
Population below poverty line
No official statistics
36.2 (1997)
Labour force
2.402 million (2012 est.)
Labour force by occupation
Agriculture (7%), industry (19%), services (74%) (2006 est.)
Unemployment8.5% Q4 2013 [4][5]
Main industries
Food processing, textiles, machinery and transportation equipment, finance, tourism (to NZ), mining (in NZ)
External
Exports$37.73 billion (2012 est.)
Export goods
Dairy products, meat, wool and wood products, fish, machinery
Main export partners
 Australia 21.0%
 China 15.0%
 United States 9.2%
 Japan 7.0% (2012 est.)[6]
Imports$35.65 billion (2012 est.)
Import goods
Machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, plastics
Main import partners
 China 16.4%
 Australia 15.2%
 United States 9.3%
 Japan 6.5%
 Singapore 4.8%
 Germany 4.4% (2012 est.)[7]
$256.4 billion (125.3% of GDP) (2012 est.)[8]
Public finances
38.4% of GDP (2013 est.)
Revenues$69.17 billion(2013 est.)
Expenses$72.71 billion (2012 est.)
Economic aiddonor: $99.7 million (FY99/00)
US$20.626 billion (March 2011)[11]
All values, unless otherwise stated, are in US dollars.


New Zealand has a market economy that depends greatly on international trade, mainly with Australia, the European Union, the United States, China, South Korea and Japan. It's heavy dependence on trade leaves its prospects for growth vulnerable to economic performance in each of those countries. Up till the 1960s, the New Zealand economy was based on a foundation of exports from its very efficient agricultural system. Leading exports included meat, dairy products, forest products, fruit and vegetables, fish, and wool - most of which went to Britain.

New Zealand has substantial hydroelectric power and sizeable reserves of natural gas. Some large scale manufacturing industries, many of which were established in a climate of import substitution with high tariffs and government subsidies such as car assembly, have now completely disappeared. It now has only small manufacturing and high-tech sectors, and is strongly focused on tourism and primary industries. Manufacturing sectors which remain include food processing, metal fabrication, wood and paper products.

Free-market reforms beginning in the 1980s removed many barriers to foreign investment, and the World Bank in 2005 praised New Zealand as the most business-friendly country in the world.[12][13] The economy diversified and by 2008, tourism had become the single biggest generator of foreign exchange.[14] However, these free-market reforms have contributed to increased inequality within New Zealand with the gap between the rich and the poor growing at a faster rate than in most other developed countries.[15][16]

Profile

Gross domestic product trend of New Zealand at market prices estimated by the International Monetary Fund[17]
Year Gross domestic product
(NZ$ millions)		 1 US dollar exchange Inflation index
(2000=100)		 Per capita income
(as % of USA)
1980 22,976 NZD 1.02 30 58.67
1985 45,003 NZD 2.00 53 38.93
1990 73,745 NZD 1.67 84 55.80
1995 91,881 NZD 1.52 93 59.02
2000 114,563 NZD 2.18 100 38.98
2005 154,108 NZD 1.41 113 62.99

For many years New Zealand's economy was built on a narrow range of agricultural products, such as wool, meat and dairy. These products became New Zealand's staple and most valuable exports, underpinning the success of the economy, from the 1850s until the 1970s.[18] For example, from 1920 to the late 1930s, the dairy export quota was usually around 35% of New Zealand's total exports, and in some years made up almost 45%.[19] Due to the high demand for these primary products, manifested by the New Zealand wool boom of 1951, New Zealand had one of the highest standards of living in the world for 70 years.[20]

In the 1960s, prices for these traditional exports declined, and in 1973 New Zealand lost its preferential trading position with the United Kingdom when the latter joined the European Economic Community. Partly as a result, from 1970 to 1990, the relative New Zealand GDP per capita adjusted for purchasing power declined from about 115% of the OECD average to 80%.[21]

Between 1984 and 1995, New Zealand changed from a somewhat closed and centrally controlled economy to one of the most open economies in the OECD.[22] In a process often referred to in New Zealand as Rogernomics, successive governments introduced policies which dramatically liberalised the economy including: establishing an independent reserve bank; performance contracts for senior civil servants; public sector finance reform based on accrual accounting; tax neutrality; subsidy-free agriculture; and industry-neutral competition regulation. Government subsidies including agricultural subsides were eliminated; import regulations were loosened up; the exchange rate was floated; and controls on interest rates, wages, and prices were removed; and personal rates of taxation were reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The deregulation of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt.

