New Zealand
Recent Economic Developments
Author: International Monetary Fund
Publication Date:
20 Feb 1996
eISBN:
9781451830132
Language:
English
Keywords:
ISCR; CR; New Zealand dollar; exchange rate; foreign currency; monetary policy; reserve bank of New Zealand; trade agreement; broad money; current account; trade-weighted index; direct investments abroad
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This paper reviews economic developments in New Zealand during 1992–95. According to the production measure, growth began to pick up in the middle of 1991, rising to about 3 percent in 1992/93, before jumping to nearly 6 percent in each of 1993/94 and 1994/95. Although export performance remained strong, the net contribution of the external balance turned negative in 1992/93–1994/95, as imports of capital goods surged in line with the expansion of investment. Gross fixed capital formation increased by 23 percent in real terms in 1994/95.

Abstract

This paper reviews economic developments in New Zealand during 1992–95. According to the production measure, growth began to pick up in the middle of 1991, rising to about 3 percent in 1992/93, before jumping to nearly 6 percent in each of 1993/94 and 1994/95. Although export performance remained strong, the net contribution of the external balance turned negative in 1992/93–1994/95, as imports of capital goods surged in line with the expansion of investment. Gross fixed capital formation increased by 23 percent in real terms in 1994/95.

I. Overview

Since 1991, New Zealand has been enjoying an economic upswing of remarkable strength. Unlike previous upswings, this one was not primed by a fiscal expansion or set off by a positive terms-of-trade shock. The initial impetus came from a surge in exports but growth quickly became broadly based. Investment in plant and equipment increased sharply. One way the benefits have shown up so far is in very strong employment growth, which has raised household incomes. The fiscal position has also greatly improved. In the meantime, inflation has remained low, and the deterioration in the current account balance has been relatively modest.

The current upswing follows a decade of structural reforms that were designed to improve the efficiency of the economy (see Box). Competition in the domestic economy improved dramatically, owing to deregulation, privatization, and, especially, trade liberalization. New Zealand’s exporters are now well positioned to take advantage of growth in world markets. Monetary and fiscal policies were reoriented toward macroeconomic stability in the medium term, supported by innovative institutional arrangements; the radical deregulation of the labor market facilitated the flexible employment response.

This report describes recent economic developments in New Zealand, focussing on the period 1993-95, but in the context of past structural reforms. The vigor and broadly-based nature of the current economic upswing, and the accompanying remarkable drop in unemployment, are analyzed in Chapter II. In view of the recent robust growth, a prime question on the minds of New Zealand policymakers is by how much the structural reforms may have raised the country’s potential rate of output growth. Because of deficiencies in national statistics, an attempt is made in Annex I to answer this question using cross-country empirical evidence. It concludes that the substantial increase in private sector investment, and the improved resource allocation that has accompanied the deregulation of the economy, may have raised that rate by around one percentage point to 3½-4 percent per year. The fiscal position underwent a remarkable shift from a deficit to a substantial, and rising, surplus. Chapter III traces this fiscal surplus to tax and welfare reforms, increased public sector efficiency, and strict expenditure controls. The latter two aspects are an integral part of the public sector financial management reforms, which culminated in the Fiscal Responsibility Act. The innovative institutional approach to fiscal policy that this Act encompasses are discussed in Annex II. New Zealand was one of the first countries to adopt an explicit inflation target. How this approach succeeded in keeping inflation within a 0-2 percent target range, with only a minor breach, and in the face of the vigorous upswing, is chronicled in Chapter IV. Monetary policy is based on inflation forecasts and carried out by means of public pronouncements on the appropriateness of monetary conditions. As a companion piece, Annex III describes the unique accountability arrangements for monetary policy and the Reserve Bank’s daily monetary operations. Finally, Chapter V describes external sector developments and highlights New Zealand’s strong export performance and the significant changes that have taken place in the capital account, with foreign direct investment substituting for foreign borrowing.

New Zealand: A Decade of Structural Reforms

Following mounting frustration over a long-term deterioration in New Zealand’s relative growth performance, the Labour Party, after its electoral landslide in 1984, launched a program of radical structural reforms that was subsequently continued under National Party governments from 1990 onward.

