New Zealand's Economic Reforms

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Questions and Answers

What was a significant factor that contributed to the decline of New Zealand's economy in the 1970s?

Reduction in public investment

Expansion of trade with Asia

Soaring oil prices (correct)

Increase in agricultural exports

How did Robert Muldoon's government respond to the economic difficulties in the 1970s?

By introducing free trade agreements

By implementing fiscal expansion and subsidies (correct)

By deregulating the economy

By cutting government spending significantly

What major reform did Roger Douglas implement as part of 'Rogernomics'?

Nationalization of major industries

Floating the exchange rate (correct)

Increasing tariffs on imports

Introduction of subsidy programs for farmers

What happened to New Zealand's GDP per head from the 1950s to the mid-1980s?

It fell below the OECD average Signup and view all the answers

What was one of the outcomes of the Employment Contracts Act of 1991?

Decentralization of wage bargaining to individual contracts Signup and view all the answers

Which of the following changes occurred under Rogernomics regarding taxation?

Cutting the top marginal rate to 33% Signup and view all the answers

What was the economic condition of New Zealand by 1984?

On an unsustainable course with significant deficits Signup and view all the answers

What led to New Zealand losing its preferential access for farm produce into the British market?

The rise of the European Union Signup and view all the answers

What has been the average inflation rate in New Zealand over the past decade?

Just under 2% Signup and view all the answers

Since what year has the New Zealand government run a budget surplus?

1994 Signup and view all the answers

What are the two notable periods of economic reform in New Zealand called?

Rogernomics and Ruthanasia Signup and view all the answers

What has reduced New Zealand's net public debt to GDP ratio from 50% to 20%?

Running a budget surplus Signup and view all the answers

Which agricultural body in New Zealand acts as a monopoly seller in foreign markets?

Dairy Board Signup and view all the answers

By international standards, how does New Zealand's government spending compare?

Significantly higher than the OECD average Signup and view all the answers

What was a misconception about New Zealand's welfare state following the early 1990s reforms?

Stricter eligibility rules were introduced, yet benefits remain substantial. Signup and view all the answers

How is New Zealand's level of economic regulation typically characterized compared to other developed economies?

More strictly regulated than Britain Signup and view all the answers

Study Notes

Historical Economic Context

In the 1950s, New Zealand was the world's third-richest country, serving as Britain's primary source of food.
By the mid-1980s, the country's wealth ranking dropped to around 20th, with GDP per capita declining from 20% above the OECD average to one-third below.
Key setbacks included the 1970s oil shocks and New Zealand losing preferential access to the British market due to Britain's entry into the European Community.

Government Response to Economic Challenges

Under Prime Minister Robert Muldoon, the government implemented massive fiscal expansion with significant subsidies for industries and agriculture.
Price, wage, and rent controls were imposed to combat rising inflation.
By 1984, the economy faced unsustainable debt levels of 8% and 9% of GDP, with severe inflation masked by price controls.

Introduction of Rogernomics

Roger Douglas, finance minister after 1984, initiated “Rogernomics,” focusing on microeconomic reforms and macroeconomic stabilization.
Key changes included floating the exchange rate, abolishing foreign-exchange controls, and deregulating financial markets.
Trade tariffs were reduced, and import licenses were eliminated to boost competition.
The top income tax rate was halved to 33%, and subsidies for agriculture and manufacturing were removed, along with widespread privatization of government activities.

Continuation of Reforms

After Douglas lost favor in 1988, the National Party continued reforms, notably through the Employment Contracts Act of 1991, which decentralized wage bargaining.
The Reserve Bank gained full independence in 1989 to manage monetary policy with a clear inflation target.
The Fiscal Responsibility Act was enacted, enhancing transparency and encouraging future budget considerations.

Economic Outcomes

After years of double-digit inflation, the average rate fell to just under 2% over the last decade.
Since 1994, New Zealand has maintained a budget surplus, reducing public debt from 50% to 20% of GDP.

Myths and Realities of the Reforms

New Zealand's reform process, though rapid, was less extensive than commonly perceived; it occurred in two main waves: "Rogernomics" (1984-87) and "Ruthanasia" (1990-91).
The highly regulated pre-1984 economy necessitated more drastic changes compared to reforms in other countries like Britain in 1979.
Despite perceptions, New Zealand's welfare state wasn't largely dismantled; government spending remains over 40% of GDP, higher than the OECD average.

Current Economic Structure

New Zealand's agricultural sector is still marked by monopoly arrangements, notably the dairy board, limiting competitiveness and innovation.
The country continues to enjoy substantial state pensions compared to international standards, highlighting ongoing government involvement in the economy.

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Description

This quiz explores the economic conditions in New Zealand from the 1950s to the mid-1980s. It highlights the significant shifts in GDP and comparisons to other countries during that period. Test your knowledge on how these changes influenced the reforms that followed.