Financial & physical capital: Our built and financial assets
This refers to assets owned by households, companies and the government. These range from things like cars, factories and machines to software and databases. It also includes financial assets, like cash and shares.3
These assets generate incomes and influence living conditions. Together with a strong fiscal position, they contribute to New Zealanders' wellbeing. This gives future generations more options, and provides resilience to help manage future economic change.
New Zealand has strong material living standards and economic growth, but too many people are being left out or left behind
We have reasonably good overall standards of living. The economy is growing at a solid rate and the outlook continues to be positive. Economic growth – the increase in the volume of goods and services produced each year – is forecast to be 2.6 per cent, on average, over the five years to June 2023 (Figure 3), higher than countries similar to us.
Figure 3 – Real GDP Growth
Sources: The Treasury, Stats NZ
This growth is supported by government and business investment, low interest rates, high commodity prices and population growth. But it is the quality of economic growth that is important for raising New Zealanders' wellbeing and living standards. Growth that provides decent opportunities for all New Zealanders, while maintaining and enhancing our natural environment, will drive increased wellbeing. The need to deliver high-quality growth is why the Government's economic strategy is to build a more productive, sustainable and inclusive economy.
Currently, there are significant disparities in the standards of living of New Zealanders. For example, Māori and Pacific people score consistently lower on most areas of wellbeing relative to the general population, including in measures of income and housing quality (Figure 4).
Figure 4 – Māori wellbeing analysis compared to the rest of New Zealand
Source: Treasury analysis, Stats NZ
Note: Figure 4 shows how Māori compare to the rest of the population. If a yellow point is further from the middle than a corresponding grey point, this means wellbeing for Māori is lower than the national average in that domain. Māori rank low relative to the rest of the population in most measures of wellbeing.
This evidence demonstrates that there is significant scope for improvement, which is why a specific focus on lifting Māori and Pacific incomes, skills and opportunities is one of our Wellbeing Budget priorities.
New Zealand has a strong labour market...
The labour market is strong, with unemployment expected to remain low and the proportion of people in work expected to increase (Figure 5). Wage growth is expected to average 3.4 per cent per year over the next five years, well ahead of inflation.
Figure 5 – Unemployment and labour force participation rate
Sources: The Treasury, Stats NZ
...but a low starting point for incomes, productivity levels and R&D investment when compared to other OECD countries
However, New Zealand's incomes are lower than many of our OECD peers and New Zealand's labour productivity has been below the OECD average for over three decades (Figure 6).4
Figure 6 – Labour productivity in small advanced economies (output per hour worked)
Source: The Conference Board Total Economy Database (adjusted series)
Productivity growth is a key driver of incomes, both at a household and country level. There is a clear need to improve productivity. This will create more opportunities for New Zealanders to raise their living standards and lead the lives they want to live. We spend less on R&D than many OECD countries. R&D nvestment has the ability to create new knowledge, innovative processes and products, which in turn can boost productivity. There is a pressing need for investment in innovation and skills if New Zealand is to meet these challenges and take the opportunity of a rapidly changing world of work. This is why Building a productive nation is a Wellbeing Budget priority.
A number of our assets, including public housing, school buildings, hospitals and defence assets need improving
The condition of our social assets is of concern. As discussed in He Puna Hao Pātiki – 2018 Investment Statement, assets, including public housing, school buildings and some healthcare and defence assets are old and in poor condition. Approximately 40 per cent of public houses are over 50 years old. Nearly 20 per cent of District Health Board (DHB) buildings are in poor or very poor condition and 38 per cent of school buildings are 50 years old or older, due to inconsistent maintenance. Defence assets also continue to fall below expected levels. The Wellbeing Budget, using the new multi-year capital allowance, will take serious steps to build and improve our critical assets.
The Government's strong fiscal position can help maintain New Zealanders' wellbeing
The Government's books are in good shape. We are committed to running sustainable surpluses and keeping debt, as a percentage of GDP, under control to ensure we are in a good position to deal with any unexpected shocks (Figure 7). The Treasury forecasts net core Crown debt to reduce to 19.9 per cent of GDP in 2021/22, in line with the Government's target to reduce net core Crown debt to 20 per cent of GDP within five years of taking office. Total Crown net worth is forecast to continue to increase in nominal terms, in line with operating surpluses.
Figure 7 – Total Crown operating balance before gains and losses (OBEGAL)
Source: The Treasury
3. Additional source used in this sub section: He Puna Hao Pātiki – 2018 Investment Statement. Accessed from https://treasury.govt.nz/sites/default/files/2018-03/is18-hphp-wellbeing.pdf.
4. Based on OECD countries with available data.