However between 1985 and 1992, inflation averaged 9% per year and the economy was in recession. During this period, GDP shrank by 1% while OECD economies grew by an average 20%.[23] The unemployment rate rose from 3.6% to 11%,[24] New Zealand's credit rating dropped twice, and foreign debt quadrupled.[25]

Outlook and challenges

New Zealand net overseas debt 1993–2012
New Zealand government overseas debt 1990–2012

The New Zealand economy has recently been perceived as successful. However, the generally positive outlook includes some challenges. New Zealand income levels, which used to be above much of Western Europe prior to the deep crisis of the 1970s, have never recovered in relative terms. For instance, the New Zealand nominal GDP per capita is about 80% that of the United States. Income inequality has increased greatly, implying that significant portions of the population have quite modest incomes. Further, New Zealand has a very large current account deficit of 8–9% of GDP. Despite this, its public debt stands at 33.7% (2011 est.)[26] of the total GDP, which is small compared to many developed nations. However, between 1984 and 2006, net foreign debt increased 11-fold, to NZ$182 billion, NZ$45,000 for each person.[12]

The combination of a modest public debt and a large net foreign debt reflects that most of the net foreign debt is held by the private sector. At 31 June 2012, gross foreign debt was NZ$256.4 billion, or 125.3% of GDP.[27] At 31 March 2012, net foreign debt was NZ$141.65 billion or 104.4% of GDP.[28]

New Zealand's persistent current-account deficits have two main causes. The first is that earnings from agricultural exports and tourism have failed to cover the imports of advanced manufactured goods and other imports (such as imported fuels) required to sustain the New Zealand economy.[citation needed] Secondly, there has been an investment income imbalance or net outflow for debt-servicing of external loans. The proportion of the current account deficit that is attributable to the investment income imbalance (a net outflow to the Australian-owned banking sector) grew from one third in 1997 to roughly 70% in 2008.[29]

Superannuation

New Zealand's population is aging at an alarming rate. In 2011 there were twice as many children in New Zealanders as elderly (65 and over). But with so many baby boomers reaching retirement, by 2051, there are projected to be 60% more elderly than children. In the next ten years alone, the number of New Zealanders over the age of 65 is projected to grow by about 200,000.[30]

This poses a significant problem for New Zealand's universal superannuation scheme. When the scheme was introduced in 1977, superannuation was available to everyone aged 60 and over, irrespective of their income. In 2001 the age of eligibility was raised to 65.[31]

Because of the growing number of elderly becoming eligible, superannuation costs rose from $7.3 billion a year in 2008 to $10.2 billion in 2014. According to Labour finance spokesman David Parker: "This is already more than is spent on all benefits combined plus the accommodation supplement and working for families." In the next few years as more and more of the baby boomer generation reach retirement, the cost of superannuation as it is currently structured is expected to double.[32]

Unless changes are made to the scheme, New Zealand will struggle to meet the demands that growing superannuation costs will impose on the taxpayer. The Labour Party has shown some willingness to raise the age of eligibility, but Prime Minister John Key has repeatedly said he would rather resign than make changes.[33]

History

The early years

Early European commercial activity in New Zealand involved the exploitation of the country's natural resources. Initially settlers harvested timber, seals and whales. In the 1860s immigrants began quarrying a variety of minerals including gold and settlements flourished in areas where these quarries were established. In the 1880s, Dunedin became the richest city in the country largely on the back of investments from the gold rush.[34]

Sheep farming began in the Wairarapa but soon spread up and down the east coast from Southland to the East Cape once rudimentary roads and transport became available. Much of the land used for farming was taken or leased from Māori. Sheep numbers grew quickly and by the mid-1850s, there were already a million sheep in New Zealand; by the early 1870s, there were 10 million.[35] Wool became the first staple export, initially exported from the Wellington settlement in the late 1850s, although unrefrigerated meat and dairy products were exported as far as Australia.[18]

In the 1870s, Julius Vogel was periodically both colonial treasurer and premier. He viewed New Zealand as a potential 'Britain of the South Seas'[36] and began the development of basic infrastructure in New Zealand investing in roads, rail and bridges funded by public borrowing.[37] Progress slowed after the collapse of the City Bank of Glasgow in 1878 which led to a contraction in credit from London, the centre of the world’s financial system at the time. Economic activity was depressed for some years afterwards, and things didn't pick up until refrigeration was introduced in 1882.[38] This enabled New Zealand to start exporting meat and other frozen products to London. Refrigeration transformed and shaped the development of the economy but, in the process, established New Zealand's economic dependence on Britain.

