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New zealand
New Zealand’s economy is 81.6 percent free,
according to our 2007 assessment, which makes it the world’s 5th freest
economy. Its overall score is 2.4 percentage points lower than last year,
partially reflecting new methodological detail. New Zealand is ranked 4th
out of 30 countries in the AsiañPacific region, and its overall score is
much higher than the regional average.
New Zealand rates highly in almost all areas of
economic freedom but is most impressive in financial freedom, property
rights, business freedom, labor freedom, and freedom from corruption. A
globally competitive financial system based on market principles attracts
many foreign banks, helped by low inflation and low tariff rates. A strong
rule of law protects property rights, and New Zealand is the world’s
second most corruption-free country. Foreign and domestically owned
businesses enjoy considerable flexibility in licensing, regulation, and
employment practices.
New Zealand could do better in freedom from government
and fiscal freedom. The top income tax rates are fairly high, as are tax
revenue and government spending, but the overall effect is eclipsed by the
amount of economic freedom that has been established. New Zealand’s
economy is a global competitor and a regional model of economic freedom.
Background:
Following two decades of sound economic policies and
structural reforms, New Zealand has turned itself into a modern, flexible
economy with the lowest unemployment rate of any Organisation for Economic
Co-operation and Development member country. Agricultural commodities,
which historically have thrived on privileged British market access,
dominate the export market. New Zealand relies heavily on international
trade, and its openness has helped to boost exports of goods and services,
which now account for more than 30 percent of total output. Securing
bilateral and regional free trade agreements is one of the government’s
major foreign policy goals, as is continuing to diversify the economy into
industrial goods.
Business Freedom - 93.7%
Starting a business takes an average of 12 days,
compared to the world average of 48 days. The business environment has
allowed entrepreneurial activities to flourish. Obtaining a business
license is simple, and closing a business is very easy. The overall
freedom to start, operate, and close a business is strongly protected by
the national regulatory environment.
Trade Freedom - 74.0%
New Zealand’s weighted average tariff rate was 3
percent in 2004. The government maintains a relatively open trade regime,
but restrictive sanitary and phytosanitary regulations, import fees,
import restrictions, import bans, issues involving the enforcement of
intellectual property rights, protectionist pharmaceutical policies, and
market access restrictions in some service sectors add to the cost of
trade. Consequently, an additional 20 percent is deducted from New
Zealand’s trade freedom score to account for these non-tariff barriers.
Fiscal Freedom - 74.2%
New Zealand has high tax rates. The top income tax
rate is 39 percent, and the top corporate tax rate is 33 percent, which is
higher than those of most developing Asian countries. Other taxes include
a value-added tax (VAT) and a tax on interest. In the most recent year,
overall tax revenue as a percentage of GDP was 35.4 percent.
Freedom from Government - 63.6%
Total government expenditures in New Zealand,
including consumption and transfer payments, are high. In the most recent
year, government spending equaled 39.2 percent of GDP, and the government
received 1.7 percent of its total revenues from state-owned enterprises
and government ownership of property.
Monetary Freedom - 84.5%
Inflation in New Zealand is relatively low, averaging
2.7 percent between 2003 and 2005. Relatively low and stable prices
explain most of the monetary freedom score. There are no official price
controls, but the government regulates the prices of utilities and
subsidizes pharmaceuticals. Consequently, an additional 5 percent is
deducted from New Zealand’s monetary freedom score to account for these
policies.
Investment Freedom - 70.0%
New Zealand encourages foreign investment, and
barriers to investment are minimal. Foreign ownership is restricted in
Telecom New Zealand, Air New Zealand, and fishing. The purchase of land
and real estate is subject to strong restrictions. Foreign investments
involving acquisition of an existing New Zealand business where foreign
ownership would be 25 percent or greater or the investment exceeds NZ$50
million require approval from the Overseas Investment Commission. There
are no restrictions on current transfers, repatriation of profits, or
access to foreign exchange.
Financial Freedom - 80.0%
New Zealand’s financial system is regulated
minimally and transparently in accordance with international standards.
The central bank is independent. Foreign banks are welcome, and all but
two of the registered banks are predominantly foreign-owned. Foreign-owned
banks account for approximately 90 percent of banking assets. The
government owns one small bank, Kiwibank Limited, which began operations
in late 2001. The government does not provide deposit insurance for
financial institutions. Banks are required to provide full public
disclosure of their financial condition. Banking services may be offered
by non-bank financial institutions, provided they comply with banking
regulations and public disclosure requirements. Capital markets are well
developed, if small, and stocks are actively traded. Capital markets are
open to foreign participation. The insurance sector is lightly regulated,
and foreign participation is high. The government is involved in the
accident and earthquake sectors of the insurance market.
Property Rights - 90.0%
Private property is well protected in New Zealand. The
judiciary is independent, and contracts are notably secure.
Freedom from Corruption - 96.0%
Corruption is perceived as almost nonexistent. New
Zealand ranks 2nd out of 158 countries in Transparency International’s
Corruption Perceptions Index for 2005.
Labor Freedom - 89.9%
The labor market operates under flexible employment
regulations that enhance employment and productivity growth. The
non-salary cost of employing a worker is low, and dismissing a redundant
employee is costless. Regulations related to increasing or contracting the
number of work hours are flexible. New Zealand’s labor freedom is one of
the 20 highest in the world.
Quick Facts
* Population: 4.1 million
* GDP (PPP): $95.1 billion
4.4% growth in 2004
3.8% 5-yr. comp. ann. growth
$23,413 per capita
* Unemployment: 3.9% (end 2004)
* Inflation (CPI): 2.3%
* FDI (net inflow): $1.6 billion
* Official Development Assistance: None
* External Debt: $42.8 billion (2005 estimate)
* Exports: $28.3 billion
Primarily dairy products, meat, wood and wood
products, fish, machinery
* Imports: $28.8 billion
Primarily machinery and equipment, vehicles, aircraft,
petroleum, electronics, textiles, plastics
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