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July Working and Policy Perspective Papers

28 July 2006

MEDIA STATEMENT

Immediate Release

Treasury Releases July Round Of Working Papers and Policy Perspectives Papers

The Treasury today released its July round of Working Papers and Policy Perspectives Papers. The papers released today are:

- Investigating Health Technology Diffusion in New Zealand – How Does it Spread and Who Stands to Gain? (WP 06/05)

- Use of targets to improve health system performance: English NHS experience and implications for New Zealand (WP 06/06)

- Housing: an Analysis of Ownership and Investment Based on the Household Savings Survey (WP 06/07)

- An Empirical Investigation of Fiscal Policy in New Zealand (WP 06/08)

- Past, Present and Future Developments in New Zealand’s Terms of Trade (WP 06/09)

- Treasury’s Forecasting Performance: a Head-to-head Comparison (WP 06/10)

- Electricity Generation: Competition, Market Power and Investment (PP 06/04)

- International Comparative Surveys of Regulatory Impact (PP 06/05)

- Environmental Risk Management in New Zealand – Is There Scope to Apply a More Generic Framework? (PP 06/06)

Summaries of the papers follow. The full papers are available on The Treasury’s website at: www.treasury.govt.nz/workingpapers

--

The six Working Papers released today are:

WP 06/05 Investigating Health Technology Diffusion in New Zealand – How Does it Spread and Who Stands to Gain?

This paper examines the adoption from 1995 to 2004 of a coronary procedure known as stenting, as a case study in how new health technology diffuses across District Health Boards. It describes what has happened to overall service volumes for the new and existing coronary procedures, and which groups are accessing procedures.


WP 06/06 Use of targets to improve health system performance: English NHS experience and implications for New Zealand

The English National Health Service (NHS) reduced patient waiting times and the death rate from some major diseases in the late 1990s and early 2000s. These performance gains were not replicated in the other parts of the UK that chose not to adopt a regime of targets and linked incentives as the English NHS had done. While the English NHS experience included some signs of “gaming” and other unintended consequences, these were manageable and the benefits outweighed any negative effects. The similarities between the English NHS and the New Zealand public health system suggest New Zealand could consider a small number of quantified, time-limited national targets (backed by managerial and organisational level incentives) to improve performance in areas of high importance to the government and the public.


WP 06/07 Housing: an Analysis of Ownership and Investment Based on the Household Savings Survey

The authors examine data on asset holdings – including property – of New Zealand households and estimate an aggregate savings rate (12% of personal disposable income between 1980 and 2005) that takes into account the rise in house prices. They also estimate that, on average, a rise of one dollar in housing net equity is associated with 10 cents of apparent equity withdrawal.


WP 06/08 An Empirical Investigation of Fiscal Policy in New Zealand

This paper estimates the effect of changes in government spending, taxation and transfers on New Zealand GDP. The results indicate that the initial effects on GDP vary according to the type of fiscal policy. Increases in government spending tend to initially raise GDP; increases in taxation tend to lower GDP; while a rise in government transfer payments first raises then eventually lowers GDP. GDP tends to fall by more following a rise in transfer payments than it does following a rise in taxation.

Consistent with being a small open economy, the size of fiscal policy effects on GDP tend to be smaller than for those estimated for large economies such as the US. The paper also finds that fiscal policy has at times accentuated and at times smoothed GDP fluctuations.


WP 06/09 Past, Present and Future Developments in New Zealand’s Terms of Trade

This paper examines the importance of terms of trade to the performance of the New Zealand economy. Volatility in the terms of trade has had a negative impact on New Zealand’s economic growth since 1950, but the level of real export prices has had a positive effect on economic growth. The paper finds no statistical evidence that the terms of trade have declined since 1900; in fact the trend in terms of trade appears to have improved since 1974. The degree of volatility in the terms of trade has declined over time, helped by the reduction in export price volatility. The author explores reasons for the improvement in the terms of trade and provides an outlook of future developments, including the impact of China.


WP 06/10 Treasury’s Forecasting Performance: a Head-to-head Comparison

This paper compares The Treasury’s GDP and CPI forecast performance against individual private sector forecasters and major public sector institutions. The other forecasting institutions are not identified in the paper. Consistent with international studies, no single forecaster consistently outperformed the consensus and all forecasters found it difficult to predict the timing of turning points and recessions.


The three Policy Perspectives Papers released today are:

PP 06/04 Electricity Generation: Competition, Market Power and Investment

This paper discusses the international literature on competition in wholesale electricity markets. It concludes that electricity markets can be susceptible to temporary bouts of inadequate competition because of the economic characteristics of electricity networks.

However, it also concludes that it is difficult to identify episodes of market power empirically and that price spikes are not necessarily evidence of poor competition (indeed they are often crucial signals to ensure efficient investment). While there is no need for a fundamental revamping of New Zealand’s electricity policy, international experience identifies several factors that can help promote competition in the wholesale market, including: robust transmission capacity; widespread forward contracting; demand-side responsiveness to price fluctuations; reduction of regulatory uncertainty; reduction of barriers to entry for new generators; and an independent, forward-looking market monitor institution.


PP 06/05 International Comparative Surveys of Regulatory Impact

This paper evaluates surveys of the cost of regulations in different countries. It finds most surveys do not evaluate the benefits of having the regulations. It notes that New Zealand is generally rated as having low regulatory costs.


PP 06/06 Environmental Risk Management in New Zealand – Is There Scope to Apply a More Generic Framework?

This paper looks at alternative ways of implementing the “Precautionary Principle” (which argues against taking action unless there is clear evidence that the action will not cause harm) in the context of environmental risk management, whilst still aiming to minimise or mitigate risks. Considering the precautionary principle in the context of a more generic risk management framework could assist in determining when the principle should be applied, and also how it could be implemented in a way that enables the greatest returns to be achieved with acceptable results, costs and risks.

The costs of taking this approach and implementation issues require further exploration.


ENDS

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