According to the Index for Economic Freedom for 2012, published by the Heritage Foundation and the Wall Street Journal on January 12th and examining economic conditions and market regulations in countries around the world, in 2011 New Zealand was ranked the 4th country in the world for its market freedom, regulatory efficiency, the role of government in the market, freedom from corruption and the effectiveness of the legal system.

New Zealand was given an index score of 82.1, from a possible maximum of 100. The average score across all countries ranked in the index was 59.5, and the average score for New Zealand closest neighbors in the Asia Pacific region was 57.5 points.

The authors of the report noted that New Zealand has one of the most competitive and efficient business environments in the world, with a particularly easy and effective set of regulations for establishing a new company, the national tax regulations, operating a new business, owning property, expanding commercial activity internationally, and for protecting intellectual rights.

On a macro scale, the report praised the long term economical, financial and political stability of New Zealand, but expressed a negative opinion on the high level of spending by the national government.

In the 2012 Index New Zealand’s score dropped by 0.2 percent, ranking the country behind Hong Kong at 89.9 points, Singapore at 87.5 points, and Australia at 83.1 points.

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While making a media statement on May 31st, ManufacturingNZ executive director Catherine Beard said that New Zealand’s 28 percent corporate tax rate and comparatively low wage rates is an strong incentive for Australian manufacturers to shift at least part of their production to New Zealand based facilities. Her comments came in response to an announcement made on May 27th by the global food manufacturer Heinz that it will move part of its sauce making operations to its subsidiary Watties in Hastings, within the next 12 months.

She said that Heinz’s transfer to New Zealand would not directly result in any more jobs being created, as the additional manufacturing would be absorbed by Watties’ current production capabilities. However, Catherine Beard added that the move was “encouraging” and showed “that manufacturing is not necessarily dead”, suggesting that a greater number of manufacturer’s would consider moving to New Zealand.

It is expected that the Heinz’s move to New Zealand will see some positive economic impacts to the local agricultural sector, as the sauce manufacturer will no longer be processing tomatoes in its Australian branches, and will move all aspects of production to New Zealand.

According to a press release by Heinz, New Zealand’s business environment and tax system will allow the company to become more competitive on the international market place, and will accelerate future growth.

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At the Kickstart Forum held over the weekend in Queensland, representatives of IT companies in Australia and New Zealand indicated that the possibility of carbon taxes is causing a reevaluation of the operation and planning of datacenter.

Carbon levies have been debated heavily in New Zealand and Australia throughout 2010, leading analysts to predict that some form of emissions taxation will be implemented by both countries’ governments in 2011 or 2012. It is estimated that data centers across the world currently account for 1.5 percent of all emissions, a level on par with the airline industry. The significant level of emissions is swaying IT professionals to consider investing in low-power consumption devices and tools, to preemptively address raised power costs following the carbon tax.

Paul Harapin, managing director of VMWare in Australia and New Zealand, spoke at the conference, saying that his company has long been associated with environmentally-aware IT solutions, but the possibility of upcoming carbon taxes is bringing up a new level of eco-consciousness. He added that the issue of minimizing the carbon footprint and carbon tax liabilities of large firms’ IT operations and data centers will soon be a prominent issue faced by chief information officers across Australia and New Zealand.

Representatives of power supply and cooling equipment for data centers who were present at the forum also indicated that their companies are releasing products in anticipation of a new demand for lower power consumption, in an attempt to address the new taxes. David Scott, managing director of Emerson Network Power, revealed that the company is currently working on a data center infrastructure management tool, which will allow companies to reduce their power buffer levels, significantly slashing their potential tax bill.

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The New Zealand Companies Office has recently stepped up its documentation requirements for registration of New Zealand companies with overseas directors and shareholders. Some newly registered companies with non-resident directors and shareholders have recently received letters from the Companies Office, instructing them to provide extra documentation confirming the identities of the directors and shareholders. The letters contained instructions to provide evidence for each natural person whose signature is on the company documents, such as certified or original copies of the passports, or appropriate identification documentation. The letters stated that the information will be used to ensure that the companies and all involved persons have fully complied with the rules set out in the Companies Act 1993.

