New Zealand should foster productivity growth with policy reforms that support competition in the banking and electricity sectors, the Organisation for Economic Co-operation and Development (OECD) says.
Its latest Economic Outlook Report said growth in NZ “remains feeble” and cuts to interest rates and taxes would support only a “modest recovery”. The OECD expects growth to be just 1.4% in 2025 and 2.1% the following year, below the Reserve Bank’s estimate of 2.4%.
“Insufficient supply of high-skilled labour, tapering of the post-pandemic rebound in international tourist arrivals and low productivity growth will temper the recovery,” it said.
Lower interest rates and planning reform might mean the housing and infrastructure sectors drive a faster recovery, but there are other risks and headwinds as well.
“If electricity futures prices remain high, or rise further, this would cause more firm closures and undermine business investment” and slow future growth.
The OECD said reviews of the electricity sector should look closely at splitting the generation and retail operations of large companies, often called gentailers, as a way to improve competition and provide the industry with better hedging options.
“High futures electricity prices for industry will exacerbate productivity problems by weakening business investment, especially in the green and digital transitions, as electricity is a core input for both,” it said in the report.
Margaret Cooney, the chief operating officer of electricity retailer Octopus Energy, said there was a growing consensus that something needed to be done about the energy sector.
“The current settings mean gentailers are able to manage their pricing between their generation and retail arms, often selling energy to themselves for less than they sell to independent retailers,” she said in a press release.
“New Zealanders are currently facing another year of significant electricity prices and power shortages. The Government needs to act on the recommendations of international experts and make sure the electricity market delivers for New Zealand”.
Last month, Energy Ministers Simeon Brown and Shane Jones announced a review of the electricity market which will assess whether it was “fit for purpose”.
It will consider whether ownership and integration of generation and retail has affected competition, although the terms of reference are broad.
The Electricity Authority and Commerce Commission have also set up a task force to investigate ways to improve the performance of the electricity market.
That review will consider non-discrimination rules which would not split up integrated businesses but would force them to sell energy to external retailers on the same terms they offer internally.
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