4. Material Standards of Living
- Income is a major, although not the only, determinant of standards of living.
- GDP per capita is an internationally comparable measure of living standards used by the OECD. The assessment in this chapter also looks at Gross National Income (income earned by New Zealanders in New Zealand and internationally).
- Both measure all goods and services produced in the economy, including production with positive as well as negative characteristics (e.g. waste management, disasters etc.). They do not, however, capture all production in the economy (e.g. unpaid or voluntary work).
- Using these measures, New Zealand's relative income per capita is 21st in the OECD. It has stabilised at this level after a decline over several decades. Sustained and significant growth is required to achieve average income per person similar to that of Australia.
- Productivity improvements, discussed in Chapter 5,5 will be a critical contributor to improving New Zealanders' incomes relative to the OECD.
Real GDP Per Capita: 21st in the OECD
Why is it Significant?
Well-being is measured by more than just income levels. For that reason, the government's set of Sustainable Development Indicators is more broadly based.12
However, income is still an important component of living standards. Gross domestic product (GDP) per capita is one indicator of New Zealand's income. It measures the gross value of all goods and services produced in New Zealand. It is generally accepted as an internationally comparable indicator of material living standards.
How Does New Zealand Perform?
GDP Per Capita 200113
New Zealand's real GDP per capita was just under the OECD average in 1970, but had declined to around 85 percent of the average in 2001. New Zealand is now 21st in the OECD in per capita income terms. Although the New Zealand economy grew, other developed countries grew more rapidly. New Zealand's per capita income has stabilised at around 85 percent of the OECD average, with the growth in the 1990s appearing to halt the relative decline of the previous two decades.
GDP per capita only measures income produced in New Zealand. Another indicator of income, Gross National Income (GNI), measures the production of goods and services by New Zealanders in New Zealand and overseas. GNI is not used as frequently in international comparisons, but provides a better measure of the government's overarching sustainable economic development goals than GDP per capita. However, using GNI currently makes little difference to New Zealand's ranking in the OECD. We also stand around 21st in the OECD on this measure.
Gross National Income14
The chart below compares New Zealand's GDP per capita growth since 1970 to Australia. At that time the two countries' per capita incomes were almost equal, but by 2001 Australia's was 30 percent greater than New Zealand's. As shown in the chart, if New Zealand had had one percentage point per annum higher growth from 1970, New Zealand's per capita income would now exceed Australia's. However, the economy's relatively poor historical performance means that, even if we were to achieve 4 percent annual growth for the next decade, we would still only reach where Australia is today.
Real GDP Per Capita
Based on Treasury's expectations for growth of around 2.8 percent to 3.0 percent15 and the Department of Statistics projections of population growth of 1.2 percent per annum, the outlook is for annual per capita income growth averaging around 1.8 percent over the medium term. The OECD looks likely to achieve a similar outcome.16
What Does This Mean for New Zealand?
New Zealand appears to have halted its decline in relative income. As noted in Growing an Innovative New Zealand, moving up the OECD rankings will require a sustained, non-inflationary increase in New Zealand's growth rate to above that of the OECD average for a number of years. The key to achieving this is raising New Zealand's productivity, which does not compare well with that of other OECD countries, as discussed in more detail in Chapter 5.5
Back to Top