Triggered by an exchange crisis, the program started with a series of financial reforms. After a 20 percent devaluation in 1984, the exchange rate was floated in 1985, accompanied by the liberalization of the capital account and the deregulation of the foreign exchange market. Monetary control became market-based after the abolition of reserve requirements, interest rate controls, and credit guidelines. Most recently, a new system for bank supervision was introduced that emphasizes market discipline. Following more than a decade of double-digit inflation, the Reserve Bank Act of 1989 made price stability the sole objective of monetary policy: it gave the Reserve Bank full instrument independence in achieving price stability, which is defined in an agreement with the Government as year-to-year underlying inflation between 0 and 2 percent.

Public sector reforms came in two waves. At first, priority was placed on eliminating the government provision of marketable goods and services. This was achieved by corporatizing and eventually privatizing a great many government operations. The second wave started in 1988, with a financial management reform to raise the efficiency of the core government. Department heads were subjected to performance contracts for the provision of well-defined outputs. In return, to be able to deliver, they received much greater discretion in the management of their budgets and labor inputs. This was followed by a gradual change in disclosure and accounting practices, which were eventually codified in the Fiscal Responsibility Act of 1994. In support of responsible fiscal management, the Act prescribes maximum transparency about fiscal strategies, outcomes, and forecasts, and, for that reason, it mandates accrual accounting for the whole of the government. Also, since 1985, the tax system was completely overhauled in order to broaden the base, lower marginal rates, generate more revenues, and shift the incidence from income to consumption. The number of brackets of the personal income tax was reduced from five to two-with the top rate of 33 percent equal to the company tax rate-and most exemptions were abolished. A flat-rate value-added tax on all goods and services of 12½ percent replaced a range of indirect taxes. The welfare system was streamlined in 1991 when for many programs, including superannuation, benefits were reduced, and better targeting introduced.

Arguably, the most influential of all reforms has been trade liberalization. Started in the 1970s, the pace of liberalization was stepped up significantly after 1984. After a long history of extreme protectionism, New Zealand now has protection levels comparable to the average among industrial countries, and is well on its way to becoming one of the most open economies.

Finally, the last of the major reforms changed industrial relations with the passage of the Employment Contracts Act of 1991. Replacing a rigid and complex system of industry-wide occupational awards, it introduced the legal framework for a highly decentralized wage-bargaining system. Under the new system, multi-enterprise bargaining collapsed in favor of enterprise bargaining and, in many sectors, individual contracts became the norm. It has greatly enhanced the flexibility in working hours and patterns and remuneration practices, and has stemmed the spillover of wage pressures across enterprises and sectors.

II. Output, Wage, and Price Developments

After recording sluggish growth throughout the 1980s, New Zealand’s economy expanded vigorously during the first half of the 1990s. Inflation has remained extremely moderate. After rising sharply from 4 percent in the mid-1980s to 11 percent in 1991, the unemployment rate has decreased to about 6 percent in mid-1995.

A. Production and Aggregate Demand

After recording sluggish growth throughout the 1980s and sliding into recession at the end of the decade, New Zealand’s economy has expanded vigorously during the first half of the 1990s. According to the production measure (the trend is similar using the expenditure measure),1 growth began to pick up in the middle of 1991, rising to about 3 percent in 1992/93, before jumping to nearly 6 percent in each of 1993/94 and 1994/95 (Table 1 and Chart 1).

Table 1.

New Zealand: Gross Domestic Product by Sector, 1990/91-1994/95

(Percentage change from previous year)

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Source: Data provided by Statistics New Zealand.

Fishing, hunting, forestry, and mining.

Central and local government services.

Transportation, communications, and business and personal services.

Includes owner-occupied dwellings and adjustment items.

CHART 1
CHART 1

NEW ZEALAND: OUTPUT AND EMPLOYMENT, 1985/86-1994/95

Citation: IMF Staff Country Reports 1996, 014; 10.5089/9781451830132.002.A001

Sources: Statistics New Zealand; and New Zealand Institute of Economic Research (NZIER).1/ Based on the production measure of GDP; quarterly data; seasonally adjusted; 1982/83=100. The quarterly pattern of this series is considered to be more reliable than the expenditure measure.2/ NZIER-survey-based index covering about 30 percent of manufacturing and construction in employment terms.