The success of refrigeration was directly related to the growth and development of farming in the country. In the 19th century, the bulk of economic activity was in the South Island of New Zealand. From around 1900, dairy farming became increasingly viable in areas which were less suitable for sheep, particularly in Northland, the Waikato and Taranaki. As dairying developed, the North Island slowly became more important to the economy.[39] As more land was cultivated and farmed, Britain became the sole market for our meat and animal products. Because of our colonial connection, the price Britain paid was usually set by inter-governmental agreement.

The 20th century

By the mid-20th century, pastoral-farming products made up more than 90% of New Zealand's exports,[40] 65% of which was going to Britain. Having a secure market in the UK with guaranteed prices also enabled New Zealand to impose high tariffs on imported goods from other countries. Tough import controls gave local manufacturers the ability to produce similar products locally, broaden the base of jobs available in New Zealand and still compete against higher priced imports. This combination of circumstances laid the foundation for years of relative prosperity and carried the country through two world wars and the great depression of the 1930s.

This prosperity continued up to 1955 at which point Britain finally stopped giving New Zealand guaranteed prices for its exports.[41] From then on, what New Zealand received was dictated by the free market. As a result, during the 1950s and 1960s the country's standard of living began to slip as the export sector was no longer able to pay for the level of imported goods required to to meet the country's growing consumerism. Things went from bad to worse when Britain joined the EEC in 1973 and New Zealand's export prospects plummeted. By the end of that year, Britain was taking only 26.8% of New Zealand's exports.[42] This had a significant effect on the standard of living. In 1953, New Zealand had the third highest standard in the world. By 1978, it had dropped to 22nd place.[41]

Think Big 1980s

Having lost unrestricted access to its traditional market, in the 1970s New Zealand began searching for alternative markets and diversifying its economic strategy. Robert Muldoon, the Prime Minister between 1975 and 1984, promoted ‘Think Big’ economic policies. Large scale industrial plants were established based on New Zealand's abundant natural gas. A new range of products such as ammonia, urea fertilizer, methanol and petrol were produced with the hope that this would reduce the country's dependence on hydrocarbon imports.[43] Other projects included the Clyde Dam, which was built to meet a growing demand for electricity, and the expansion of the New Zealand steel plant at Glenbrook.[44] The Tiwai Point Aluminium Smelter, which opened in 1971, was also upgraded as part of the Think Big strategy and now brings in approximately NZ$1 billion in exports every year. But most of this goes to the overseas owners, Rio Tinto.[45]

Unfortunately for New Zealand, most of these projects only came on line at the same time as oil prices dropped during the 1980s oil glut. The price of crude went from more than US$90 a barrel in 1980, to about US$30 a few years later. Because these Think Big projects required massive borrowing to get started, public debt soared from $4.2 billion in 1975 when Muldoon became Prime Minister to $21.9 billion when he left office nine years later. Once Labour came to power in 1984, many of these projects were sold to private industry as part of a wider sale of state-assets.[44]

Rogernomics 1990s

The Labour government elected in 1984 wanted to move away from constant government intervention in the economy and allow free market mechanisms to dominate. Under Finance Minister Roger Douglas, the Government commenced a programme of market liberalisation subsequently described by one political scientist like this: "Between 1984 and 1993, New Zealand underwent radical economic reform, moving from what had probably been the most protected, regulated and state-dominated system of any capitalist democracy to an extreme position at the open, competitive, free-market end of the spectrum."[46]

The New Zealand dollar was floated,[47] financial markets deregulated and tariffs on imported goods lowered. At the same time subsidies to many industries, notably agriculture, were removed or significantly reduced. Income and company taxes were reduced and the marginal tax rate was reduced from 66% to 33%. These were replaced by a tax on goods and services (GST) initially at 10%, then 12.5%. A surtax on universal superannuation was also introduced.[48] In 2011, the National government put GST up to 15%.

