New Zealand operates an open economy:
New Zealand has a very open economy, especially when compared to that which existed in the 1970s and early 1980s. A dismantling of an inefficient import licensing scheme and a reduction in tariff protection and a general withdrawal of government from day to day business during the late 1980s and 1990s resulted in many changes to the economy, most for the better.
Government no longer has a direct involvement in price fixing, wage bargaining, industrial relations, interest rate setting etc., rather it takes the view that it will create an environment and that the market will establish respective levels.
After being unshackled from many years of Government control and inefficiency the New Zealand economy responded positively throughout the mid to late 1990's after an initial period of economic decline. Gone were the powerful trade unions, and the inefficient state subsidised and inefficiently run Government corporations. Gone were most of the regulations and the constraints imposed by Government. A sell down of assets saw the emergence of lean, yet efficient organisations which rank among the best in their respective fields.
Successive Governments approach was to restructure along several fronts and saw the introduction of legislation which:
1. Removed the statutory right of unions to represent all workers - individual contracts were introduced if that suited the parties.
2.The Government passed the Reserve Bank Act which required the Governor of the Reserve Bank to ensure inflation was not less than 0% and not more than 2%. This was later broadened to 0-3% in the late 1990s.
3. The Government created what is called the "Closer Economic Relations" agreement with Australia (our largest export market) which effectively created an almost seamless flow of goods and services across both economies (when you could get the Australians off their backsides).
4. The Government corporatised and then privatised most state utilities. Examples are Telecom Corporation, New Zealand Post, NZ Forestry Corporation, Air New Zealand, State Insurance, Government Printing, various ports and Tranzrail to name but a few. Government recently brought back the rail lines and company and has rebranded it Kiwirail. The Government also established a 100% New Zealand (taxpayer) owned bank called Kiwibank.
5. New Zealand is an active member of APEC and was the first developed country to sign a Free Trade agreement with China in 2009.
New Zealand has close ties with Australia. With the signing in 1989 of The Closer Economic Relations Treaty (CER) access for New Zealand companies to the large Australian market was theoretically made easier and in large part successful. New Zealand manufacturers and entrepreneurs have taken full advantage of the opportunities presented with the Australian and New Zealand economies serving as "domestic" markets with each other in effect. The free flow of labour between the two countries is beneficial to both nations workers. During cyclical downturns in N.Z, our workers travel to Australia and when the Australian economy weakens the flow reverses.
GDP growth was around 1% for the 2008 year but the economy began to slow appreciably the second half and the early part of 2009 as the high New Zealand dollar, oil prices and interest rates and global recession began to hurt exporters and the domestic economy. The level of growth during the past few years has put severe strain on the labour market with accute skills shortages across a range of industries and sectors. That has now eased gien the local and global recession. GDP growth was in fact negative in the year ending October 2009 at -3% or thereabouts. NZ offically came out of recession in June 2009.
With the global financial crisis New Zealand along with many other countries now faces a tough few years with international markets in recession and impacting on our export led growth. Unempleoyment is projected to rise over the next two years to perhaps 6 - 7%. It currently stands at 6%. While this is high by our standards is still less than Australia, the UK or the US.
Underlying inflation has largely been successfully managed within the statutory band of 0% to 3% and the Reserve Bank is charged with managing this. During most of the 1990s inflation averaged slightly over 1.5% and but between 2006 and early 2008 it has inched its way up and over the 3% maximum allowed by law. In response to the financial crisis the Reserve Bank Governor has recently lowered wholsesale interest rates in order to stimulate growth Most New Zealanders with floating mortgage interest rates are now paying 5.75% 6.25%. Many home owners have chosen fixed mortgages which sees them paying 7.8% - 8.5% for periods of two to five years.
