The Treasury today published a paper that explores the relationship between economic growth and the size and structure of the state sector.
The Treasury Paper Government and economic growth: Does size matter? finds that both the size and the structure of government play an important role in economic performance.
Treasury Deputy Chief Executive Andrew Kibblewhite today launched the paper, which focuses on government expenditure and economic growth, with a speech to the Institute of Policy Studies in Wellington. Mr Kibblewhite said the Treasury recognises that governments have many objectives in addition to economic growth.
“The state sector provides services to New Zealanders that enhance living standards, that build our resilience as a nation and generally improve the lives of citizens. By most objective measures we do a pretty good job,” Mr Kibblewhite said.
“But we should aspire to having the best performing state sector in the world; to provide the right services, in the right way, at the least cost. Governments collect taxes in order to pay for useful things, but taxes can discourage people from saving, working or investing in human capital, and taxes can reduce the incentives that businesses have to produce, create jobs, invest and innovate.”
The Treasury Paper finds that while the costs of taxes used to finance state sector expenditure can reduce economic growth, some government expenditure contributes to growth. The impact of government spending on economic growth depends not only on the level of expenditure but also on the type and quality of expenditure and the mix of taxes used to finance it.
“There is mixed evidence as to what types of expenditure really matter for growth. However, the Treasury believes that New Zealand has a significant chunk of spending in areas that are unlikely to enhance economic growth,” Mr Kibblewhite said.
“The economic benefits of lower taxes need to be balanced against other spending objectives, but all spending programmes need to meet a high burden of proof that they really do boost New Zealanders’ living standards,” Mr Kibblewhite said.
- The paper is available at www.treasury.govt.nz/publications/research-policy/tp/govtsize
- The speech notes are available at www.treasury.govt.nz/publications/media-speeches/speeches/pubsecperfecongrowth
Media contact:Angus Barclay | Senior Communications Advisor, The Treasury
Tel: +64 4 917 6146