Deregulation, or Rogernomics as it became known, led to New Zealand's longest recession in the post-war era. Gross domestic product per capita stagnated between 1986 and 1994, and by March 1992 unemployment rose to 11.1%.[49] However in the long run, deregulation created a very business-friendly regulatory framework. A 2008 survey in the Heritage Foundation and Wall Street Journal ranked New Zealand 99.9% in "Business freedom", and 80% overall in "Economic freedom", noting that it takes, on average, only 12 days to establish a business in New Zealand, compared with a worldwide average of 43 days.[50] In its 'Doing Business 2008' survey, the World Bank rated New Zealand as the second-most business-friendly country worldwide.[51]

Deregulation has also been blamed for a number of significant negative effects. One of them was the leaky homes crisis, where the loosening up of building standards (in the expectation that market forces would assure quality) led to many thousands of severely deficient buildings, mostly residential homes and apartments, being constructed over a period of a decade. The costs of fixing the damage has been estimated at over NZ$11 billion.[52]

The changes introduced by Roger Douglas and continued by successive governments, especially reductions in top tax rates and the imposition of GST, have also contributed to a growing inequality in New Zealand (see below).

See also: Late-2000s recession in Oceania

Economic growth, which had slowed in 1997 and 1998 due to the negative effects of the Asian financial crisis and two successive years of drought, rebounded in 1999. A low New Zealand dollar, favourable weather, and high commodity prices boosted exports, and the economy is estimated to have grown by 2.5% in 2000. Growth resumed at a higher level from 2001 onwards due primarily to the lower value of the New Zealand dollar, which made exports more competitive. The return of substantial economic growth led the unemployment rate to drop from 7.8% in 1999 to 3.4% in late 2005, the lowest rate in nearly 20 years.

Although New Zealand enjoyed low unemployment rates in the years immediately prior to the financial crisis beginning in 2007, subsequent unemployment rose.

New Zealand's large current account deficit, which stood at more than 6.5% of GDP in 2000, has been a constant source of concern for New Zealand policymakers and hit 9% as of March 2006.[citation needed] The rebound in the export sector is expected to help narrow the deficit to lower levels, especially due to decreases in the exchange rate of the New Zealand dollar during 2008.

'Rock star' economy

In January 2014, HSBC chief economist for Australia and New Zealand, Paul Bloxham, predicted that, with a growth rate of 3.3%,[53] New Zealand's growth would outpace most of its peers, and described New Zealand as the "rock star economy of 2014". Another financial commentator said the New Zealand dollar was the "hottest" currency of 2014.[54] Only three months later, the New Zealand Productvity Commission expressed concern about low living standards and problems affecting the long-term drivers of growth. Paul Conway, Director of Economics & Research at the Productivity Commission wrote: "New Zealand’s broad policy settings should generate GDP per capita 20 per cent above the OECD average, but the actual result is more than 20 per cent below average. We may be punching above our weight, but that’s only because we are in the wrong weight division!"[55] In August, Paul Bloxham, who coined the term 'rock star economy', admitted that "the sharp decline in dairy prices over the last six months has clouded the outlook somewhat".[56]

Trade

New Zealand Export Treemap from MIT Harvard Atlas of Economic Complexity

New Zealand’s small size and long distances from major world markets creates significant challenges in its ability to compete in global markets. Australia, as our closest neighbour, used to be New Zealand's biggest trading partner. In 2013 China took over first place and that year, New Zealand's main trading partners were China, Australia, the United Kingdom, the United States and Japan.[57] In March 2014, the total value of goods exported from New Zealand topped $50 billion for the first time, up from $30 billion in 2001.[58] New Zealand Trade and Enterprise (NZTE) offers strategic advice and support to New Zealand businesses wanting to export goods and services to other countries.

China

In 2013, China became New Zealand's largest trading partner buying primarily meat, dairy products and pine logs. This has occurred primarily because of soaring demand for imported dairy products, following the Chinese milk scandal in 2008. Since then demand for milk products has been so strong that in the 12 months to March 2014, there was a 51% increase in total exports to China.[59] The increase was facilitated by the signing of a free-trade agreement between the two countries in 2008. Since that year exports to China have more than tripled.[60]

In the last few years China has also become the largest source of foreign students to New Zealand and one of the fastest-growing sources of tourists. The growing importance of New Zealand's relationship with China was reflected by the visit of Xi Jinping, China's vice-president, to Auckland for a three-day visit in June 2010, along with more than 100 senior business leaders.[61]

Australia

Until 2013, Australia used to be New Zealand's largest bilateral trading partner. In 2012, trade between New Zealand and Australia was worth NZ$17.4 billion.[62] Economic and trading links between Australia and New Zealand are underpinned by the "Closer Economic Relations" (CER) agreement, which allows for free trade in goods and most services. Since 1990, CER has created a single market of more than 25 million people. Australia is now the destination of 19% of New Zealand's exports, including light crude oil, gold, wine, cheese and timber, as well as a wide range of manufactured items.

