OECD pushes for state asset sales

The Organisation for Economic Co-operation and Development (OECD) has given the thumbs-up to the government’s plan for partial privatisation of state assets.

In its Economic Survey of New Zealand 2011, the OECD said “market discipline and transparency” would be improved by full or partial privatisations.

“New Zealand’s long standing front runner status in product market regulation has been eroded away over the past decade,” the report said.

“Regulatory governance should be further fortified to improve the overall investment environment, while moving towards full or even partial privatisation of state controlled commercial assets would strengthen market discipline and transparency.”

The report said the recession highlighted the need for structural reforms in New Zealand, where the economic recovery “stalled” in 2010 despite record terms of trade and support from policy stimulus.

“With the property boom of the past decade financed by private sector borrowing from abroad through the banking system, net foreign liabilities have accumulated to levels that make the economy vulnerable to sharp changes in investor sentiment.

“The economy now faces the challenge of a combination of high external deficits and international debt, an overvalued exchange rate, a heavy cost of capital and unbalanced growth.”

Achieving faster growth will “require progress across a broad policy front,” according to the OECD.

“This includes bolder fiscal consolidation in the form of spending restraint, coupled with tax and pension reforms to boost national saving.

“These measures would allow interest rates to stay low for longer and create room for the exchange rate to ease, thereby facilitating the needed rebalancing of the economy, boosting output of tradable goods and services.”

The OECD has also taken aim at “favourable tax treatment of housing” and “inefficient regulatory constraints on supply,” which it blames for pushing up house prices.

“These distortions exaggerated the surge in house prices, giving rise to wider wealth inequalities and a heavy dependence of households’ long term financial positions on volatile property values.

“Policy priorities should include further tax reforms to level the playing field for saving and investment decisions, while improving the efficiency of land use policies and the overall urban planning system.”