Atal Bihari Vajpayee

Indian Institute of Information

Technology and Management
Gwalior, MP

International Finance Assignment

New Zealand’s Economic Reform

Submitted to: Submitted by:

Prof. Rajendra Sahu Amit Singh (2018IMG-008)
Divyansh Kumar (2018IMG-024)
Sai P Nirikshitha (2018IMG-051)
1. Economic Reforms Introduction
A powerful example of quick and thorough economic liberalization is New
Zealand. New Zealand has a long history of Westminster-style democracy
with sophisticated systems of property rights and corporation law that reflect
British colonization and settlement in the nineteenth century. New Zealand
was quite rich for much of the 20th century. Its economy underwent a total
liberalization throughout the 1980s and 1990s, when a Labour Party that
claimed to be socially democratic was in power. Trade protection in New
Zealand today is among the lowest in the world, notably for agricultural
exports, in contrast to 1970 when it had some of the highest manufacturing
tariffs in the world. Because Roger Douglas, the Labour Minister of Finance,
was one of its key architects, the reform era is often referred to as
"Rogernomics."

2. Need for Economic Reforms

a) Since most of the 20th century saw a high level of government
participation, control, and ownership in the economy—including major
ownership of infrastructure and trading activities—New Zealand's economic
liberalization was unusually dramatic. By 1970, manufacturing in this former
colony, which had been inextricably linked to the British economy for all of
its history, received some of the highest levels of tariff protection in the
developed world, maintaining a sector that was largely reliant on imports.
Exports were dominated by highly productive primary industries with direct
access to the British market, and labor market regulation was significantly
influenced by the government.

b) New Zealand was a pioneer in the creation of a welfare state under the
Liberals from 1891 to 1911 and the first Labour government from 1935 to
1949. New Zealand stopped being a welfare leader in the 1950s, but after
1972, it underwent notable progress (Rudd 1997).

c) After the Second World War, New Zealand created a Keynesian demand
management plan with full employment as a definite objective. On the basis
of this full employment supposition, regulatory intervention in the wages
system substantially provided family income (Castles 1985). New Zealand
was extremely successful during the most of the 20th century, competing
with the US, Australia, and Canada to hold the title of richest country in the
world in terms of per capita income.

d) After the Second World War, unemployment was extremely low—near

zero—for many years. Comparative performance, at least in terms of
economic growth, gradually declined in contrast to OECD averages starting
in the early 1960s. Between 1971 and 1981, New Zealand's real GDP per
capita expanded by 1.8 percent year, above the 3.4% OECD average.
(OECD 1997). According to purchasing power parities, New Zealand's GDP
per capita fell from tenth to nineteenth place in the OECD between 1970
and 1980. (OECD 1997).

3. Major policy reforms

The way that New Zealand's economic policy was altered was greatly
influenced by neoclassical economics and related schools of thought,
including Public Choice and New Institutional Economics. The focus of
neoclassical economics is on the actions of ostensibly highly atomized,
logically self-interested, and instrumental agents.

These are the cornerstones of neoclassical economic theory, which

maintains that the economy operates as a self-regulating system and aims
to fully utilise all resources, including labour. Many of the assumptions and
methods of neoclassical economics have been enlarged in Public Choice
and New Institutional Economics to apply to the creation of institutions as
well as the study of politics and the public sector. These served as
guidelines for restructuring the government and drafting new laws.

The following qualities were present:

1. An unwavering conviction that the market functions best for delivering the
most welfare, efficiency, and freedom; as a result, one is sceptical of
attempts to regulate it or replace it with alternative types of provision.

2. The avoidance of activist macroeconomic policy, such as measures like

the Reserve Bank Act's rule-based monetary policy targeted only at inflation
and the Fiscal Responsibility Act's statutory limitations on fiscal spending,
reveals scepticism about the government's ability to implement
macroeconomic policy.

3. To put a stop to bureaucracy, political "opportunism," and interest group

rent-seeking, management structures were developed with a focus on
financial incentive-driven performance inside the public sector. These
structures include macroeconomic policy that is governed by rules, legal
frameworks like the Reserve Bank Act and the Fiscal Responsibility Act,
and employment agreements in the public domain and in the public sector.
Interest groups' exclusion from the policy-making process was justified
because Public Choice viewed them as having unlawfully entrenched
interests.

A number of simple and tempting policy alternatives, as well as a

convenient explanation for New Zealand's seemingly bad economic
performance, were provided by these revolutionary theories. Information
was frequently sent into policymaking through the senior ministers and
public workers from the strategically located Reserve Bank and Treasury.
4. Recent macroeconomic developments and short-term
prospects
New Zealand is a developed country. The service sector is the largest
shareholder in GDP and agriculture is the main industry in primary sector
The country is also experiencing high growth rate and developing with
growth rate of 2.25% since last year even after devastating impact of
covid-19.In 2022, it is anticipated that New Zealand's GDP would be around
$212 billion (Trading Economics, 2022).