The CER also creates a free labour market which allows New Zealand and Australian citizens to live and work freely in each other's country together with mutual recognition of professional qualifications. This means individuals who are registered to practise an occupation in one country can register to practise an equivalent occupation in the other country. Banking regulation and supervision are co-ordinated through the Trans-Tasman Council on Banking Supervision and there are also ongoing discussions about co-ordinating Australian and New Zealand business law.[63]

European Union

A growing number of New Zealand companies use the United Kingdom as a base to supply their products to the European market.[64] However trade with the European Union is declining as demand from Asia continues to grow. The EU currently takes only 8% of New Zealand exports but provides around 12% of imports.[63]

In July 2014, negotiations on the Partnership Agreement on Relations and Cooperation (PARC) between New Zealand and the European Union were concluded.[65] The Agreement covers the trade and economic relationship between the EU and New Zealand with a view to further liberalisation of trade and investment and acknowledges the intention of the European Union to upgrade its diplomatic presence in New Zealand with a resident Ambassador.[66]

United States

The United States is New Zealand's third largest trading partner.[63] In 2012, bilateral trade between the two countries was valued at NZ$8.5 billion. New Zealand's main exports to the United States are beef, dairy products and lamb. Imports from the US include specialised machinery, pharmaceutical products, oil and fuel. In addition to trade, there is a high level of corporate and individual investment between the two countries and the US is a major source of tourists coming to New Zealand. In March 2012, the United States had a total of $44 billion invested in New Zealand.[67] A number of US companies have subsidiary branches in New Zealand. Many operate through local agents, with some joint venture associations. The United States Chamber of Commerce is active in New Zealand, with a main office in Auckland and a branch committee in Wellington.

According to the Ministry of Foreign Affairs, New Zealand and the United States "share a deep and longstanding friendship based on a common heritage, shared values and interests, and a commitment to promoting a free, democratic, secure and prosperous world".[68] This common background has not translated into a free trade agreement between the two countries.[69]

Other Asian economies

In the 21st century, Asian economies have been developing rapidly providing significant demand for New Zealand's exports. New Zealand trades with Taiwan, Hong Kong, Malaysia, Indonesia, Singapore, Thailand, India and the Philippines and this now accounts for around 16% of total exports.[63] New Zealand initiated a free trade agreement with Singapore in September 2000 which was extended in 2005 to include Chile and Brunei and is now known as the P4 agreement.

Foreign ownership of NZ assets

New Zealand welcomes and encourages foreign investment. However, the Overseas Investment Commission (OIC), established in 1973, imposed certain limitations.[70] OIC consent was required for foreign investments that would control 25% or more of businesses or property worth more than NZ$10 million. Restrictions and approval requirements also applied to certain investments in land and in the commercial fishing industry.

In August 2005, the Commission was abolished and replaced with a scaled-down Overseas Investment Office. The rules were relaxed so that intervention by the OIO is only required when foreign investment involves expenditure of more than $100 million.[71] In its first year of existence, the OIO approved $14.3 billion in sales to foreign buyers - double the yearly average in the previous decade. By 2013 foreign ownership in New Zealand had increased dramatically from $9.7 billion in 1989 to $101.4 billion – an increase of over 1,000%.[72] Between 1989 and 2007, foreign ownership of the New Zealand sharemarket went from 19% to 41% but has since dropped back to 33%.

In 2007, around 7% of all New Zealand agriculturally productive land was foreign-owned.[12] In 2011, economist Bill Rosenberg said that the figure is closer to 9% if foreign ownership of forestry is included.[73] In March 2013 the financial sector, which includes the four big Australian owned banks, was worth $39.3 billion accounting for the largest portion of the $101.4 billion foreign ownership of New Zealand companies.[72]

The impact of foreign ownership

Between 1997 and 2007, foreign investors made $50.3 billion profit, 68% of which went overseas. The Campaign Against Foreign Control of Aotearoa (CAFCA) says this has a negative impact on the economy arguing that when foreign investors buy up New Zealand companies, they tend to cut staff and push down wages.[12] Foreign ownership has also done nothing to improve New Zealand's foreign debt. In 1984, private and public foreign debt was $16 billion ($50 billion in March 2013 dollars) which was less than half New Zealand’s Gross Domestic Product at the time. By March 2013, total foreign debt stood at $251 billion, well over 100% of New Zealand's Gross Domestic Product.[72]

