Story: Investment

Page 5. Public and private investment after 1980

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Fluctuating private investment

From the early 1980s until the mid-1990s private investment grew considerably faster than public investment. During the 1970s private investment accounted for about 65% of total investment, but by the mid- to late 1990s this ratio had increased to an average of 84%. Subsequently the ratio declined and in the 2000s the percentage of private investment fell below 80%.

The fluctuations were caused by a period of economic reform from 1984 until the mid- to late 1990s. There were tighter controls on government expenditure, and many government trading activities were corporatised and became state-owned enterprises (SOEs). A number of SOEs were privatised. The most significant changes were in transport and infrastructure – the telecommunications arm of the Post Office, Air New Zealand and New Zealand Railways were sold. Most electric power stations were transferred to SOEs. The change to SOE changed the classification of investment in these enterprises from public to private.

In the early 2000s New Zealand had a more interventionist Labour government which was keener on public investment in assets such as hospitals and schools than were its immediate predecessors. Air New Zealand and the railway system returned to public ownership.

Millennium boom

There was a small investment boom in computer equipment during 1999. This was motivated by concern that computers and computer-controlled equipment needed to be upgraded to avoid ‘Y2K’ meltdown from older computers not programed to handle a calendar change to a new millennium.

International comparisons

New Zealand total investment, as a percentage of gross domestic product (GDP), is around the OECD median. The level of investment in plant, machinery and equipment, and housing as a share of GDP is similar to comparable countries. But overall business investment, including investment in other business assets, such as non-residential buildings, transport equipment, land improvements and intangible assets, is below the OECD median.

A comparison of New Zealand’s business investment with Australia’s is striking – the Australian level of business investment was almost 50% higher in the early 2000s. It is not clear why there is such a low level of business investment, but the high cost of capital in New Zealand (with interest rates usually more than 2% above other OECD countries) is one cause. The low level of business investment lowered labour productivity in the country.

How to cite this page:

Brent Layton, 'Investment - Public and private investment after 1980', Te Ara - the Encyclopedia of New Zealand, (accessed 21 May 2024)

Story by Brent Layton, published 11 Mar 2010