New Zealand’s economic policies have been endorsed by the OECD.
The Organisation for Economic Co-operation and Development has confirmed New Zealand’s macroeconomic policies strike the right balance between supporting the recovery and ensuring sustainable medium-term growth, Finance Minister Bill English says.
In its Economic Survey of New Zealand for 2013, the OECD also notes the economy is gaining momentum, with post-earthquake reconstruction in Canterbury, and business investment and household spending gathering pace.
“The OECD confirms the Government’s economic plan is on the right track,” Mr English says. “In particular, it notes our work in improving productivity to support long-term growth, it confirms the banking system is in good shape and well supervised, and it supports our focus on getting back to surplus and reducing debt.
“It concludes that reducing government debt will establish a favourable starting position for confronting longer-term cost pressures from an ageing population. It will also tend to raise national saving rates and reduce New Zealand’s external vulnerabilities.
“This is a welcome endorsement of the Government’s economic programme from the OECD, coming just a few weeks after the International Monetary Fund also confirmed we have struck an appropriate balance with our programme.”
Mr English agrees with the OECD’s assessment that New Zealand’s high private debt levels, large external imbalances and an over-valued exchange rate are among the main risks to growth.
“That’s why the Government is taking a number of steps, such as through the Business Growth Agenda and the internationally-focused growth package in the Budget, to help businesses and exporters become more competitive and to sell more to the world.
“While the OECD’s modelling predicts relatively small growth impacts from achieving some of the specific Business Growth targets, taken as a package evidence suggests they could make a material difference to productivity and incomes,” Mr English says.
The OECD notes that New Zealand policymakers are increasingly attuned to social equity and welfare issues.
It says welfare reforms are attempting to reduce long-run benefit dependency by emphasising education and training for at-risk youth, placing more conditions on beneficiaries and requiring stronger accountability from public and private providers.
“I’m pleased with the OECD’s positive assessment of the main elements of the youth package within our welfare reforms, and other recent changes to increase educational achievement and reduce youth unemployment.
“We will carefully monitor progress to ensure we further improve the participation of young people in education and training.”
One area the OECD report differs from the government’s policies is a Capital Gains Tax.
Mr English says the Government does not agree with the OECD about the need for a comprehensive capital gains tax applying to all assets, including the family home.
“Two comprehensive, expert reviews of New Zealand’s tax system – the 2001 Tax Review and the 2009 Tax Working Group – did not recommend a widespread capital gains tax of the sort the OECD recommends.
“The Government significantly tightened the tax rules around property investment in Budget 2010, which is expected to raise an additional $3 billion in tax revenue over four years.
Labour and the Green Party policy is for a CPT and they’ve seized on the OECD report as vindication of their stance.
However, that conveniently overlooks the report’s recommendation that a CTG covers the family home and replaces other taxes.
The LabourGreen version would exclude the family home and those parties wouldn’t reduce other taxes.
Labour lost the argument over this in parliament on Wednesday:
Hon David Parker: Why does he continue to refuse to adopt a capital gains tax excluding the family home when it is clear it would reduce inequality, it is clear it would take the pressure off house prices, and it is clear some people would pay their fair share of tax, and, at the same time, it would improve the economy?
Hon BILL ENGLISH: If a capital gains tax had all those magical powers, then you would not see a whole lot of developed country economies on their knees because of excessive housing markets. We have not implemented it, for a couple of reasons. One is that we believe the other tax measures we have taken, which are collecting $3 billion in tax revenue over 4 years, are more effective, and, secondly, we believe that changing the planning laws to allow more supply of houses will have a much bigger impact on fixing wealth inequality than a capital gains tax.
Rt Hon John Key: Has he seen any reports about a period of time between 1999 and 2008 when there was a substantial increase in the housing market in New Zealand and when there was a major amount of work done, to extent that half of the work of the Department of the Prime Minister and Cabinet was about the housing market, and, by the way, was there a recommendation for a capital gains tax that was adopted in that period of time?
Hon BILL ENGLISH: It is funny you should mention that. Some of the things the last Labour Government did were sensible. In 2001 it commissioned a tax review—a comprehensive review of New Zealand’s tax system. That review concluded that a capital gains tax that exempted the family home would not be effective. Faced with the fastest-rising housing market in New Zealand’s history through the mid-2000s, the previous Labour Government, in which most of the Opposition’s current front bench served, did not implement a capital gains tax. . .
Hon David Parker: Is the truth of the matter not that Mr English and his colleagues stopped the Savings Working Group and others looking at a capital gains tax by putting it out of their ambit, and is it not the reality that National’s refusal to introduce a capital gains tax is because it does not suit the vested interests of its backers?
Hon BILL ENGLISH: Well, with, I think, 47 percent of New Zealanders voting for the National Government in the last election, we are very pleased to represent a very broad range of backers—in fact, a much broader range of New Zealanders than the Opposition Labour Party, which claims to represent everybody. No, the reason we have not implemented a capital gains tax is that when you exempt most of the housing market, it becomes a tax purely on successful, profitable businesses, and that would be bad for growth. We are addressing the problem of rising house prices by addressing the real issue of the lack of supply, particularly in Auckland.
How typical – LabourGreen have a policy which wouldn’t address Auckland’s housing affordability and would be a tax on successful, profitable businesses which would be bad for growth.
Offsetting Behaviour also argues against a CGT: