NZ's first world aspirations based on economy ‘harvesting water’

New Zealand is essentially an economy driven by the ability to "harvest water" through milk, and agricultural and forest production, yet Kiwis expect the social and political structures of a developed country, according to research funded by the auditor-general.

The report Public Sector Financial Sustainability sets out the factors that differentiate New Zealand from other OECD countries – a mixed bag of positives and negatives. The research was prepared by former Assistant Auditor-General Bruce Anderson.

The positives include high-quality and availability of natural, renewable resources, helped by the world's fourth-largest exclusive economic zone, water availability and protected land, grasslands and forests. That resource capacity, though, will halve in the next 40 years based on current trends, the report says.

Good government, strong fiscal governance and low public debt are also cited. New Zealand's public sector "is not expensive by any standards" and even though net public debt has risen from 10 percent of gross domestic product to 25 percent now, which includes earthquake costs, it is "still a modest level by international standards".

Kiwis also feel good about themselves. New Zealand rates highly for tolerance, interpersonal trust and life satisfaction, the report says. That is just as well because the country probably needs that "social capital" to offset the negatives faced by the economy.

Income inequality

Those include increasing income inequality, with New Zealand one of the least equal in terms of market income in the OECD from one of the most equal 30 years ago. The country also shows disturbing social trends, including high youth suicide, teen fertility and unemployment.

Private debt is also high. New Zealanders as a whole have spent more than they earned in all but four of the last 55 years based on balance of payment figures, the report says, citing the NZ Institute of Economic Research.

The household debt to income ratio rose to 140 percent from 100 percent from 2000-12, it says, citing the Reserve Bank.

As a remote island at the bottom of the world, New Zealand has been turning in a mediocre economic performance, the report says.

"Despite some useful enablers such as good education and ease of doing business, private sector productivity improvements have remained modest during the last 50 years.

Have not translated

"Our economy is largely based on the ability to 'harvest water' through milk, forestry and other agricultural products. We remain a resource-based, or emerging, economy and have not translated favourable commodity prices into investment in better-value additions through, for example, processing raw products."

Although New Zealand "looks a lot like a developing economy, our social and political structures, and expectations, are clearly those of a developed country.

"Public sector financial sustainability is at least partly dependent on building a better match between our economy and our social and economic features," it says.

The auditor-general's office says it has released the report to stimulate debate and the work would feed into one of its 2013 work programme themes 'Our future needs – is the public sector ready?'

"We need to sustain the services publicly expected, withstand shocks, and keep public confidence," it says. "Public engagement about our future financial sustainability and the factors that influence it can help the public sector better prepare and shape itself for future needs."

(BusinessDesk)