In contrast to previous periods of rapid growth, the recent expansion was not precipitated by external commodity price shocks or by expansionary fiscal policy, but occurred alongside broadly stable terms of trade and a restrained budgetary policy. Improved price competitiveness, associated with significant productivity gains and a lower exchange rate, contributed to a surge in exports (mainly manufactured products), which provided the initial impetus for recovery. Subsequently, growth quickly became much more broad-based, as producers moved to augment capacity to meet rising demand, and residential construction increased sharply to supply needed housing (associated with a sizable increase in immigration, especially in the Auckland area) (Table 2). Private consumption subsequently accelerated, underpinned by the strong growth in real household disposable income associated with the improvement in employment opportunities in New Zealand. Although export performance remained strong, the net contribution of the external balance turned negative in 1992/93-1994/95, as imports of capital goods surged in line with the expansion of investment (Table 3 and Chart 2).

Table 2.

New Zealand: Selected Quarterly Indicators of Economic Activity, 1990/91-1994/95

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Sources: Data provided by Statistics New Zealand; and the New Zealand Institute for Economic Research (NZIER), Quarterly Survey of Business Opinion.

Seasonally adjusted, in constant December quarter 1980 prices.

Sales less purchases by the manufacturing sector deflated by the respective producer price index.

Quarterly data are based on the production measure, seasonally adjusted at constant 1982-83 prices.

Based on the median capacity utilization index for the manufacturing and building and construction sectors, as estimated by the NZIER in the Quarterly Survey of Business Opinion. Appendix 1 (seasonally adjusted).

Table 3.

New Zealand: Expenditure on GDP, 1990/91-1994/95

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Source: Data provided by Statistics New Zealand.

Volume changes reported in Expenditure on Gross Domestic Product.

Percent contribution to growth in GDP.

CHART 2
CHART 2

NEW ZEALAND: DEVELOPMENTS IN GDP, 1985/86–1994/95

(Percentage contribution to growth of real GDP)

Citation: IMF Staff Country Reports 1996, 014; 10.5089/9781451830132.002.A001

Source: Statistics New Zealand.1/ Expenditure on GDP at constant 1982/83 prices.

Gross fixed capital formation increased by 23 percent in real terms in 1994/95, following a similar increase in the previous year.2 All the main categories of investment contributed to the expansion, including plant and machinery, construction (both residential and nonresidential), and transportation equipment. Strong growth in business profits, together with very healthy corporate sector balance sheets, facilitated the expansion in investment spending. Relatively high rates of capacity utilization, together with scrapping of obsolete equipment and a rise in the desired capital stock resulting from the restructuring of the economy, also drove the surge in investment. Despite rapid rates of investment over the past two years, capacity utilization rates have increased steadily, rising from about 84 percent in mid-1991 (the most recent trough) to about 90 percent in the first half of 1995—the highest level in two decades. After making a small positive contribution to growth in 1993/94, inventory accumulation made a negative contribution in 1994/95, as firms drew down stock levels in the face of strong demand, and agricultural stocks (particularly wool and dairy) were exhausted because of favorable world price developments for these commodities.

Private consumption expanded by 6 percent in real terms in 1994/95, up from 3 percent in the previous year. The recent behavior of private consumption is starkly different from that in the second half of the 1980s, when growth was very modest, or the early 1990s, when consumption spending declined in real terms. Several factors account for the turnaround in consumption, including strong increases in employment that boosted household incomes, as well as wealth effects arising from house price inflation. Very high levels of consumer confidence suggest that households do not view speculation as being the main driving force behind recent asset price inflation, but see recent increases as being related to a permanent increase in demand, associated with the change in net migration flows. In addition, there may have been some unwinding in precautionary motives for saving—the household saving rate has declined significantly over the past two years—associated with improved labor market conditions. This notion is reinforced by the discretionary nature of much of the increased spending, which was devoted to durables (including household appliances and furniture).

Despite rapid export growth, the external balance made a negative contribution to growth in both 1993/94 and 1994/95. Exports of goods and services averaged about 8 percent annual real growth over the two years, about half as much as average real import growth over the period. Exports of both goods (especially noncommodity items) and services (tourism) made a strong contribution to overall export performance, reflecting solid output growth in New Zealand’s main trading partners. The rapid growth of imports reflected the strength of domestic demand, especially investment and consumer durables spending. Import penetration ratios rose, largely reflecting the greater openness of New Zealand to international trade and the appreciating real exchange rate.

