2009 Index of Economic Freedom

Quick Facts

Population:

• 4.2 million

GDP (PPP):

• $106.8 billion
• 1.5% growth
• 3.5% 5-year compound annual growth
• $25517 per capita

Unemployment:

• 3.6%

Inflation (CPI):

• 2.4%

FDI Inflow:

• $8.1 billion

New Zealand’s economic freedom score is 82, making its economy the 5th freest in the 2009 Index. Its score is 1.2 points higher than last year, reflecting improvements in four of the 10 economic freedoms, including trade freedom, investment freedom, and property rights. New Zealand is ranked 4th out of 41 countries in the Asia–Pacific region.

New Zealand has an impressive record of market reforms and benefits from its openness to global trade and investment. Scoring high in almost every one of the 10 components of economic freedom, it is a leader in global economic freedom.

New Zealand's efficient legal and regulatory environment allows entrepreneurial activity to flourish. The globally competitive economy benefits from monetary stability, low tariff rates, and a financial system based on market principles that attracts many foreign banks. Property rights are strongly protected and New Zealand is the world's most corruption-free country. Foreign and domestically owned businesses enjoy considerable flexibility in licensing, regulation, and employment practices. Restrictions on foreign investment occur in only a few sectors. Facilitating the economy's overall competitiveness, New Zealand has recently cut its corporate tax rate.

Background Back to the top

New Zealand is one of the Asia–Pacific region’s most prosperous parliamentary democracies. Far-reaching economic liberalization in the 1980s and 1990s largely deregulated its economy. New Zealand’s economy is powered mainly by its agricultural sector, but it also benefits from a strong manufacturing base and a thriving tourist industry

Business Freedom 99.9 Back to the top

The overall freedom to start, operate, and close a business is strongly protected under New Zealand's regulatory environment. Starting a business is very easy and straightforward, taking only one day in comparison to the world average of 38 days. Obtaining a business license requires much less than the world average of 18 procedures and 225 days.

Trade Freedom 84.6 Back to the top

New Zealand's weighted average tariff rate was 2.7 percent in 2006. The trade regime is relatively open, but some import restrictions, services market access barriers, import taxes and fees, restrictive biotechnology, sanitary and phytosanitary regulations, and issues involving the enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from New Zealand's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 62.5 Back to the top

New Zealand has high tax rates. The top income tax rate is 39 percent, and the flat corporate tax rate is 30 percent (reduced from 33 percent on April 1, 2008). Both are still higher than those of most developing Asian countries. Income tax cuts are planned for October 2008. Other taxes include a value-added tax (VAT), a property tax, and a tax on interest. In the most recent year, overall tax revenue as a percentage of GDP was 36.5 percent.

Government Size 49.6 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 41 percent of GDP. Higher-than-expected revenues have surprised authorities whose fiscal strategy is to lower the budget surplus through increased spending and further tax reductions. The state maintains significant stakes in transportation, electricity, and telecommunications industries.

Monetary Freedom84.6 Back to the top

Inflation is low, averaging 2.7 percent between 2005 and 2007. There are no official price controls, but the government regulates the prices of utilities and subsidizes pharmaceuticals. Five points were deducted from New Zealand's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom80.0 Back to the top

New Zealand encourages foreign investment in most sectors. The government does not discriminate against foreign buyers, but it does limit foreign ownership of Air New Zealand and Telecom New Zealand. New Zealand screens certain types of foreign investment through its Overseas Investment Office, and permits or licenses are needed for gold, coal, petroleum, or other minerals mining. In general, regulations and bureaucracy are efficient and transparent. There are no restrictions on current transfers, repatriation of profits, or access to foreign exchange. Land and real estate purchases are subject to strong restrictions.

Financial Freedom80.0 Back to the top

New Zealand's financial sector is well developed and competitive, offering a full range of financing instruments for entrepreneurial activity. Regulation is minimal and transparent in accordance with international standards. Credit is allocated on market terms. There are 17 banks registered in New Zealand. Foreign-owned banks account for approximately 90 percent of total banking assets, and the government fully owns Kiwibank, created in late 2002. New Zealand is a world leader in the use of electronic fund transfers and banking technology. Non-bank financial institutions may offer banking services, subject to normal restrictions. Capital markets are small but well developed, and stocks are traded actively. Insurance is lightly regulated, and foreign participation is high. Capital markets are open to foreign participation.

Property Rights95.0 Back to the top

Private property is well protected. The judiciary is independent, and contracts are notably secure. Legislation has been proposed to bring the patent law into closer conformity with international standards by tightening the criteria for granting a patent. Manufacturers have expressed concern that parallel imports of 'gray market' goods under New Zealand law will result in the importation of dated or unsuitable products.

Freedom From Corruption94.0 Back to the top

Corruption is perceived as almost nonexistent. New Zealand is ranked 1st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. New Zealand is renowned for its efforts to ensure transparent, competitive, and corruption-free government procurement. Stiff penalties against bribing government officials or accepting bribes are strictly enforced.

Labor Freedom89.6 Back to the top

New Zealand's flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is costless. Regulations related to the number of work hours are flexible.