New Zealand - Economic development
Economic policy is implemented through taxation, Reserve Bank interest rates, price and monopoly controls, and import and export licensing. From 1958 to about 1975, import controls, tightened in 1961 and again in 1973, were employed to correct deficits in the balance of payments. Then in the mid-1970s the government began an industrial restructuring program focused on certain industries, such as textiles, footwear, automobiles, and electronics, whose domestic prices were much higher than those of foreign substitutes, with the aim of reducing the protection granted such products. In 1977, the New Zealand Planning Council was charged with advising the government on economic, social and cultural planning, and on the coordination of planning. In 1978 the Economic Monitoring Group was established to make reports on economic trends working independently of the Planning Council. The government gradually liberalized import controls, and by 1981 about 79% of private imports to New Zealand were exempt from licensing.
In June 1982, in an effort to control mounting inflation, the government announced a freeze on wages, prices, rents, and dividends. The freeze was lifted in March 1984, temporarily reimposed by a new Labour government, and then terminated late in 1984. In March 1985, the New Zealand dollar was floated as part of a broad-based deregulation of the economy, and the Reserve Bank has not intervened since. The termination of the freeze, combined with a devaluation of the dollar, led to a resumption of high inflation, which lasted until the crash of financial markets in October 1987. From this point the government began implementing a strict monetary policy designed to achieve a stable price level. The immediate cost was a sharp rise in unemployment (from 7% to 10.4%), but by 1991 inflation had been brought down to the low levels that have prevailed since. The target set by the government is a range between 0% and 3% per year. For the year ending September 1991, inflation was 2.2%. The average inflation rate for the five years 1997 to 2001 was 1.5%, with a low of negative 0.4% in 1999 and a high of 3.2% in 2001. Also from the mid-1980s, the New Zealand government has embarked on a major restructuring program to transform the economy from an agrarian economy dependent on preferences in the British market to a competitive and more industrialized free market economy with per capita incomes on par with the leading industrialized nations. In the course of the last 18 years, New Zealand has been changed from being one of the most regulated in the OECD to one of the most deregulated. For most of the 1990s, the economy grew strongly, but then was slowed by the Asian financial crisis. Real growth rates dropped to 1.9% and 0.4% in 1998 and 1999, respectively. Recovery in 2000 to 4.6% growth was reduced to 2.6% in 2001 as the economy felt the impact of the global slowdown.
The Labour-Alliance government elected in November 1999 set as its goals the transformation of New Zealand into a competitive, knowledge-based economy with emphasis on the development of high skills, high employment and high value-added production. Monetary policy remains guided by the Reserve Act of 1989, which aimed at maintaining price stability. Fiscal policy is guided by the framework set out in the Fiscal Responsibility Act of 1994. Specific goals include keeping gross governmental debt below 30% of GDP, holding government expenditures to around 35% of GDP, and running an operating surplus in order to build up a fund (the New Zealand Superannuation Fund or NZS Fund) to meet the future costs of publicly provided retirement income. In 2002, the first contribution to the NZS Fund was made, equivalent to 0.5% of GDP. By 2007, it is envisioned that through the combination of contributions to the NZS and returns on its investments, accumulated assets will have risen to 8% of GDP. Fiscal policy is based on a macroeconomic approach, essentially Keynesian, which allows automatic fiscal stabilizers to operate during both the upturns and the downturns in the economy. The major foci of the government's economic policy in 2002 is building conditions for enhancing New Zealand's sustainable economic growth rate and making it back into the top half of the OECD in terms of per capita income. The government's Growth and Innovation Framework, released in February 2002, identified several key policy areas: an open, competitive microeconomy, macroeconomic stability, and improving skills and talents, innovation and global connectedness. The main barriers to New Zealand's economic development are largely external, including a vulnerability to economic and geopolitical shocks in a world in which global recovery in 2002 has been weaker than expected.
In 1984/85, New Zealand contributed a total of $36.25 million in Official Development Assistance, $30 million in technical and capital assistance and direct aid or loans to developing nations, and $6.25 million in multilateral aid through the UN, the South Pacific Commission, ADB, and other organizations. In 1995, New Zealand's ODA reached $123 million, and then peaked at $154 million in 1997. In 1998, under the strains of the Asian financial crisis, New Zealand's total aid declined to $130 million, and in 2000/01 fell further to $99.1 million. Projections are for New Zealand to increase its ODA.5% in 2002. New Zealand's international aid effort has normally amounted to between 25% and 27% of GNP. The major recipients of its development assistance are the nations of the South Pacific, who receive about 70% of New Zealand's bilateral aid and about 62% of its total overseas aid.