IMF report welcome but reflects familiar mindset
Finance Minister Michael Cullen today welcomed the latest IMF report on New Zealand.
"I particularly welcome the finding, given the current volatility surrounding oil prices, that New Zealand is well-placed to absorb external shocks without undue economic or financial distress," he said.
Both Moody's and Standard and Poors had recently endorsed the Government's prudent fiscal stance.
"The IMF echoes their assessment, describing the Government's near and medium term fiscal track as 'appropriate' but requiring of tight constraints on discretionary spending over the next two budgets," Dr Cullen said.
"I am confident the Cabinet will have the discipline needed not only to continue posting surpluses but also to meet the savings targets laid down in the 2000 Budget for the proposed New Zealand Superannuation Fund.
"In addition to this the Government's ten year fiscal projections include a safety margin in the outyears in the form of a $1.2 billion fiscal allowance each year from 2003-04.
"The IMF has commended the Government's plans to partially pre-fund future pension costs. However the Government cannot endorse the IMF's continued pressure for cuts to NZ Super.
"We plan to cement current entitlements into legislation, including eligibility from age 65. We recognise that changes in life expectancy and medical science may lead some future government to consider raising the age above 65 but would expect that any such review would be 25 to 30 years away," Dr Cullen said.
The IMF observes that the "pay-off" from the economic and institutional restructuring of the last 15 years has been disappointing and that, in this context, some re-examination of elements of the reform process may be appropriate.
"The fact is that our growth rate is still below the OECD average and has been about the same in the 1985-1999 post-reform era as it was between 1975 and 1984.
"The IMF says New Zealand must upgrade its human capital and endorses initiatives undertaken by the Government in this regard - notably the Modern Apprenticeship Programme, the new $12 million R&D grants scheme and a more targeted approach to immigration.
"But the IMF's orthodox mindset concerning industrial relations is evident in its discussion of the replacement of the Employment Contracts Act by the Employment Relations Act.
"The Government believes that the only sustainable way to improve the productivity and skills of the workforce is through encouraging more cooperative workplace relations and regards the ERA as an essential part of this strategy.
"The dark prophecies raised by some against the new regime have not been realised. Instead the transition has been remarkably smooth and untroubled," Dr Cullen said.
"But the IMF team was in New Zealand in the second half of July when the final shape of the new Act was not known, and when the scare campaign against it was at its height.
"On their next visit, they will have the opportunity to make a more informed analysis based on hard evidence.
"In the meantime I would simply note that according to IMF figures, New Zealand has achieved only half the growth achieved by Australia which took a more cautious and pragmatic approach toward economic restructuring.
"And during the 1990s when the ECA was in force, New Zealand's growth still lagged behind that of Australia with its much more regulated labour market," Dr Cullen said.