Sectorally, the expansion in 1993/94 and 1994/95 reflected strong growth in both construction and manufacturing, with agricultural output essentially flat, and value added in the mining sectors declining. Both residential and nonresidential construction boomed, the latter because of a number of projects, including the Museum of New Zealand, the Auckland casino, and several retail shopping centers and hotels. Manufacturing output also expanded strongly (by nearly 6 percent in 1993/94 and by more than 7 percent in 1994/95), buoyed by strong demand for nontraditional exports. Following growth of over 5 percent in 1993/94, agricultural output was flat in 1994/95, owing to poor weather conditions and very low levels of sheep flocks. The effect of these factors was mitigated to some degree by increases in the production of higher value-added dairy products, in response to price increases in international markets. Following modest growth in 1993/94, value added in the mining sector contracted in 1994/95, as exploration spending rose much more than output; there was also some contraction of output of natural gas. The forestry sector, in contrast, continued to make a positive contribution to growth, as earlier plantings reached maturity.

B. Prices, Wages, and Employment

Despite very rapid growth in 1993/94 and 1994/95, underlying inflation remained moderate, at about 1½ percent in both years (Table 4). Statistics New Zealand’s principal measure of inflation (the so-called headline inflation rate, which includes a significant mortgage interest component), increased to about 2½ percent in 1994/95 (from 1½ percent the previous year), as monetary conditions firmed (Chart 3).3 Initial levels of slack in the early phase of the recovery helped to contain price increases, but the rapid growth of output toward its potential level resulted in a small breach of the official target range for inflation in the June 1995 quarter, when the underlying (year-on-year) rate reached 2.2 percent.

Table 4.

New Zealand: Prices and Wages, 1990/91-1995/96

(Percentage change from previous year)

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Sources: Data provided by Statistics New Zealand; and the Reserve Bank of New Zealand.

Compiled by the Reserve Bank and defined to exclude the effects of mortgage interest rate changes, changes in government charges, and timber price rises.

Input prices are for all industries, including commodity taxes paid and subsidies received by the producer. Output prices are for all market groups based on factory door prices before addition of commodity taxes or deduction of producer commodity subsidies.

Earnings include bonuses, all allowances, overtime pay, and special payments of all sectors.

CHART 3
CHART 3

NEW ZEALAND: MANUFACTURING SECTOR, 1985/86–1994/95

(1990/91=100) 1/

Citation: IMF Staff Country Reports 1996, 014; 10.5089/9781451830132.002.A001

Source: Statistics New Zealand.1/ Four-quarter moving averages.2/ Real value added per man hour.

The degree of inflationary pressure was not evenly distributed throughout the economy, however. The most significant price pressures came from those sectors facing the greatest strain on capacity and those least exposed to international competition. The construction sector, in particular, was a significant source of inflationary pressure, as binding capacity constraints and the need to pay higher wages to attract and retain skilled staff increased costs. Other nontradables prices (including dwelling rentals) also accelerated during 1993/94 and 1994/95. Tradables price inflation, by contrast, has been relatively moderate, reflecting the appreciation of the New Zealand dollar and low inflation in partner countries.

Labor market developments over the past two years have been characterized by substantial increases in the demand for labor—employment increased by 4 percent in the year to June 1994 and by 5 percent in the year to June 1995—and a modest increase in the supply of labor, reflecting a partial recovery in the participation rate (from about 63 percent in mid-1993 to 64½ percent in mid-1995), and some increase in net immigration and in the relative size of the working age population (Table 5). Employment growth was particularly rapid in the construction and manufacturing sectors, where the recovery was also strongest (Table 6), although as expected during a cyclical upswing, employment growth has lagged output growth and output per worker has increased (Table 7 and Chart 4). The increase in the labor force participation rate, on the other hand, was more moderate than might have been expected, with the current rate remaining well below the most recent peak of 66½ percent reached in early 1987. One possible explanation rests on the improvements in the returns to education that the labor market reforms have engendered, which may have encouraged some individuals to acquire additional skills, rather than enter the labor force.

Table 5.

New Zealand: Costs and Prices in Manufacturing, 1990/91-1994/95

(Percentage change from previous year)

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Source: Data provided by Statistics New Zealand.

Deflated by the output price index in manufacturing.

Covers also nonwage labor costs but controls for quality and quantity of work, and, therefore, does not fully reflect productivity. Staff estimates of unit labor cost index for 1990/91-1993/94.

Real value added per man-hour.

Table 6.

New Zealand: Labor Market Developments, 1990/91-1995/96

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Source: Data provided by Statistics New Zealand.

Registered unemployment is an administrative count of those enrolled with the New Zealand Employment Service. It does not conform to the International Labor Organization’s standard definition of unemployment commonly used for international comparisons.

Table 7.

