Title page 1

Contents 5

Foreword 4

Basic statistics of New Zealand, 2024 8

Executive summary 9

1. Recovering in an uncertain world 17

1.1. A moderate recovery is underway, but the outlook has become more uncertain 18

1.1.1. Open trade and diversification are essential to sustaining exports growth 21

1.1.2. Structural reforms are needed to sustain growth while maintaining price stability 24

1.2. Monetary policy is focused on keeping expectation anchored 27

1.3. The financial system remains resilient but vulnerabilities persist 29

1.4. Returning to surplus and ensuring fiscal sustainability in the face of ageing 34

1.4.1. In the short-term fiscal policy should be tighter 34

1.4.2. Ageing is putting serious pressure on long-term fiscal sustainability 35

1.4.3. Comprehensive pension reforms are the key to achieving fiscal sustainability 38

1.4.4. Scaling up digitalisation and AI could help reduce health cost pressures 43

1.4.5. There is potential to raise more revenue from environmental taxes and land rezoning 43

1.4.6. Balance sheet management has an important role to play 44

References 46

2. Towards a more affordable, secure and sustainable electricity system 49

2.1. The electricity system faces significant challenges 50

2.2. Insufficient firming capacity is undermining security and driving up prices 51

2.3. Mitigating the effect of the gas shortage on electricity security and affordability 55

2.4. Tackling market structure problems is key to boosting competition 61

2.4.1. Creating a firming and flexibility market to incentivise firming investment and lower barriers to entry 64

2.4.2. Ensuring market conduct rules are fit for purpose in the age of net zero 66

2.4.3. Enhancing the powers and scope of the Electricity Authority 67

2.4.4. Reconsidering structural solutions as a last resort 68

2.5. Ensuring long-term electricity generation investment needs are met 68

2.5.1. Aligning gentailer governance and financial strategy with growing investment requirements 68

2.5.2. Removing land planning roadblocks 70

References 72

3. Harnessing digital tools to improve health system performance 74

3.1. Digitalisation and artificial intelligence provide an opportunity to strengthen the health system 75

3.2. The remaining gaps in digital foundations continue to limit progress 79

3.3. Addressing governance, regulatory, infrastructure, workforce and equity challenges is essential to accelerate digital transformation 83

3.3.1. Strengthening national governance and strategic coherence 83

3.3.2. Updating regulation and enabling frameworks 85

3.3.3. Investing in interoperable infrastructure and scaling-up deployment 87

3.3.4. Building workforce capability and supporting clinical adoption 89

3.3.5. Promoting equity and inclusion 91

References 94

4. Unlocking capital markets to drive growth 96

4.1. Strengthening capital markets for a more productive economy 97

4.2. Increasing capital market funding and better matching it with firms 100

4.2.1. Raising household savings and involvement in capital markets 100

4.2.2. Improving the role of the New Zealand Sovereign Wealth Funds 106

4.2.3. Attracting more foreign investment to complement domestic capital 108

4.2.4. Further increasing the involvement of Māori investors 110

4.2.5. Improving financial education of household and business 113

4.3. Improving the equity ladder from start-ups funding to public listing 114

4.3.1. Further expanding the private capital market 115

4.3.2. Public equity markets: Promoting share market listing and trading 123

4.4. Using corporate debt markets to fill the debt financing gap for start-ups and high-growth firms 131

4.4.1. Improving credit information 134

4.4.2. Opening up the corporate bond market to high-growth small firms 134

4.4.3. Making more use of private placements of SME debt 137

4.4.4. Mobilising capital market finance for infrastructure investment 137

4.5. Simplifying and modernising capital markets regulation 138

References 143

Table 1. Real GDP is set to gradually recover in 2026 and 2027 10

Table 1.1. Macroeconomic indicators and projections 20

Table 1.2. Events that could entail major changes to the outlook 21

Table 1.3. Past OECD recommendations on the labour market 24

Table 1.4. Past OECD recommendations on financial stability actions taken 33

Table 1.5. Past OECD recommendations on fiscal policy 35

Table 1.6. Illustrative impact of recommended reforms on the GDP level 37

Table 1.7. Illustrative impact of recommended reforms on the fiscal balance 38

Table 1.8. Findings and recommendations 45

Table 2.1. New Zealand electricity generation is dominated by hydro and geothermal 51

Table 2.2. What has been holding back investment in new generation? 55

Table 2.3. Dry-year solutions: A menu of seasonal firming options 58

Table 2.4. Past OECD recommendations on competition and regulation 61

Table 2.5. New Zealand needs a firming and flexibility market 62

Table 2.6. Market structure problems are limiting competition 63

Table 2.7. Recommendations on energy reforms 71

Table 3.1. Comparison of New Zealand's regulatory settings with the EU AI Act (2024) 86

Table 3.2. Approaches to integrating digital health and AI competencies into medical education vary across countries 90

Table 3.3. Policy recommendations to boost digitalisation in health 93

Table 4.1. KiwiSaver provides significant funding to New Zealand capital markets 103

Table 4.2. Taxation rules by asset class are uneven and complex 106

Table 4.3. NZ Super assets are mainly overseas 107

Table 4.4. A stylised Equity Ladder calibrated on the New Zealand market 115

Table 4.5. Recurring annual listing costs are far higher than in Canada and Sweden 125

Table 4.6. Why is it cheaper to list in Sweden? 127

Table 4.7. Sweden has as growth board listed companies more than France and Germany 129

Table 4.8. The New Zealand corporate bond market is small 131

Table 4.9. SME rating systems in Europe 134

Table 4.10. New Zealand should draw on the best elements of SME loan pooling instruments across the OECD 136

Table 4.11. Recommendations to deepen capital markets 142

Boxes 7

Box 1.1. More timely and reliable data for better policies 29

Box 1.2. Capital requirements and bank lending to firms 31

Box 1.3. Estimated impact of budgetary and structural reforms recommended in the Economic Survey 37

Box 1.4. The New Zealand pension system 39

Box 1.5. Linking the age of eligibility for the public pension to life expectancy 40

Box 1.6. The appropriate discount rate for public finance questions 42

Box 2.1. A renewable and resilient electricity system is key to reducing GHG emissions 51

Box 2.2. Industry has borne the brunt of a massive negative energy shock 53

Box 2.3. Wood fired electricity generation in New Zealand: Potential and policy 60

Box 2.4. Ramping up competition pressure 61

Box 2.5. What kind of long-dated contracts could trade in the Flexibility and Firming Market? 65

Box 3.1. Checking New Zealand's progress against the OECD's AI in Health checklist 82

Box 3.2. International practices in regulatory approaches: The EU AI Act (2024) 86

Box 3.3. Coordinated investment and incentives for digital health: Insights from Korea 88

Box 3.4. International approaches to digital health and AI capability in clinical education 90

Box 4.1. Treaty of Waitangi settlements 110

Box 4.2. Māori-led asset management and financial intermediation 111

Box 4.3. New Zealand's rapidly growing and dynamic venture capital sector 116

Box 4.4. Filling the equity funding gap in the United Kingdom 121

Box 4.5. Sweden has vibrant public equity markets 128

Box 4.6. Competition reforms aim to address concentration in banking sector 133

Box 4.7. International experience with implementing a single conduct licence 140