Brash says 'radical' changes needed for growth

1:30 pm - By ADAM GIFFORD

New Zealanders may be unwilling to accept the difficult social and political changes needed if New Zealand is to get back into the top half of OECD rankings, Reserve Bank governor Don Brash told the Knowledge Wave conference today.

New Zealand slipped to 20th in the Organisation for Economic Co-operation and Development (OECD) ratings in 1999, down from ninth in 1970.

Mr Brash said New Zealand was not willing to pay the price which Singapore paid to achieve very high growth - a society almost devoid of taxpayer-funded income support.

"But increasingly it is recognised we will not achieve a radical improvement in out economic growth rate while we have to provide income support to more than 350,000 people of working age, to say nothing of the 450,000 people who derive most of their income from superannuation."

He said the huge fiscal costs of those payments, $13 billion or 11 per cent of GDP this year, constrained the Government from devoting more resources to education, research and development.

He also said that the current welfare system, with its largely unrestricted access to benefits of unlimited duration and very high marginal tax rates for those moving into paid employment, may not provide appropriate incentives for people to find work.

He said New Zealand's poor growth performance did not indicate the reforms of the mid 1980s and early 1990s were seriously flawed.

"While GDP per capital grew at only 0.8 per cent a year over the past three decades on average, it grew at almost 1.7 per cent during the nineties, virtually identical to the average OECD per capita over the same decade.

"We are now keeping up, roughly, but not catching up."

Catching up within a decade would require GDP growth of 3.6 per cent a year, a difficult ask requiring radical changes in people's attitude and behaviour, "and quite radical changes in public policy to encourage those changes in attitude and behaviour," he said.

"Minor changes at the margin simply won't do the

trick."

Dr Brash said despite spending a higher fraction of national income than most other developed countries supporting education, "we are not getting educational outcomes consistent with this high level of expenditure".

He said it could not be good for economic growth that, according to an OECD report, almost half the workforce in New Zealand could not read well enough to work effectively in the modern economy.

Otherwise, the country had the characteristics which made for rapid economic growth, including macroeconomic stability, a sound fiscal position and low inflation.

"Perhaps we should be devoting every effort to negotiating a free trade agreement and greater economic integrations with the United States."

Serious consideration might also be given to alternative currency arrangements.

"Frankly, I do not know whether there would be net economic benefit in adopting some other currency arrangement, but if we are to have a no-holds barred discussion on how to improve New Zealand's economic performance, one of the issues which should be looked at is this."

Dr Brash also urged against regulations which would close off developments in biotechnology, "an area where we must surely have the potential to be world leaders".

Other Herald features

Our turn

The jobs challenge