New Zealand: Employment by Sector, 1990/91-1994/95 1/

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Source: Data provided by Statistics New Zealand.

Based on Household Labor Force Survey. End-of-March data.

CHART 4
CHART 4

NEW ZEALAND: PRICE AND WAGE DEVELOPMENTS, 1985/86–1994/95

(Annual average percent change)

Citation: IMF Staff Country Reports 1996, 014; 10.5089/9781451830132.002.A001

Source: Statistics New Zealand.1/ Total weekly earnings, including overtime.2/ Covers also nonwage labor costs but controls for quality and quantity of work, and, therefore, does not fully reflect productivity.

Rapid employment growth, combined with a very modest increase in labor supply, has resulted in a sharp drop in unemployment. In the June 1995 quarter, the (seasonally adjusted) unemployment rate stood at 6.2 percent of the labor force, down from 8.2 percent in mid-1994 and a peak of 11.1 percent in 1991/92. Contrary to expectations, the proportion of long term (more than 26 weeks) in total unemployment declined substantially since 1992, with a particularly rapid decline in the year to June 1995. A more proactive approach to case management by the Department of Labour appears to have contributed to this improvement. Finally, while the drop in unemployment has benefitted most groups in the population, unemployment still remains relatively high among youth, and Maoris and Pacific islanders.

Although private sector wages have accelerated since the middle of 1993, their growth has remained moderate, at 2 percent in the year to June 1995 (Table 4). The initial degree of slack in the labor market, together with the low level of inflation and inflationary expectations, contributed to moderate wage outcomes. In addition, however, the flexibility introduced by the Employment Contracts Act—particularly with the shift toward enterprise level contracts—has helped to prevent labor market pressures in certain markets (e.g., construction) from becoming generalized in the economy. Combined with the cyclical increase in productivity, the modest increase in wages has helped to contain the growth in unit labor costs.

III. Public Finance

New Zealand’s fiscal position improved enormously in recent years, shifting from a deficit of 5 percent of GDP in 1991/92, to a surplus of 3 percent of GDP in 1994/95 (Chart 5).4 This improvement reflected the strong cyclical upswing, as well as structural measures which strengthened expenditure control and raised public sector efficiency. Revenues remained stable as a percent of GDP, while expenditures as a share of GDP dropped by 10 percentage points. Debt repayment became the overriding fiscal objective. The passage of the Fiscal Responsibility Act (FRA) in 1994 was the culmination of a string of financial management reforms in the public sector.

CHART 5
CHART 5

NEW ZEALAND: FISCAL DEVELOPMENTS, 1985/86–1994/95 1/

(In percent of GDP)

Citation: IMF Staff Country Reports 1996, 014; 10.5089/9781451830132.002.A001

Sources: Treasury; and Statistics New Zealand.1/ Data relate to years ending in June. Starting in 1991/92, financial statements are on an accrual basis and not strictly comparable to the previous cash-based statements. From 1992/93 onward, the reporting entity includes all SOEs and Crown entities as well as the Reserve Bank of New Zealand.

A. Accounting Changes

Accounting standards for the Government have changed drastically in the last few years, as part of the financial management reforms initiated in 1988. The main change was the introduction of accounting principles in accordance with those applied in the private sector in New Zealand or the “generally accepted accounting practice” (GAAP). The objective was to improve the information content of the public sector’s financial accounts and also to enhance their credibility by subjecting them to standards determined outside the Government. The principal innovation was the replacement of cash accounting with accrual accounting. Since 1991/92, most central government, or “Crown” financial statements, have been prepared on that basis, although budget forecasts continued to be made on a cash basis until 1994/95.5 The FRA made the GAAP mandatory for all of the Crown’s financial statements.6 Consequently, the Crown now publishes a set of financial statements that is similar to what is published by publicly-listed companies in New Zealand. The set includes an operating statement, a statement of cash flows, and a statement of financial position, all with accompanying notes. As part of the annual budget, the Government must also present three-year forecasts of these statements.