Further information has recently appeared on the Companies Office website, stating that some new company registrations may now be subject to additional consent and identity verification processes. The website stated that the tightened controls are being implemented to address companies which are being incorporated “as a nominee company for overseas interests”.

It is unknown whether the documentation requirements are a permanent or temporary measure, with the Companies Office not revealing its intentions for the future. Analysts suggested that the compliance efforts are a result of recent events relating to New Zealand companies with non-resident directors and shareholders. In one such example, a New Zealand registered company with international shareholders, was alleged to have links to a series of companies involved with a large scale international weapons smuggling scheme.

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On February 16th the Australian Prime Minister Julia Gillard and the New Zealand Prime Minister John Key signed a new Investment Protocol between the two countries, which updates the bilateral Closer Economic Relations (CER) trade agreement held by Australia and New Zealand. The newly signed agreement will align the CER with contemporary free trade agreements, and will cut several investment restrictions between the countries.

The protocol raises the amount that a New Zealander can invest across the Tasman before requiring a screening and approval by the Australia’s Foreign Investment Review Board (FIRB). Additionally, the signed agreement sets out that a New Zealand investor must be treated as well as a local investor when the investment is being appraised. Likewise, the same considerations and restrictions will apply to Australian investors coming to New Zealand.

Under the new protocol New Zealanders investing in Australia will be subject to a AUD 1.005 billion threshold, with investments exceeding the amount being required to seek approval from the FIRB for the venture. Australians wishing to invest in New Zealand will be subject to a NZD 477 million cap. The levels are being raised from AUD 231 million, and NZD 100 million respectively.

John key made a media statement shortly after signing of the agreement, saying that there should be no ill effects from the protocol, and New Zealand will not experience a loss of asset control to Australian investors. He added that if National wins the general elections and carries out its plan to sell off state assets, the new agreement will not results in disproportionately larger number of Australian buyers.

The new protocol will be enacted within 30 days of both countries completing the necessary legal ratification measures. While a date has not yet been forecasted, both governments expect this to occur within 2011.

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On January 12th the US-based Heritage Foundation and The Wall Street Journal co-released the 2011 Index of Economic Freedom, an annual report which aims to track the perceived changes in economic conditions and freedoms of countries across the world. According to the publication, New Zealand is currently the 4th freest economy in the world, and is ranked top across all countries for its business freedom and freedom from corruption.

The report categorizes each country’s overall economic freedom by analyzing a predetermined set of economic criteria, consisting of librety in conducting business, freedom of trade, fiscal freedom, size of government spending as a portion of Gross Domestic Product (GDP), monetary freedom, investment freedom, financial freedom, corruption, and freedom in the labor force. Each category is rated between 0 and 100, with the latter being the top possible score. New Zealand was assigned an overall rating of 82.3, a 0.2 point improvement compared to the 2010 Index of Economic Freedom results. The top scoring country, Hong Kong, achieved 89.7 points.

New Zealand’s lowest score was for the disproportionately high percentage of the national GDP which is accounted for by Government spending, with the index assigning 49.3 points for the category. Fiscal freedom, which measures top personal and corporate tax levels, was given 64.7 points. The score is exactly the same as that assigned to Timor-Leste, and is comparable to the Republic of Congo, which has 61.8 points. Perceived investment freedom and financial freedom were the next lowest measures, both at 80 points. Investment freedom quantifies the constraints imposed on the movement of capital with the country, both for individuals and business entities. Financial freedom is “a measure of independence from government control and interference in the financial sector.”

Analyzing the overall results of the research, the Index’s editors Terry Miller and Kim R. Holmes stated that over half the countries surveyed showed positive growth throughout 2010. They added that the upward movement indicates that “leaders from around the world have begun to understand and appreciate the link between economic freedom, prosperity, and overall well-being.”

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On December 30th the Australian Green Party outlined its agenda for 2011, which included a proposal to establish a system which would use the profits arising from mining taxes to fund free tertiary education for all Australians.

The Green Party believes that introducing a system of tertiary education would cost approximately AUD 2.5 billion. The funding would be sourced entirely from the upcoming Mineral Resource Rent Tax (MRRT), which could come into effect as early as July 2012. The claim has already been contested by Bruce Chapman, Economist at the Australian National University, saying that the system would cost as much as AUD 4 billion annually.

