OECD report calls for restraint in govt spending

Mixed report card
Mixed report card

National says the OECD's latest report on New Zealand vindicates its calls for restraint in government spending.

The report says that holding off on some planned spending by the government over the next two years would "reduce the strength of domestic demand and inflationary pressures and allow a lower interest-rate path than currently envisaged."

It goes on to note that this would facilitate a fall in the exchange rate and accelerate the external rebalancing process.

National Finance spokesman Bill English says that the OECD's advice "couldn't be clearer" and accuses Finance Minister Michael Cullen of employing "cash machine economics"  because "he keeps withdrawing money from the ATM using the taxpayers' card."

"The OECD has made it plain that taxpayers will pay twice for low quality government spending - once through higher taxes, and again through higher interest rates," Mr English says.

The report also cites concerns over large overseas debt, a low savings rate, poor workplace productivity and rising inflation.

It calls for the adoption of a tax on capital set at a lower rate than a tax on wages.

The report also says New Zealand may struggle to meet the retirement costs of its ageing population and should look at raising the age of eligibility for government superannuation.

It does, however, describe the new KiwiSaver scheme as one welcome development.

New Zealand currently ranks 22nd out of the 30 countries of the OECD in terms of GDP per capita, well behind Australia which is 9th.

GDP Per Capita, USD current prices and current PPPs, 2005

On the bright side, the report describes New Zealand as "one of the most flexible and resilient economies in the OECD".

Finance Minister Michael Cullen, says government shares many of the aims put forward by the OECD report - particularly the need to lift savings and investment.

However he says it has raised some challenges around the high current account deficit, persistent inflation and low productivity.

"We have a sound strategy to shift the mix of growth away from consumption to higher value exporting. 

"Measures that will be announced in Budget 2007 related to the business tax review that will encourage innovation and improve competitiveness are all crucial parts of our integrated approach to better position New Zealand for the long haul," Dr Cullen says.

OECD report [abridged]:

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