NZ's low productivity singled out in OECD report

The report says the Resource Management Act needs attention to improve regulatory quality.

Raising productivity has been identified in an OECD report on New Zealand as the country's greatest medium term challenge.

The report, released today, provides analysis of New Zealand's economic situation, identifies perceived failings and offers a raft of measures on to how to improve them.

It noted New Zealand's economy was now among the most indebted in the OECD (Organisation for Economic Co-operation and Development) group of 30 industrialised nations.

While a process of debt reduction had started, persistent, large current-account deficits and a high external debt rendered the economy especially vulnerable in the recession.

The economy was likely to remain in recession throughout 2009, before recovering "only hesitantly" in 2010 as major deleveraging continued, it said.

The report said boosted productivity growth was critical for closing the large income gap with other OECD countries, and that government ownership should be reassessed to spur competition in certain sectors.

The Emissions Trading Scheme and Resource Management Act needed attention to improve regulatory quality and eliminate uncertainty, while the financially struggling health sector needed restructuring.

Among other things, low productivity performance was put down to "sub-optimal" policies and new regulation which was sometimes poorly designed.

"Such measures have increased the costs of doing business and sent bad signals to foreign investors."

The report urged the Government to strive to create an attractive business environment - something which would require structural policy changes in many areas.

Council of Trade Unions (CTU) secretary Peter Conway said while there were some good suggestions in the OECD report, it largely missed the point in its prescription for the economy.

Mr Conway said it seemed the prescription in general was privatisation in electricity, ports, ACC and health, "despite the fact that we have just witnessed massive private sector failure in financial management which has required huge bailouts by the public sector".

Nevertheless, the OECD continued to push for ever greater market-based models across social provision and strategic infrastructure.

"This illustrates that the OECD seems to have learned nothing from the global financial crisis."

Mr Conway said the CTU also disagreed with criticism in the report of the Government's undertaking not to sell public assets during the first term in office.

"We strongly urge that public ownership of Air New Zealand, Kiwirail and Kiwibank is retained."

Mr Conway said a raft of proposals to improve the economy raised concerns, including toll road charges, foreign investment incentives and re-arranging the structure of the health sector.

However, he said given the relatively low public debt and predictions of lifts in unemployment, the CTU believed there was room for more urgent public investment to create and retain jobs.

"We also agree that there is more room to move on the official cash rate and a reduction to 2 per cent in the next few months is desirable."

The OECD report said it was "crucial" the Government's first budget next month delivered a credible consolidation plan.

- NZPA