Growing inequality

Between 1982 and 2011, New Zealand's gross domestic product grew by 35%. Almost half of that increase went to a small group who were already the richest in the country. During this period, the average income of the top 10% of earners in New Zealand (those earning more than $72,000)[74] almost doubled going from $56,300 to $100,200. The average income of the poorest tenth increased by only 13% from $9700 to $11,000.[75]

Growing inequality is confirmed by Statistics New Zealand which keeps track of income disparity using the P80/20 ratio. This ratio shows the difference between high household incomes (those in the 80th percentile) and low household incomes (those in the 20th percentile). The inequality ratio increased between 1988 and 2013, such that by 2013, the disposable income of high-income households was more than two-and-a-half times larger than that of low-income households.[76] Highlighting the disparity, the top 1% of the population now owns 16% of the country's wealth - the richest 5% owns 38%[77] - while half the population, including beneficiaries and pensioners, earn less than $24,000.[74]

Factors contributing to the growth in inequality include substantial cuts in the top income tax rate in 1986-88 combined with a surge in unemployment caused by Rogernomics and the stock market crash of 1987 which pushed more people onto welfare.[78] Then in 1991, benefits were also cut back substantially as part of the 'reforms' and those on welfare have been struggling ever since.

Professor Jonathan Boston of Victoria University says nearly 20% of poorer households in New Zealand now depend on welfare benefits. He says the growing gap between rich and poor enables the rich to "exercise disproportionate political influence", and that "if disadvantaged citizens are not to be excluded from political life, they must have access to education, healthcare and social assistance".[75] British epidemiologists, Richard Pickett and Kate Wilkinson, argue that inequality is damaging for everyone in society, not just the poor.[79] They say that when the gap between the top and the bottom levels of society becomes too wide, this erodes trust and empathy between citizens leading to alienation and social fragmentation. This exacerbates a multitude of health and social problems such as high infant mortality, obesity, teenage pregnancy, crime and imprisonment.[80]

As inequality in New Zealand has grown, there has been a dramatic increase in the number of families and children living in poverty; health care spending has been cut leading to a deterioration in health standards among working and middle-class people[81] the number of food banks has increased dramatically;[82] the youth suicide rate has become one of the highest in the developed world;[83] there has been a marked increase in violent and other crime[84] and the prison population has doubled. In 2014, Pickett and Wilkinson were invited to Auckland and Dunedin to discuss the relevance of their research to New Zealand.[85]

Poverty

In the 21st century concern has been growing that an increasing number of New Zealanders, especially children, have been pushed into poverty. Statistics New Zealand publishes a range of data on the economic well-being of New Zealanders and, in 2012, released a discussion paper highlighting the need for government agreement on the development of more useful criteria and statistics related to poverty.[86] Currently the information that is collected is 'static data' - it shows the percentage of citizens below a certain level of income. But New Zealand is unique among western OECD countries in that it does not collect 'dynamic' data which captures the extent to which people move in and out of poverty.[87]

In 2013 over a dozen different reports were released which focused on the issue and the need to develop agreed ways of describing and measuring poverty.[88] However, the National Government resisted these attempts maintaining that "endless arguments about definition and measurement are a waste of time".[89] Because of the Government's reluctance to define and measure the problem, in 2012 Children's Commissioner Dr Russell Wills, established an expert advisory group which produced a comprehensive report, called Solutions to Child Poverty in New Zealand: Evidence for Action which contains 78 recommendations to combat poverty. Dr Wills also set up the Child Poverty Monitor, to highlight the living conditions of children in New Zealand on an on-going basis.[90]

Income based measures

The Expert Advisory Group identified two internationally recognised approaches to measure poverty, one of which is income-based, the other being deprivation-based.[91] The income based approach is that poverty exists when household income is below 50% or 60% of the country's median disposable household income - what's left after housing costs are taken out. The New Zealand Council of Christian Social Services (NCCSS) agrees that "there is some consensus that an income level set at 60%[92] of median household disposable income after housing costs is a reasonable level of income to protect people from the worst effects of poverty".

On this basis, in 2005, an international report found that one in six children in New Zealand was being raised in poverty - making New Zealand children 23rd poorest out of 26 rich nations.[93] In 2009 according to NCCSS, over half a million New Zealanders, including 163,000 children were living in poverty.[94] The Expert Advisory Group established by the Childrens' Commissioner found that the number of children falling below the 60% threshold has continued to grow. In 2013, around 265,000 children, a quarter of all children in New Zealand, were now 'mired in poverty'.[95]

Deprivation based measures

The deprivation approach to describing child poverty involves surveys which measure material deprivation and hardship rather than levels of income. The EAG says surveys can be used "to determine the proportion of the population (or children) who cannot afford specific consumption items that most people regard as essential. Such items might include having a raincoat, sturdy shoes, warm clothes, and being able to repair or replace appliances, visit the doctor and keep the house warm in winter... It means a much higher chance of having insufficient nutritious food, going to school hungry, wearing worn-out shoes or going barefoot, having inadequate clothing, living in a cold, damp house and sleeping in a shared bed. A threshold can then be set, based on the number of items that a family lacks (e.g. three items out of ten), in order to determine the poverty rate."[96] This approach also suggests that about 20% of New Zealand children live in poverty.

Unemployment

Prior to the economic shock created by Britain's decision to join the EEC in the 1970s, removing it as New Zealand's primary market for our exports, unemployment in New Zealand was very low. The official number of people unemployed in 1959 was only 21. A year later it was 22.[97] Phil Goff joked in a speech in 2006 that the Prime Minister of the day knew the name of every unemployed person in the country. During this period of full employment, on a per capita basis, New Zealand was one of the richest countries in the world.[98]

In the latter half of the 20th century, unemployment began to rise. Between 1985 and 2012, the unemployment rate averaged 6.29%. After the stock market crash of 1989, unemployment began to rise reaching an all-time high of 11.20% in September 1991.[99] By 2007, it had dropped again and the rate stood at 3.5% (December 2007), its lowest level since the current method of surveying began in 1986. This gave the country the 5th-best ranking in the OECD (with an OECD average at the time of 5.5%). The low numbers correlated with a robust economy and a large backlog of job positions at all levels.[100] Unemployment numbers are not always directly comparable between OECD nations, as they do not all keep labour market statistics in the same way.

The percentage of the population employed also increased in recent years, to 68.8% of all inhabitants, with full-time jobs increasing slightly, and part-time occupations decreasing in turn. The increase in the working population percentage is attributed to increasing wages and higher costs of living moving more people into employment.[100] The low unemployment also had some disadvantages, with many companies unable to fill jobs.

From 2008, mainly as a result of the global financial crisis, unemployment numbers began to rise, with job losses especially high amongst women.[101] In the last quarter of 2012, the unemployment rate fell to 6.9% from a 13-year high. This now makes New Zealand the 14th lowest among developed nations, below Canada's 7.2% and above Israel's 6.7%.[102]

Rising house prices

Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research (BERL) says that thirty years ago, an average house in New Zealand cost two or three times the average household income. House prices have risen dramatically in the last few years and by 2007, an average house cost more than six times household income.[103] Demand for property has been strongest in Auckland pushing up prices in the city by 52% in the last five years. In 2014 the average sales price went from $619,136 to $696,047, a rise of another 12% in that 12 month period alone.[104] Continuing price hikes have made Auckland one of the most expensive cities in the world.[105]

As a result, more and more people are being pushed out of the property market. Those on low incomes are hardest hit, affecting many Maori and Pacific Islanders. New Zealand's relatively high mortgage rates are exacerbating the problem[106] even making it difficult for young people with steady jobs to buy their first home.[107] According to a submission made to the Housing Affordability Inquiry, escalating house prices are also impacting on many middle income groups, especially those with large families.[108] Mortgage adviser Bruce Patten said the trend was 'disturbing' and added to the gap between the 'haves and have-nots'.[109]

Property analysis company CoreLogic says 45% of house purchases in New Zealand are now made by investors who already own a home, while another 28% are made by people moving from one property to another. Approximately 8% are being made by overseas cash buyers[103] primarily Australians, Chinese, and British - although most economists believe foreign investment is currently too small to have a significant affect on property prices.[110]

Whether purchases are made by New Zealanders or foreigners, it is generally those who are already well off that are buying the bulk of properties on the market. This has had a dramatic effect on home ownership rates by Kiwis, now at its lowest level since 1951. Even as recently as 1991, 76% of New Zealand homes were occupied by their owners. By 2013, this was down to 63%, indicating that more and more people are having to rent.[103] Raewyn Cox, chief executive of the Federation of Family Budgeting, says: "High prices and high interest rates (have) sentenced a rising number of New Zealanders to be lifetime tenants" where they are "stuck in expensive rental situations, heading towards retirement."[106]