The privatisation and subsequent sale of a number of public assets by the

New Zealand government resulted in the largest revenue generator as a
percentage of GDP in the OECD. Infrastructure related to energy and
transportation, trains and aeroplanes, banking and insurance, tourism, and
other government agencies were all targets of disinvestment.

Several social programmes underwent dramatic modifications in the 1991

budget, some of which saw a halving. Neoliberal views of the welfare state
as a "minimum safety net" have supplanted pro-welfare state, "cradle to
grave" concepts in New Zealand.

The state sector underwent a significant transformation, with the

implementation of new public management lines. Other adjustments
included enhancing departmental management autonomy, altering the
financial management and reporting standards for government
organizations, changing from input-based to output-based reporting, and
departmental decoupling and decentralization, such as promoting policy
operations and funders. As was already indicated, one of these
modifications involved privatisation a number of government organizations.
Government work was increasingly contracted out. Many state personnel
experienced job losses (Goldfinch 1998).

5. Fiscal and Financial policies to promote stability and

well-being
 New Zealand is a developed country. The service sector is the largest
shareholder in GDP and agriculture is the main industry in primary sector
The country is also experiencing high growth rate and developing with
growth rate of 2.25% since last year even after devastating impact of
covid-19.In 2022, it is anticipated that New Zealand's GDP would be around
$212 billion (Trading Economics, 2022).

Every year, New Zealand exports items worth billions of dollars. Some of the
main exports include dairy, meat, timber, fruits, beverages, fish, machinery,
and aluminum. The top four export destinations are China, Australia, the
United States, and Japan. In addition, a large amount of goods are imported
by New Zealand, primarily from Australia, China, the USA, Japan,
Singapore, Malaysia, and Germany. Among the commonly imported goods
are sweetened milk, sheep meat, butter, frozen beef, cheese, and wine

New Zealand’s economy is a mixed economy. Nz is targeting to reduce and

maintain debt levels below 30 percent. New Zealand wants to maintain the
average surplus level in the range of 0-2 % of gdp. Progressive taxation
system of Nz promotes productivity and deals with debt. The Government of
Nz wants to maintain consistent and balanced expenses.

6. Addressing longer-run challenges to well-being

While the Covid-19 pandemic has caused SMEs to face a variety of
challenges, it has also given these businesses a tremendous chance to
advance their digital capabilities and forge a sustainable future.

The lockdown which was caused due to coronavirus limits presented dew
opportunities for New Zealand’s companies to employ technology, as per
report published in July 2020 by the software giant MYOB, with 60% SMEs
eager to find some ways to adapt to the changing climate.

New Zealand's potential initiatives to soothe the concerns of their SMEs

may create a wealth of options for struggling businesses. These measures
include extending tax relief, reducing compliance and regulatory constraints,
increasing cash flow support, and providing small businesses with access to
training in digital technology.

The most recent Digital Economy Partnership Agreement (DEPA) might also
assist SMEs in pursuing opportunities in international digital trade.

7. Assessment of the government’s economic strategy

A comprehensive programme of microeconomic liberalisation, several
deregulatory actions, and a major reduction in trade protection were all
enacted in New Zealand in order to increase economic efficiency. Both
export incentives and agricultural subsidies were cut. The agricultural
industry in New Zealand are now among, if not the least protected in the
entire world. Significant easing of restrictions on foreign investment.

The privatisation and subsequent sale of a number of public assets by the

New Zealand government resulted in the largest revenue generator as a
percentage of GDP in the OECD. Infrastructure related to energy and
transportation, trains and aeroplanes, banking and insurance, tourism, and
other government agencies were all targets of disinvestment.

Several social programmes underwent dramatic modifications in the 1991

budget, some of which saw a halving. Neoliberal views of the welfare state
as a "minimum safety net" have supplanted pro-welfare state, "cradle to
grave" concepts in New Zealand.

The state sector underwent a significant transformation, with the

implementation of new public management lines. Other adjustments
included enhancing departmental management autonomy, altering the
financial management and reporting standards for government
organisations, changing from input-based to output-based reporting, and
departmental decoupling and decentralisation, such as promoting policy
operations and funders. As was already indicated, one of these
modifications involved privatisation a number of government organisations.
Government work was increasingly contracted out. Many state personnel
experienced job losses (Goldfinch 1998).
8. SWOT and PESTEL analysis
SWOT ANALYSIS

The Covid-19 outbreak disrupted global trade and served as a stress test for
NZ SMEs, which are currently undergoing a paradigm change and
aggressively embracing new realities.. At a time when SMEs are adopting
unparalleled measures of operational resilience to wade through the virus
crisis, a SWOT analysis shaping the landscape for Kiwi SMEs deserves
closer attention.

Strength

1. Strong Work Pace and Work Ethic: People of NZ are renowned for their
dedication to their jobs. Additionally, the nation's overall production is
affected by the pace.

2. Powerful Demographic Institutions: NZ is a strong country because of its

diverse population.

3. A well-developed and diverse economy: NZ’s economy is the eleventh

largest in the world and is ranked third in Asia.

Weakness

1. Constant worry about becoming adequate or satisfactory is a trait of

People of NZ.

2. Intolerance, cost of living and reliance on other countries for exports.

3. Reliance on China for consumption of their goods.

Opportunities

1. Greater internationalization: NZ now adapts any new product or service to

the local customs and culture.
2. Demographic trends: People have been moving and restructuring quite a
bit recently, which has given NZ new opportunities.

3. Free trade agreements: NZ has come up as a possible market in the

context of trade.

Threats

1. Political Turmoil: New Zealand’s development and economic progress

have been continuously threatened by political crises.

3. Reliance on foreign investment is one the most persistent threats.

PESTEL ANALYSIS

Political factors that affect New Zealand

New Zealand is a parliamentary democracy. There is also a parliamentary

democracy there. Elizabeth II, the monarch of the United Kingdom and the
Commonwealth countries, is also the state's head and monarch of Nz. The
Queen is represented by the Governor-General of the nation, who is
appointed by Her Majesty on the recommendation of the Prime Minister.

Economic factors that affect New Zealand

New Zealand is a developed country. The service sector is the largest

shareholder in GDP and agriculture is the main industry in primary sector
The country is also experiencing high growth rate and developing with
growth rate of 2.25% since last year even after devastating impact of
covid-19.In 2022, it is anticipated that New Zealand's GDP would be around
$212 billion.

Every year, New Zealand exports items worth billions of dollars. Some of the
main exports include dairy, meat, timber, fruits, beverages, fish, machinery,
and aluminium. The top four export destinations are China, Australia, the
United States, and Japan. In addition, a large amount of goods are imported
by New Zealand, primarily from Australia, China, the USA, Japan,
Singapore, Malaysia, and Germany. Among the commonly imported goods
are sweetened milk, sheep meat, butter, frozen beef, cheese, and wine.

Social factors that affect New Zealand

New Zealand is a culturally varied country and according to a report 89%

people of Nz agree that it's beneficial for them. (Victoria University of
Wellington, 2019).

Being one of the developed countries New Zealand is doing significantly

well in terms of jobs, social assistance, air quality index, ease of living,
happiness and overall pleasure with life (OECD, 2022).

Although New Zealand is developed but it's also facing certain social
issues. New Zealand should work on and improve household income and
earnings, housing affordability, and the prevalence of lengthy work hours
(OECD, 202). Few Other areas which are affecting New Zealand are
unemployment, wealth disparity, crime, and other social issues.

Technological factors that affect New Zealand

Being a developed nation, the use of the internet is deeply penetrated in Nz.
Since Nz is doing significantly well in service sector many startups are
growing. Each month, about 600,000 people visit websites related to food,
movies, OTT and others. Since Covid 19 Technological startups got a boost.

New Zealand's ICT sector is innovative and diverse. As the sector grows so
swiftly, more workers are needed. Some of the high-demand IT positions
include project management, marketing, business analysis, software and
applications programming, and IT security. Numerous ICT companies in
New Zealand have developed a reputation for creativity and innovation on a
worldwide level.

The environment's impact on New Zealand

One of the most popular vacation spots in the globe is New Zealand. The
sights and activities that draw tourists in include craggy glacial mountains,
lakes, sandy beaches, bungee jumping, sky diving, biking, hiking, kayaking,
and rich marine life. It makes sense that Peter Jackson chose to film The
Hobbit and the Lord of the Rings trilogies in his native New Zealand.

Regular rainfall and Ideal climate of New Zealand give a huge advantage to
agricultural societies in Nz, But climate change and pollution along with
habitat loss are the greatest worries for Many New Zealanders.

Legal factors that affect New Zealand

The legal environment is the final component to be included in the PESTEL

examination of New Zealand. This article only briefly discusses various legal
topics due to its constrained scope. One of the least corrupt countries in the
world is New Zealand. Foreign direct investment is typically welcomed.

In the World Bank's 2018 "Ease of doing business" survey, New Zealand
came in first place (out of 190 countries). It boasts a powerful, autonomous
legal system that is well-regarded all throughout the world. Adult workers
cannot be paid less than the federally mandated minimum wage by their
employers.

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(Country Profile)," to be helpful. To help our educational research efforts, if
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9. Impact of economic reforms

The country of New Zealand is modest, safe, and peaceful. Additionally,
there is little corruption in the country. The terrorist attacks on Muslim places
of worship in March 2019 horrified the country. Furthermore, some
observers claim that some foreign actors have attempted to influence the
country's internal affairs. In order to prevent foreign influence, some
lawmakers are considering how to adopt new legislation.

One of the best nations in the world is New Zealand. It does admirably in
terms of jobs, social assistance, air quality, and overall pleasure with life
(OECD, 2022). Sport is very important to New Zealanders, and they are
among the best in the world at many different sports, including cricket, field
hockey, rugby, and netball.

10. Comparative analysis of India with New Zealand

Per Capita Wealth

Even though India's economy has grown significantly since then (by about
40% compared to New Zealand), the gap in per capita wealth is still almost
as wide as it was 25 years ago.

Socio-Economic Indicators

India's shameful lack of sanitary facilities persists, whereas New Zealand

has kept its high standards. "India's population still lacks adequate
restrooms for two-thirds of its citizens.".

Education

One of the highest post-graduate rates worldwide is found in New Zealand.

Due to the lack of blue-collar workers, the government actually advises
students to pursue high-paying jobs instead of continuing their education,
such as those as masons, electricians, and plumbers.

Exports

India's exports still primarily consist of gems and jewellery, textiles, and food
products, while New Zealand has developed export capabilities in
automobiles, ships, and steel. It's ironic that Hyundai, a New
Zealandnmanufacturer, is India's top auto exporter. While India's share is
only a meager 8%, New Zealand's high-tech export share has increased
from 18% in 1990 to 27% today.

Connectivity

In comparison to India's 15% internet penetration, New Zealand currently

has more mobile connections per person than that country. New Zealand
also has the fastest average internet speed in the world, at 25.3 Mbps,
compared to the global average of 3.9 Mbps. For comparison, India has a 2
Mbps speed.

Investment Levels

The lack of new investments is alarming. India's Gross Domestic Product

(GDP) has surpassed New Zealand since 2005.

A crucial factor in determining sustainable growth, fixed capital formation,

has started to lag. Since 2011, the ratio has decreased from a high of 39
percent to currently be around 26 percent.

Gdp Composition

Agriculture has been replaced by services and manufacturing in both

countries. India has a tendency to favour low-end manufacturing and
services. New Zealand has shifted its focus toward value-added activities
like component manufacturing (as opposed to assembly), R&D, high-end
engineering, etc.

Competitiveness

Business friendliness is a crucial factor in 'Make in India' success. New

Zealand has cut the time it takes to launch a new company from 17 (in
1990) to 4, while India dragged its feet at 26. The challenges faced by
businesses after they begin are not considered in this.

Conclusion
An amazing example of economic liberalisation is New Zealand. A
comprehensive set of policies was put in place in little more than ten years,
making New Zealand the most economically liberated English-speaking
nation and one that consistently ranks third in the world. Neoclassical and
public choice economists' policy proposals were carefully embraced by New
Zealand, who occasionally even quoted these economists' writings.
With the IMF, World Bank, OECD, and other right-wing think institutions on
the list of organisations that support neoliberalism, New Zealand briefly held
the top spot.

New Zealand's economic growth, however, has been quite modest. It has
succeeded, according to a number of economic indicators. Despite having
implemented reforms for 15 years and practically achieving all of the criteria
made by economists, New Zealand has just lately stopped falling short of
the OECD average in terms of GDP per capita PPPs. There was a
protracted period of stagnation between the late 1980s and the early 1990s.
It has also been fortunate in that the times of considerable economic
expansion in the middle of the 1990s and the early 2000s coincided with
high prices for the agricultural export commodities that still account for the
majority of its export revenues today, just as they did before 1984.

New Zealand has done quite poorly in terms of economic growth when
compared to its close neighbour Australia, whose economy was liberalised
more gradually and less dogmatically, and whose people was informed and
involved in the reforms. Other nations, including Ireland and the
Netherlands, have performed significantly better than New Zealand despite
not necessarily adhering to the assumptions of neoclassical economics. A
number of policy settings have received minor alterations as a result of the
Labour-Alliance government's reservations with various aspects of the
reforms, which were voiced after the 1999 election. The reforms have
resulted in a number of societal changes, including the rise in income
disparities, the formation of an individualism similar to that in the US, and
the degradation of egalitarian principles.