Unemployment currently stands at 6% which gives New Zealand among the lowest rate of unemployment in the developed world (of which about one third is skilled unemployment) . New Zealanders have a reputation for entrepreneurial activity, and it is intersting to note that unemployment has not grown as much as many were expecting at the beginning of 2009. Employment intentions remain weak in teh latetr part of 2009 but most are expecting it to pick again in early 2010.
Business confidence remains stable to strong with most businesses now confident about their own short term future even if they are worrying about everyone elses.
So what is the short term outlook for the economy?
The economy has returned to growth but it is anaemic and is only projected to be around 1-2% in the twelve months through to November 2010. Investment and hiring intentions remain reasonably weak. Over the three years to early 2008 230,000 jobs were created within the economy (against a backdrop of around 900,000 total jobs). Over the past twelve months around 25,000 jobs have been lost.
Unemployment will remain low but perhaps around 2010 at 6% according to most forecasts. This assumes no further global shocks.
New Zealand's Cost of Living:
We are often asked how expensive New Zealand is as a place to live. This is a difficult question to answer as peoples lifestyle expectations are different. For a refugee we are sure that cities like Auckland are very expensive. For Bill Gates it would be a steal. However what we can say is that in a recent survey of 131 cities Auckland was ranked as the 107th most expensive to live in (Wellington is apparently New Zealand's most expensive). We are cheaper than Nairobi if that means anything to you and one above Tashkent, about the same as Kuala Lumpur and Rio De Janeiro. By comparison Sydney in Australia is 72nd, Melbourne 81st and Perth 94th.
Moscow is currently is the most expensive.
To illustrate what we can afford the following table records the percentage of New Zealand households owning at least one of each of the following items.
| Colour TV |
98.1% |
| Washing machine |
97.2 |
| Electric stove |
93.7 |
| Telephone |
93.7 |
| Video recorder |
82.6 |
| Microwave |
81.7 |
| Clothes Dryer |
63.7 |
| Cellphone |
58.3 |
| Personal Computer |
54.3 |
| Dishwasher |
38.9 |
| Pay TV decoder |
38.8 |
Further, New Zealand has the second highest car ownership rate in the world after the United States. Interestingly more of us seem to prize colour televisions than telephones! So you are looking at coming to a highly mobile, literate and wired (more than 50% of homes have a computer) country where the vast majority of its citizens can afford the so called luxuries in life - even if men do spend alarmingly little on shoes!
A economic snapshot of life in New Zealand:
Out of every $100 a New Zealander household earns, $23.90 goes on housing costs, such as mortgages or rent, maintenance and rates. Other costs associated with the running of the home, such as power, appliances, furniture and so on, take a further $12.80, food $16.50 and transport a further $15.90. You will see then that Mr and Mrs Average do not save very much!
Within New Zealand society there are of course those that earn a great deal of money and those that do not earn very much at all.
For the purpose of giving you an idea of how different groups spend their income each week, in the table below we define:
- a low income household as one earning between $20,700 - $25,899; and
- a medium income household as one earning between $40,600 and $51,099; and
- a high income household as one earning $76,700 and $101,099
The second column in the table is low household income earners, the third is medium household income earners and the fourth is high household income earners.