Taxation

Main article: Taxation in New Zealand

New Zealand's tax structure also contributes to the growing gap between the rich and poor. In 2010, personal tax rates were cut with the top personal tax rate reduced from 38% to 33%.[111] Although the cuts were across all income groups, the cut in the top rate was the biggest providing the greatest benefit to the wealthiest 10% of New Zealanders.[112][113] The cuts gave New Zealand the second-lowest personal tax burden in the OECD. Only Mexico's citizens had a higher percentage-wise "take home" proportion of their salaries.[114]

The cuts in personal tax meant the Government lost $2.46 billion in tax revenue.[115] To compensate, GST was raised from 12.5% to 15%.[116] This also has a negative impact on the poor. Treasury figures show that top income earners in New Zealand pay between 6% and 8% of their income on GST. Those at the bottom end, earning less than $356 a week, spend between 11% and 14% on GST. Based on these figures, the New Zealand Herald predicted that putting GST up to 15% would increase living costs for the poor more than twice as much as for the rich.[117] The Child Poverty Action group said the increase amounted to 'discrimination' against the poorest families in the community.[118]

Corruption perceptions index

Main article: Corruption in New Zealand

New Zealand is the highest-ranked (i.e. least corrupt) country on the Transparency International corruption perceptions index (CPI) of 2011.[119] However, the validity of this index is disputed by those who investigate such matters. Adam Feeley, chief executive of the Serious Fraud Office says fraud is widespread in New Zealand and there are fundamental misconceptions about New Zealand's ranking as one of the world's least corrupt countries.[120] International auditors, PricewaterhouseCooper (PwC), agree. In 2011 PwC conducted a survey on Global Economic Crime which found that 50% of New Zealand organisations (both public and private) had experienced an economic crime in the previous 12 months. This gave New Zealand the 4th highest level of fraud out of the 78 countries surveyed.[121]

Other indicators

The Tiwai Point Aluminium Smelter has been noted as providing a significant boost for the country's overall trade balance, and is one of the country's largest industrial sites.
Tourism, like here on the Milford Sound (special bus with viewing gallery), is New Zealand's largest 'export' earner.[122]
Agriculture (especially dairy farming—such as for the Fonterra plant shown) is another major export earner.

Industrial production growth rate: 5.9% (2004) / 1.5% (2007)

Household income or consumption by percentage share:

  • Lowest 10%: 0.3% (1991)
  • Highest 10%: 29.8% (1991)

Agriculture – products: wheat, barley, potatoes, pulses, fruits, vegetables; wool, beef, dairy products; fish

Exports – commodities: dairy products, meat, wood and wood products, fish, machinery

Imports – commodities: machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, plastics

Electricity:

  • Electricity – consumption: 34.88 TWh (2001) / 37.39 TWh (2006)
  • Electricity – production: 38.39 TWh (2004) / 42.06 TWh (2006)
  • Electricity – exports: 0 kWh (2006)
  • Electricity – imports: 0 kWh (2006)

Electricity – production by source:[123]

  • Hydro: 55.6% (2010)
  • Geothermal: 9.9% (2010)
  • Wind: 2.9% (2010)
  • Fossil Fuel: 28.2% (2010)
  • Nuclear: 0% (2010)
  • Other: 3.4% (2010)

Oil:

  • Oil – production: 42,160-barrel (6,703 m3) 2001 / 25,880-barrel (4,115 m3) 2006
  • Oil – consumption: 132,700-barrel (21,100 m3) 2001 / 156,000-barrel (24,800 m3) 2006
  • Oil – exports: 30,220-barrel (4,805 m3) 2001 / 15,720-barrel (2,499 m3) 2004
  • Oil – imports: 119,700-barrel (19,030 m3) 2001 / 140,900-barrel (22,400 m3) 2004
  • Oil – proven reserves: 89.62-million-barrels (14,248,000 m3) January 2002

Exchange rates:
New Zealand dollars (NZ$) per US$1 – 1.2652 (2012), 1.3869 (2005), 1.5248 (2004), 1.9071 (2003), 2.1622 (2002), 2.3788 (2001), 2.2012 (2000), 1.8886 (1999), 1.8632 (1998), 1.5083 (1997), 1.4543 (1996), 1.5235 (1995)

See also

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Further reading

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