OECD NOTES LONG-TERM ECONOMIC SHORTCOMINGS

París, April 28- A report by the Organisation for Economic Co-operation and Development says New Zealand should bring in a capital gains tax and lift the retirement age.

The OECD's latest economic survey of New Zealand said lacklustre growth reflected structural shortcomings in the economy.

As the 2000s had progressed, the main sources of rising prosperity had increasingly become commodity-based terms of trade improvements, credit-fuelled capital gains on property, and rising government spending, it said.

Finance Minister Bill English said the Government agreed with the OECD that returning to a surplus should be a priority.

Measures in the upcoming Budget would address that. "In particular, it [OECD] recommends a faster improvement in our fiscal position, which would take the pressure off monetary policy.

"The OECD points out this would allow interest rates to remain low for longer and create room for the exchange rate to ease”.

That would support the economic adjustment, already under way, to build faster growth from savings, exports and productive investment, rather than excessive borrowing and increases in government spending, he said.

But the Council of Trade Unions said the OECD's recommendation that the Government should carry out "bolder fiscal consolidation" was badly timed and bad advice.

CTU economist Bill Rosenberg said following the OECD's advice to further cut state spending could push New Zealand back into recession, and would leave the country with continuing high unemployment.

"We've seen what happens when governments cut spending -the UK government cut spending and saw a sharp fall in economic output in the last three months of last year”.

The OECD said generous universal public pension and student loan schemes might reduce the incentive for households to save, while the tax system biased investment decisions by distorting market signals.

Raising the retirement age and slowing the pace in benefit payments could provide large fiscal savings, increase potential output and boost household savings rates, the report said.

A Retirement Commission report on the growing bill for New Zealand Superannuation, released last year, recommended a gradual increase in the age of eligibility to 67, from 2020 to 2033, and changing the formula on how much superannuitants received.

Retirement Commissioner Diana Crossan said although Prime Minister John Key had rejected raising the age of eligibility, that was the only recommendation he had rejected, and the commission was waiting for the Government to respond to all the recommendations in the report.

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