Key Points:

New Zealand's economic freedom has increased in the past year, with the country rising one place to fifth in the annual Heritage Foundation/Wall Street Journal survey.

New Zealand is considered 82 per cent free, compared with 80.2 per cent last year.

The 1.2-point gain was due to improvements in areas such as trade, investment and property rights.

"[New Zealand's] globally competitive economy benefits from monetary stability, low tariff rates, and a financial system based on market principles that attracts many foreign banks," the US think-tank said in its report.

The country's efficient legal and regulatory environment also allowed entrepreneurialism to flourish.

New Zealand ranked third between 1996 and 2004, with the exception of 2001.

Hong Kong was the world's freest economy for the 15th straight year, followed by Singapore, Australia, Ireland and New Zealand.

Rounding out the top 10 were the United States, Canada, Denmark, Switzerland and the United Kingdom.

The foundation ranked 179 countries with North Korea the least free, preceded by Zimbabwe, Cuba and Myanmar.

The Heritage Foundation, whose patron is Baroness Margaret Thatcher, aims to promote conservative public policies based on the principles of free enterprise, limited Government, individual freedom, traditional American values and strong national defence.

The economic freedom index measures 10 categories of economic freedom: labour, business, trade, fiscal, monetary, investment, financial, Government size, property rights and freedom from corruption.

New Zealand was rated at 99.9 per cent for business freedom, compared with the average of 64.3 per cent.

Trade freedom, monetary freedom, investment and financial freedom were all ranked 80 per cent or higher, and property rights were well protected.

Tax rates higher than those of many other countries meant fiscal freedom scored 62.5 per cent, compared with the average 74.9 per cent.

Freedom from corruption declined but remained high at 94 per cent, and labour freedom fell but was also high at 89.65 per cent.

Ten points were deducted from the trade freedom score to account for non-tariff barriers.

Government spending and influence was high, inflation was low, and foreign investment was encouraged in most sectors.

Flexible labour laws enhanced employment and productivity growth, the non-salary cost of employing a worker was low, and dismissing a redundant employee was costless, the survey authors concluded.

Most economically free nations:

1 Hong Kong
2 Singapore
3 Australia
4 Ireland
5 New Zealand
6 United States
7 Canada
8 Denmark
9 Switzerland
10 United Kingdom

Source: Heritage Foundation/Wall Street Journal