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Time to take action on OECD recommendations

Published in Insights, The New Zealand Initiative’s newsletter, 12 June 2015

Republished on interest.co.nz (Auckland), 13 June 2015

puzzleThis week, the OECD released its economic survey of New Zealand. Its 149 pages provide a comprehensive overview of the New Zealand economy, its strengths and weaknesses.

The tone of the OECD document is generally positive, and the bits the New Zealand media focussed on did not tell us anything we did not already know. Unless, of course, it is news to you that we are not building nearly enough dwellings and that especially Auckland faces a housing crisis.

A far more interesting part of the OECD’s survey is its Annex (pp. 61-68). It tracks New Zealand’s progress on structural reform by comparing the recommendations the organisation’s experts made in their last survey in 2013 to what the government has done with them.

Though on most issues, some measures have been implemented, in quite a few of the categories the summary of the past couple of years is “No action taken”. Let us have a look at some of them:

  • The OECD urged the government to remove all remaining tariffs and Zespri’s export monopoly on kiwifruit.
  • The OECD asked the government to reduce local government ownership of port assets to bring more market discipline to the sector.
  • The OECD wanted New Zealand to improve the transparency of the foreign direct investment screening regime.
  • The OECD argued that water rate subsidies to tenants paying market rents should be removed.
  • On health care, the OECD suggested capitation payments to better “follow the patient”, eliminating restrictions on access to such payments by individual physicians and practices.
  • The OECD previously called for wider private health insurance coverage.
  • The OECD urged the government to raise the pension eligibility age in line with longevity.
  • On tax, the OECD recommended to realign corporate, capital and top marginal income tax rates, or reduce capital income tax rates.

In all these cases, the verdict for the past couple of years was, “No action taken”.

On some issues, there may be good reasons to disagree with the OECD’s recommendations – they should not be followed slavishly anyway. In these instances, however, the OECD’s recommendations on economic policy are textbook economics advice. For example, it is a no-brainer to abolish the remaining tariffs.

Let’s hope that especially on this year’s top OECD recommendation to build more homes the 2017 review will not conclude that no action was taken.

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