OECD sets the Government some challenges

Water pollution was a concern in the OECD report.

The Organisation for Economic Co-operation and Development has set the New Zealand Government tasks to help stimulate economic expansion and make economic growth more inclusive.

The OECD six-monthly economic outlook urged the Government to remove bottlenecks to sustain the economic expansion, reduce greenhouse gas emissions and water pollution and, importantly, make economic growth more inclusive.

The paper said income inequality, reflecting in part unequal employment prospects, was above the OECD average.

Recent welfare reforms facilitated the transition of beneficiaries into employment but a greater focus was needed on improving the long-term outcomes of the most disadvantaged New Zealanders.

The Government was taking steps to ease shortages of affordable and social housing but would need to go further to make ''significant headway'' in rolling back the large increase in the burden of housing costs on low-income households.

Obesity, cigarette smoking and poor access to healthcare had contributed to bad health outcomes for some.

While education achievement was high, children from disadvantaged backgrounds were less school-ready and more likely to leave without qualifications.

Reforms were under way to increase student attainment by improving the school readiness of those groups, enhancing teaching quality and increasing collaboration across schools, the OECD report said.

New Zealand faced difficult climate-change challenges because of the high share of its greenhouse gas emissions coming from agriculture where there were few cost-effective abatement possibilities.

Also, three-quarters of electricity already came from renewable sources, meaning there were few potential gains in generation.

The effectiveness of the Emissions Trading Scheme, New Zealand's main climate change policy instrument, was being limited by an exemption for biological emissions from agriculture and transitional arrangements effectively halving the carbon price faced by covered emitters.

Water quality in some regions had suffered from the steady expansion of intensive dairy farming. The industry and Government had responded but it was not yet clear if those measures would be sufficient, the OECD said.

Businesses had reported increasing difficulties in finding skilled labour. However, wage pressures remained subdued thanks to immigration, policies to improve labour market matching and skills training.

Rapid population growth and a low responsiveness of supply had led to housing and urban infrastructure constraints. House prices had risen sharply in Auckland, eroding affordability and raising financial stability risks.

Efforts to speed the housing supply response had been made, although community resistance to rezoning and densification might limit development.

''Environmental regulations also appear to be relatively burdensome for economic activity, including for residential investment.''

Foreign debt, which reflected low private saving, was an ongoing vulnerability. New Zealand faced potentially large macroeconomic shocks and longer-run pension and health spending pressures, the OECD said.

The OECD said the global economy has been stuck in a ''low growth trap'' but forecast growth in New Zealand of 3.5% this year, 3.4% next year before declining to 2.6% in 2018.