An annual event that is useful in benchmarking New Zealand against other countries is the publication of the Economic Freedom of the World Report .

The report is coordinated by the Fraser Institute in Canada along with the Economic Freedom Network, a grouping of institutes in 59 countries which includes the New Zealand Business Roundtable.

Economic freedom is of interest because of its relationship to per capita incomes and economic growth. The accompanying chart shows that the group of countries with the freest economies had average per capita incomes of US$23,000 in 2001 (the most recent year for which comparable data are available). The group comprising the least free economies had average per capita incomes of just over US$3,000.

The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete and the protection of individuals and property. Using 38 variables for each country, an index is constructed which measures the degree of economic freedom in five major areas:

•   size of government: expenditures, taxes and state-owned enterprises

•   legal structure and security of property rights

•   access to sound money

•   freedom to exchange with foreigners

•   regulation of capital and labour markets and business operations.

The research indicates that economic freedom worldwide increased further in 2001, continuing the economic liberalisation trend of the past 20 years.

Hong Kong retains the highest rating for economic freedom, followed by Singapore , the United States , and New Zealand and the United Kingdom (both in fourth position). The other top 10 countries are Canada , Switzerland , Ireland , Australia and the Netherlands . Most of the lowest ranking countries are African, Latin American or former communist states.

The research also finds that increased economic freedom does not lead to greater income inequality. More importantly, the actual income of poor people increases as countries gain economic freedom: the average per capita income of the poorest 10% of people in nations in the bottom quintile is US$873 compared with US$6,681 for those in the top quintile.

New Zealand 's overall score of 8.2 out of 10 is well above its score of 6.0 in 1985 but down from the level of 8.6 that it reached in 1995. It has a relatively low ranking (37th) for the size of government and for labour market regulation (21). The latter ranking is only just above Australia 's and well below Hong Kong and the United States which rank in second and third place respectively.

We have also lost ground on measures of regulatory impediments to business, and this trend will have continued since 2001.

There are difficulties in measuring economic freedom, and it is not the only determinant of growth. Steady and consistent policies are also important and New Zealand 's progress has been marked by instability and some reversals.

This report is a salutary reminder that recent policy directions in New Zealand have been at variance with those of most other countries. Moves in the direction of less economic freedom are likely to lead to a deterioration rather than an improvement in our economic growth rate in the medium term.

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