Source: Radio New Zealand
The OECD report called for changes to the electricity sector to break its reliance on costly natural gas which has underpinned high prices. RNZ / Robin Martin
- OECD says NZ economy recovering slowly, faces Iran conflict based challenges to growth and inflation
- Poor productivity, high debt, weak investment hold back growth
- Tax changes needed for retirement savings; boost needed for capital markets
- Electricity sector needs to break reliance on gas
- Quicker and deeper digitisation of health sector needed
New Zealand needs to reform the pension and electricity sectors, expand and strengthen capital markets, and speed up digitisation of the health sector, according to a report from the Organisation for Economic Co-operation and Development (OECD).
In its latest report on New Zealand it said the economy is recovering, but the Middle East conflict would delay growth and stoke a near term spike in inflation, while the economy also faced long standing challenges from low productivity, high public debt, and too little investment in key sectors and companies.
Growth of 1.4 percent was forecast for this year, rising to 2.3 percent in 2027, while inflation was expected to hit a high of 3.4 percent this year before falling back into the 1-3 percent target zone.
“Heightened uncertainty and higher energy prices weigh on real incomes, confidence and domestic demand,” the OECD report said.
“Inflation will rise in 2026 due to higher energy and transport costs before gradually easing toward the 2 percent midpoint, reflecting spare capacity and easing tradeables inflation pressures.
“Although considerable uncertainty surrounds the timing and magnitude of this adjustment, given the risk of further shocks.”
The OECD had a message for the Reserve Bank (RBNZ).
“Our advice is for monetary policy to remain focused on the medium-term price stability while looking through the temporary first round effects of the energy price shock,” OECD director Luiz de Mello said.
The report said the RBNZ’s monetary policy mandate should be held unchanged for five year periods to “reinforce the RBNZ’s strong operational independence and credibility”.
Raise superannuation age, change taxes
The OECD joined other international agencies in calling for the age of eligibility for superannuation to be raised by indexing it to life expectancy, with measures to take account of different ethnicities and work backgrounds.
It also called for a reversal of the taxation of retirement savings from the current charge on contributions and investment earnings but tax exempt withdrawals.
Finance Minister Nicola Willis said there were no plans to raise the eligibility age for NZ super, and rejected the call for tax changes as a big hit on government finances.
“We are trying to get the books back in balance so radical tax reforms that require a deficit on the government books are not something we are exploring right now.”
Other OECD suggestions included measures to improve capital markets, including government financial support, to allow small and medium sized firms to look at listing on the stock exchange and being able to raise finance in New Zealand.
Willis took a swipe at the major local banks that there was nothing stopping them now to lend more money to small firms and the challenge was for them to do it.
Reform the electricity sector
The OECD report also called for changes to the electricity sector to break its reliance on costly natural gas which has underpinned high prices.
“Affordability will remain elusive without breaking the gas-electricity price link by scaling non-gas long-duration firming, expanding demand response and strengthening competition.”
It said there should be a mandatory firming and flexibility market with likely a minority investment from the government in independent-led, long-duration non-gas firming generation.
Firming is the provision of immediate reserve electricity when renewable supplies decline. In New Zealand that has been done largely through burning gas and coal.
The OECD said the proposal to import liquified natural gas (LNG) should be seen only as a short term option.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand