N.Z. ‘must face up to living standard decline’

Press, 30 November 1978, Page 3

N.Z. ‘must face up to living standard decline’

PA Wellington! New Zealand cannot further delay facing up to a! further substantial deterioration in comparative living i standards with its inevitablesocial and political stresses, I says the chief economist of I the Bank of New Zealand, | Mr L. C. Bayliss. He also says New Zealand! must come to grips with thei joint problems of stagnant: production and productivity. I Economic management by I New Zealand Governments I over rect.it decades had! made productivity growthl almost impossible, he said. I This was because the price-1 profit mechanism had been: “seriously distorted.” If similar policies had, been implemented in Sing-1 apore, Korea and West Ger-| many, these countries would! have experienced economic i disasters, “not economic miracles.” “Australian wages are! now 50 per cent higher than! those in New Zealand and a continuation of Australia’s 31

; per cent annual productivity (increase and New Zealand’s I nil productivity increase will ■mean that Australian wages [will be double those of New in 10 years time — I a trend with the most i serious economic and social I implications,” Mr Bayliss (said. I “It is also my belief that, [although change is disturbi ing and difficult, firm and ■ well-designed policies to (overcome New Zealand’s | basic economi" problems (would receive strong support,” he said. Mr Bayliss, a former I member of the Government’s j “Think-tank,” was speaking (about the nation’s economic j outlook after the General • Election. 1 New Zealand bad three |main economic problems: bf'ance of payments deficits, (inflation and unemployment, he said. i “On the other hand, much ■ the most serious economic [problem— that of stagnant i productivity — received i little attention in public de-

bate or official policy.” Referring to the balance ■ of payments, Mr Bayliss i said that although the deficits had been much reduced i since 1975, the forecast for i March, 1980, indicated a : widening deficit. He estimated the 1980 deficit would be S9SOM or 11 5.4 per cent of the Grossi National Product. The deficit!: would have to be financed!

by more overseas borrowing < or by reducing overseas re- ] serves. Mr Bayliss said it would . appear that the overseas exchange transactions deficit for 1979-80 would have to be financed almost totally by Government overseas! [ borrowing. I Over the last four years a' [substantial contribution toIwards financing the external l

deficit had been made by' private overseas borrowing. “Very substantial Government overseas borrowing may encounter some resistance from overseas lenders. “We have not reached the limit of our overseas borrowing capacity, but we are! I obviously much closer to[ I that limit than we were five i Ito six years ago,” Mr Bay-1 llis>. said.