Ten years ago, a former financial secretary to the UK Treasury, John Moore, said about privatisation in Britain : "Private ownership has won … the reason that the political contest over privatisation came to an end is simply that implementation succeeded. Facts overtook the debate."

Much the same thing seems to be happening in the debate over New Zealand 's economic reforms. Talk of "the failed policies of the past" is now heard less frequently, even in government circles.

The change in the government's rhetoric and attitude is apparent from recent articles in The Australian by its economics editor Alan Wood, perhaps Australia 's leading economic journalist.

Wood visited New Zealand in March as a guest of the Ministry of Foreign Affairs and Trade in conjunction with the visit of Australian prime minister John Howard to mark the anniversary of the Closer Economic Relations agreement between the two countries.

In one of his articles, Wood wrote that "CER has certainly played a part in NZ's and Australia 's current prosperity, but the economic reforms in both countries in the 1980s and early '90s were crucial. They are what delivered NZ's improved economic performance in the '90s, together with some cyclical factors such as good seasons, good commodity prices, high immigration and a low exchange rate."

Wood quoted prime minister Helen Clark as referring to "the stellar performance" of the New Zealand economy and heaping praise on CER, even though she had opposed it in her maiden speech in parliament.

In his speech, John Howard said: "The change and reform that has occurred in both countries – the deregulation of the New Zealand economy was a trailblazer for many other countries – and the strength and the vitality of so much of what you have now is due to reforms carried out in the 1980s and continued by successive governments."

Wood acknowledged that Helen Clark had recently spoken of the "discredited and discarded agendas of the '80s and '90s" but added: "However, some of this is just rhetoric. After a false start in the early months of her government and a heated clash with influential sections of the business community, Clark has not made any radical attempt to turn back reform … Talking to Labour ministers and to the Prime Minister, it is clear that their mind-set has been importantly influenced by the reformers."

Indeed, the reality behind the rhetoric was apparent much earlier. In an interview with a Japanese journalist in 2000, finance minister Michael Cullen stated: "Fundamentally we will not change our open market policies. It is not necessary. The structural reforms produced great results. Most privatised corporations have been successful. What the current government is doing now is not because the structural reforms were wrong, but because we want to adopt a pragmatic approach to do better."

Facts have overtaken the economic reform debate too. Statistics New Zealand 's latest figures for real gross domestic product (GDP) show that for the 10 years to the end of 2002, average growth in real terms was 3.6 percent a year. This means the economy in 2002 was over 40 percent larger than it was 10 years earlier.

This growth rate was better than what the well-performing US economy achieved in that period, better than the G7 countries, but somewhat below Australia which achieved around 4 percent average growth.

Even more importantly, real per capita GDP – reflecting the average income of all New Zealanders – grew by 2.5 percent a year on average in that decade. This means that average incomes were 28 percent higher in 2002 than they were 10 years ago.

Having regard to increased government spending on services such as health and education – the so-called social wage – in that period, it is not credible to suggest that the vast majority of New Zealanders did not benefit from this improvement.

Growth for the 10 years from 1992, when the economy began to expand after the structural reforms of the 1980s and the additional fiscal and labour market measures of the early 1990s, was comparable to the decade of the 1960s and much better than the 1970s and the 1980s.

Productivity improvements were clearly responsible for a significant part of the improved growth performance.

In addition, there were major improvements in inflation, employment, unemployment, the government's fiscal position including public debt, and New Zealand 's credit rating.

While there was much about the reforms that was imperfect and incomplete, to refer to them as the 'failed policies of the past' is clearly ludicrous. As Wood noted, the potential problem is not that the government has made radical changes to New Zealand's economic framework but rather its "shift towards microeconomic and welfare policies that over time threaten to undermine the economy's flexibility … and the associated productivity it yields [that] is vital to NZ's future prosperity."

Wood quoted OECD figures for average Australian per capita income of US$23,492 (NZ$42,713) and New Zealand per capita income of US$17,511 (NZ$31,838) on a purchasing power parity basis, "a big gap [34 percent] and one that will go on growing unless NZ can match or better Australia's growth performance."

If, assuming similar population growth rates (which has been the case in the last 10 years), New Zealand's future average annual growth rate was 2.5 percent and Australia's 3.5 percent, average Australian incomes would be 42 percent higher than New Zealand's in 10 years' time and 60 percent higher in 20 years.

Wood concluded that "another round of bold policy reforms" is needed if a further large decline in relative incomes is to be avoided.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz