KEY POINTS:
After 20 years of opening our economic doors to the world, last week's OECD report on New Zealand shows us near the bottom of the 30 countries measured and going backwards.
"What really matters is living standards are quite a lot below the OECD median and they don't seem to be catching up," said Deborah Roseveare, who heads the OECD's New Zealand desk.
Despite ranking near the top for its policy and regulatory framework, New Zealand's productivity and saving are near the bottom.
Roseveare says the reforms of the 1980s and 90s were essential and had contributed to productivity growth. Without them New Zealand would have been even worse off.
"New Zealand really deserves a reputation for having put in place a set of policy and labour market reforms that are pretty much best practice."
She admits the OECD is puzzled why New Zealand hasn't performed better and believes part of the explanation is the huge swings the currency undergoes and persistently high interest rates. The volatile exchange rate has put businesses off exporting, while high interest rates make business propositions less viable.
"It's not obvious what policy makers can do about it."
The OECD does not subscribe to the view that New Zealand's size and distance are to blame. What it does prescribe is better savings and says KiwiSaver is a step forward.
Stronger and deeper financial markets are needed. But why our share and bond markets are so shallow "leaves us scratching our heads".
Most of all, Roseveare says, New Zealand needs to rethink its tax system so it is more closely linked to raising living standards.
Taxes needed to encourage people to work and save and invest. This could be achieved by a flatter, more broadly based system with lower income and company taxes and higher GST. Or, there could be a dual system taxing capital as well as income.
The OECD report focused on the country's reliance on property as a savings vehicle, suggesting a capital gains tax - a policy politicians dare not name.
Roseveare says either way would be better than the status quo.
- NZPA
