New Zealands Economy
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In 1984 the New Zealand Government began to reorient the nation's economy away from dependence on agriculture that relied on a British market to one which was more industrially-based and prepared to compete on the world stage. After many years of a mismanaged, controlled economic situation, New Zealand had come to be known as an economic basket case swimming in a sea of debt. It was expected that making policy, tax and other shifts would open the economy to the global market with the resultant dynamic growth in "real incomes, broaden and deepen technological capabilities of the industrial sector, reduce inflationary pressures, and permit the expansion of welfare benefits". This shift was further spurred after a period when New Zealand saw many of its best talents leaving to work overseas. High tax rates and the lack of opportunity drove many away. Further, innovation was discouraged by regulations, import controls and taxes imposed to advance government policy more than to collect revenue.
The Labor government of 1984-90, followed by the National government, began restructuring the economy by stopping all state subsidies, removing nearly all tariff and quota barriers against imports. Tax and regulation reform included:
- Greatly reducing income tax;
- Substituting the Goods and Services Tax on the sale of goods and services;
- Greatly reducing the state's involvement in trading activities and social services;
- The reforming labor laws to promote individual workplace agreements.
One of the first changes was the freeing of the financial system from obstructive regulation and the floating of the New Zealand dollar.This move promoted a healthy, competitive and innovative financial system. Additionally, import controls and prohibitive tariffs were removed.These actions freed the flow of money, made imports less expensive and increased competition for the indigenous industries.
"In 1984, a system of subsidies guided New Zealand's production, through which New Zealand taxpayers funded the lifestyles of those with political clout." Subsidies and import barriers were removed with results similar to what occurs in any socialist economy. The incompetent and uneconomic businesses which survived largely due to such governmental interventions failed and the official unemployment rate exceeded 10% of the workforce. Additionally, the state began to divest itself of its publicly held companies in a massive move toward privatization. In many respects, New Zealand's privatization was better planned than similar attempts made by other nation's chiefly because it considered market conditions as much as the question of ownership. In the main, industries which did survive were better prepared to compete in an open market.