The leader of the Green Party Bob Brown commented on the tertiary education proposal, saying, “Unrestricted access to education is essential and is in line with the government’s own advice that future jobs require higher skills.”

Soon after the proposal was announced, the Shadow Education Minister Christopher Pyne labeled the idea as “middle class welfare gone mad.” He contested that a free tertiary education system would not change the composition of students in higher-education and would bring little, if any, extra benefits to the wider Australian society. Bruce Chapman added a similar opinion for the use of the mining tax, saying, “…it is a very regressive use of taxpayers’ money to have graduates contribute nothing … this means less public expenditure or higher taxes in other areas.”

The Green Party also outlined several other social measures which they thought are necessary for the country. It was suggested that extra funding could be assigned to housing, high-speed rail , primary-level education, and dental care, alongside the free tertiary education. It is estimated the entire funding package would cost approximately AUD 23 billion over the next four years.

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On July 2nd Bill English, Finance Minister of New Zealand, praised the country’s planned corporate tax rate decrease. The statement came as a response to the Australian Government’s announcement that its national corporate tax rate will not be reduced below 29 percent until fiscal conditions permit.
According to Bill English, the New Zealand 28 percent tax rate, combined with previously announced Budget measures will aid national businesses with the incentives to invest and increase exports. The Minister explained that New Zealand’s relative advantage over Australia will allow the country to draw greater international investments. He elaborated further, saying that New Zealand’s corporate tax rates will be 2 percent lower than Australia’s for at least two years.

Bill English continued to say that New Zealand has a unique tax package, which has allowed significant tax rate decreases in an international environment of tax rate increases. The Government will also “tilt” the economy away from unsustainable increases in spending, continued borrowing, while increasing investing in productive elements of the economy.

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On May 31st the Government of New Zealand released a statement announcing the commencement of groundwork for the eventual negotiations of a FTA between New Zealand and Russia. The statement was released shortly after a meeting between Tim Groser, Trade Minister of New Zealand, and Elvira Nabiullina, Russian Minister of Economic Development, held in Moscow. Tim Groser summarized the achievements of the meeting, saying, “Russia has agreed to proceed towards a formal trade agreement with New Zealand, subject to a satisfactory outcome of scoping discussions.”

According to a New Zealand Government statement, a FTA with Russia could be of great benefit to New Zealand. Russia currently imports in excess of US 30 billion in food annually, which represents a sizeable market opportunity for New Zealand exporters. In a joint statement released on June 1st, both Ministers claimed that the economies of Russia and New Zealand are complementary, with great prospective for cooperative growth. Tim Groser also pointed to the potential of agritech, clothing, specialized manufacturing, ICT, and tourism firms offering services to a Russian market. Currently, two-way trade between the nations has reached USD 300 million.

The two Ministers are expected to instruct their respective Governments to prepare objectives and scopes for the possible FTA. Both Governments will also call for public submissions on the prospective agreement.

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On May 26th the IMF released The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand and Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis, two separate working papers concerning aspects of the New Zealand and Australian economies, in the face of the receding effects of the global economic crisis.

The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand, advises the New Zealand Government to rebalance its taxation policy to reduce the reliance on labor and capital taxation. Projections indicate that if appropriate alterations are made to shift fiscal focus to consumption taxes, New Zealand’s long-term growth potential will rise 1 percent above baseline. Although, the benefits will be negligible if the consumption tax revenues are redistributed via public transfers, such as benefits and welfare programs. The paper also suggests that Government spending be heavily reduced. As an example, the paper suggested that if Government expenditure be capped at 1 percent of GDP long-term economic growth could increase by 2 percent.

Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis discusses the impact of the financial crisis on New Zealand and Australia. According to the paper, New Zealand and Australia can be expected to undergo medium-term potential growth levels of 2.33 percent and 3 percent respectively. The Governments of both countries are warned to expect economic hurdles in the form of higher costs of capital. Although the difficulties could be offset by increased demand for commodities, especially from quickly recovering Asian economies.

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