O.E.C.D. report

Press, 10 February 1982, Page 3

O.E.C.D. report

T’ 1 . . - < From front page MMMManMi

"Given the pronounced expansionary character of present policies, the continuing appreciable deficit in the current balance of payments, and the increase in consumer prices of more than 15 per cent in the year to last September.- it seems very difficult to avoid the need for deflationary policies to be reimposed in 1982."

The survey records the wage policy discussions last year and says that the absence of any firm agreements so far should not disguise the fact that, compared with the situation in mid-1979 when the Remuneration Act was imposed, there now appears to be a better understanding between the parties.

"The achievement of a system to produce economically sustainable wage settlements with a minimum of friction, a maximum of flexibility, and equity for lower paid workers is a key element to medium-term economic progress. and it is to be hoped that, after their present period of abeyance, the tri-

partite discussions can be resumed." the survey says. The survey also notes that Government spending will account for about 38.5 per cent of G.D.P. this financial year and that growth in the Government sector during the 1960 s and 1970 s was essential to satisfy a number of demographic and social requirements.

These pressures, with the exception of the resource development projects, should now begin to ease and should, if the community wished if. permit a gradual restoration of resources and a larger share of total national savings to the private sector, the report says.

Nevertheless, both time and restraint will be needed for the transition as the problems associated with large deficits and the accumulated task of debt servicing (particularly overseas debt) cannot be wound back overnight.

The survey comes to the conclusion that even if Government expenditure is severely constrained, and without reduction in the level of real taxation, several years might be required be-

tore the ratio ot the deficit to Government expenditure can be reduced substantially

Matters would be helped, the survey says, by an acceleration in the growth of real incomes (through an increase in aggregate productivity or an improvement tn the terms of trade) which did not lead to a widening of the balance-of-payments deficit. Bui it says that on present prospects it is difficult to see either of these occurring sufficiently to allow a resumption of growth in Government spending compatible with a reduction in the deficit or with significant reductions in real rates of taxation.

In the longer run. the survey says! the development of the resource-based projects with export or importsaving potential should add to the country’s over-all rate of development and reduce some of the constraints which the balance of payments imposes on the growth of domestic activity

It was important, however, that the new industries should be competitive on world markets while paying the full economic costs of the resources they used — of

labour, capital, and energy. The survey argues for greater moves towards reducing the level of domestic protection tham the recent "relatively minor" developinenls, but acknowledges also that positive policies in other countries would assist the process of adjustment in the New Zealand economy

"The pastoral industries, in particular, are hampered by a variety of non-lariff barriers to agricultural exports which prevent New Zealand from fully exploiting its. comparative advantage in these products." the survey says. "This has adversely affected the capacity to expand exports and has resulted in the need, for significant fiscal support for exporters."