While many countries commonly supplement their cash-based government accounts with accrual information, New Zealand is the first country where the Government produces its accounts completely on an accrual basis. In accrual accounting, revenues, expenses, lending, and borrowing are recorded when they are earned, accrued, or incurred, regardless of when payment is made or received. In practice, the most important of these noncash revenues and expenses included in the Crown’s operating statement are depreciation, unrealized foreign exchange gains or losses, and changes in the valuation of forests owned by the Crown.7 The three statements are closely linked. The bottom line of the operating statement, or “operating balance” (the net of operating revenue and expenses), has become the principal focus of fiscal policy, replacing the old cash-based concepts of “financial balance” and “adjusted financial balance” (Table 8). A positive operating balance affects the financial statement by adding to the Crown’s assets, or detracting from its liabilities, thereby increasing the “Crown balance,” or net worth (Table 9). In accordance with the GAAP, the balance sheet lists not only financial assets and liabilities, but also nonfinancial assets (such as buildings, military equipment, and state highways) and noncash liabilities (such as accumulated employee leave entitlement and unfunded employee pension liabilities). Cash flows still command considerable interest and are, therefore, presented in a separate cash flow statement (Table 10). Cash flows from operations (such as taxes or subsidies) affect the operating balance, and cash flows relating to assets or liabilities (such as the purchase and sale of physical assets, or the issuing of currency) affect the Crown’s balance.8

Table 8.

New Zealand: Central Government Budgets and Outcomes, 1991/92-1994/95 1/

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Source: New Zealand Treasury, Economic and Fiscal Outlook, various issues.

From 1992/93 onward, the reporting entity includes all SOEs and Crown entities, as well as the Reserve Bank of New Zealand. Since budget forecasts were on a cash basis only until 1994/95, this table compares for earlier years the budgets with the cash based outcome.

Finance costs include interest and other costs associated with the stock of public debt, but excludes the capital portion of debt repayments.

Financial balance for 1991/92-1993/94, operating balance for 1994/95.

Table 9.

New Zealand: Central Government Balance Sheet, 1991/92-1994/95 1/

(In millions of New Zealand dollars)

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Sources: New Zealand Treasury, Economic and Fiscal Outlook, various issues; and Financial Statements of the Government of New Zealand, 1992.

Starting in 1992/93, the reporting entity includes all SOEs and Crown entities, as well as the Reserve Bank of New Zealand.

Table 10.

New Zealand: Statement of Cash Flows, 1991/92-1995/96

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Sources: New Zealand Treasury, Economic and Fiscal Outlook, various issues.

B. Recent Budgets

The FRA prescribes a number of principles for prudent fiscal policy: to achieve and maintain net public debt at a reasonable level; to ensure the prudent management of fiscal risks; and to maintain stable and predictable tax rates. In compliance with the FRA’s requirement that the Government spell out its specific fiscal objectives for realizing these principles, the 1995 Budget Policy Statement has the following long-term objectives: to lower net public debt to less than 20 percent of GDP and, once this is achieved, to maintain (at least) fiscal balance over the economic cycle; to establish a broadly-based, low-tax environment; to reduce expenses to below 30 percent of GDP; to restore net worth to significantly positive levels; and to reduce the risks to the fiscal position. The statement listed as short-term intentions: reducing net public debt to within 20-30 percent of GDP as quickly as possible; running fiscal surpluses of at least 3 percent of GDP through 1997/98; cutting income taxes, if economic and fiscal conditions permit; holding operating expenses stable in nominal terms, at around $NZ 31 billion for the next three years; achieving, and then building, positive levels of net worth; and reducing exchange rate risk by eliminating net public foreign currency debt.

The recent improvement in the fiscal position already has gone a long way toward realizing the Government’s short-term intentions. The operating balance shifted from a deficit of 5.1 percent of GDP in 1991/92 to a small surplus of 0.2 percent of GDP in 1993/94, which widened in 1994/95 to 3.0 percent of GDP. Because the buoyancy of revenues surprised forecasters, for three years in a row, budget outcomes were much better than expected (Table 8). In particular, corporate tax revenues were higher than anticipated, as companies improved their profitability and used up their previous tax-loss credits. Moreover, owing to the strong employment growth, expenses on social security and welfare fell faster than forecasted. Finance costs were significantly lower than forecasted, owing to lower-than-expected interest rates and a lower debt level following the sale of NZ Rail. Finally, the accrual operating balance in 1993/94 and 1994/95 benefitted from the revaluation on net foreign assets (which include the RBNZ overseas foreign exchange reserves) to the tune of ½ to 1 percent of GDP (Table 12).

Table 11.

New Zealand: Central Government Revenue, 1991/92-1994/95 1/

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Sources: New Zealand Treasury, Economic and Fiscal Outlook, various issues.

From 1992/93 onward, the reporting entity includes all SOEs and Crown entities, as well as the Reserve Bank of New Zealand.