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NZ slips in economic freedom

Jan 5, 2005 2:22 PM

New Zealand is losing ground to other countries in the annual Heritage Foundation/Wall Street Journal index of economic freedom, New Zealand Business Roundtable policy advisor Norman LaRocque says.

The index measured 161 countries against 10 factors of economic freedom, such as fiscal burden of government, government interference in the economy, and trade policy.

Low scores are more desirable. The higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom a country enjoys.

New Zealand's overall score in the 2005 index of economic freedom was the same as 2004.

However, New Zealand's ranking slipped from third last year to fifth-equal in 2005 - behind Hong Kong, Singapore, Luxembourg and Estonia.

Relative to other top scoring countries, New Zealand did well in all categories except for fiscal burden, where its ranking was lower than all but one top 10 nation.

"This nation is standing still while other countries move forward," LaRocque says.

"New Zealand's high ranking is commendable. The country's recent economic success owes much to the forward-looking reforms of the 1980s and 1990s - a point recently acknowledged by the government in its December fiscal update," he says.

The report shows that, over the last nine years, countries that have done the most to improve their economic freedom scores have in general experienced the highest rates of economic growth.

LaRocque says New Zealand cannot afford to stand still.

According to the report, countries with the largest improvement in economic freedom between 1995 and 2003 had an average gross domestic product (GDP) growth rate of 4.75%, compared to 2.68% for those with the smallest improvements in economic freedom.

LaRocque says several countries have made significant strides in opening up their economies and lifting economic freedom. These include top-ranked countries such as Australia, Ireland, Luxembourg, Denmark and Estonia.

"If New Zealand policy makers are serious about economic growth, they must ensure that New Zealand's policy settings provide the country with a competitive advantage over its trading partners."