| HOUSING takes 23.9% |
low |
medium |
high |
| Rent |
$47.00 |
$56.20 |
$42.90 |
| Mortgage |
$22.60 |
$62.00 |
$138.60 |
| Rates, etc |
$13.90 |
$17.70 |
$20.90 |
| Property maintenance |
$22.60 |
$40.60 |
$79.60 |
| Household Operation takes 12.8% |
$68.40 |
$99.60 |
$140.60 |
| Fuel and power |
$21.50 |
$24.80 |
$30.30 |
| Appliances |
$9.80 |
$15.90 |
$19.80 |
| Equipment and utensils |
$2.10 |
$3.70 |
$5.00 |
| Furniture |
$5.40 |
$10.70 |
$21.00 |
| Furnishings, floorings, etc |
$4.00 |
$8.60 |
$13.90 |
| Household supplies |
$6.00 |
$7.90 |
$11.30 |
| Household services* |
$19.60 |
$28.00 |
$39.40 |
* includes telephones
| Clothing takes 3.2% |
$14.00 |
$23.40 |
$37.30 |
| Men's clothes |
$2.10 |
$4.10 |
$4.80 |
| Women's clothes |
$5.70 |
$6.50 |
$13.20 |
| Children's clothing |
$1.40 |
$4.20 |
$6.30 |
| Men's shoes |
$0.40 |
$1.00 |
$2.10 |
| Women's shoes |
$1.30 |
$1.20 |
$2.20 |
| Children's shoes |
$0.30 |
$0.50 |
$0.80 |
| Other clothing etc |
$2.80 |
$5.00 |
$7.00 |
| Transport takes 15.9% |
$68.60 |
$133.10 |
$176.90 |
| Public transport |
$2.90 |
$5.80 |
$9.40 |
| Overseas travel* |
$10.70 |
$20.70 |
$34.10 |
| Vehicles |
$21.60 |
$50.20 |
$60.00 |
| Vehicle ownership costs |
$31.20 |
$52.80 |
$68.30 |
| Other |
$2.20 |
$3.50 |
$5.00 |
* includes all spending overseas
| Food takes 16.5% |
$85.70 |
$133.10 |
$179.10 |
| Fruit |
$6.20 |
$8.20 |
$13.30 |
| Vegetables |
$7.60 |
$10.60 |
$13.30 |
| Meat |
$11.00 |
$17.00 |
$17.00 |
| Poultry |
$3.40 |
$5.30 |
$5.80 |
| Fish |
$1.50 |
$2.40 |
$3.10 |
| Eggs, dairy, fats, oils |
$11.50 |
$13.80 |
$16.80 |
| Cereals, cereal products |
$12.30 |
$15.90 |
$20.20 |
Sweet products, spreads
and beverages |
$10.60 |
$14.30 |
$20.90 |
| Other foods |
$9.50 |
$18.10 |
$20.30 |
| Meals from home, ready to eat food |
$12.10 |
$27.50 |
$48.30 |
| Other services take 16.5% |
$62.50 |
$120.00 |
$191.90 |
| Health services |
$10.90 |
$15.30 |
$24.50 |
| Personal Services |
$2.40 |
$5.80 |
$6.90 |
| Education and tuition |
$8.30 |
$17.20 |
$19.20 |
| Accomodation |
$2.10 |
$3.10 |
$7.40 |
| Financial, insurance, legal |
$16.50 |
$23.20 |
$35.80 |
| Leisure services |
$9.10 |
$17.80 |
$25.70 |
| Other services |
$8.30 |
$19.00 |
$33.90 |
| Saving |
$4.80 |
$18.70 |
$38.60 |
| Other Goods take 11.2% |
$50.90 |
$92.30 |
$128.00 |
| Tobacco |
$6.60 |
$11.30 |
$7.40 |
| Alcohol |
$8.20 |
$18.10 |
$24.90 |
| Medical goods |
$4.90 |
$5.20 |
$7.80 |
| Toiletries/cosmetics |
$4.40 |
$7.10 |
$10.30 |
| Personal goods |
$3.30 |
$7.60 |
$11.90 |
| Pets, racehorses, livestock |
$6.40 |
$7.90 |
$11.90 |
| Publications, stationery etc |
$9.40 |
$17.10 |
$26.10 |
| Leisure goods |
$5.60 |
$14.30 |
$19.00 |
| Other |
$2.20 |
$3.80 |
$10.50 |
So there you have it, a snapshot of life in New Zealand. Many of these figures seem somewhat irrelevant and frankly hard to believe (men spend $1 a week on shoes/$52 a year?) but they do come from the Department of Statistics and overall we believe that they "paint" a realistic picture.
Perhaps the next page you should read is that on salaries to see which of these categories you might expect to fall into.
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