New Zealand has been one of the faster growing economies within the OECD during the past decade. From 1992 to 2002 it grew at an average annual rate of 3.6 per cent, and has maintained a robust pace of expansion during the more recent period of global downturn. This represents a marked improvement on the economic performance of the preceding two decades, during which per-capita income levels in New Zealand declined relative to the OECD average. Underpinning this improved performance has been the programme of reforms that began almost 20 years ago. Those reforms have provided the economy with several important strengths: a sound macroeconomic policy framework; low inflation and a fiscal surplus; a flexible labour market; highquality public administration and regulation; and an education system that delivers top-class overall results for the majority. These reforms have boosted the economy’s sustainable growth rate and its resilience to recent adverse shocks. However, some weaknesses and challenges remain: there is scope to further increase foreign trade; investment in equipment, R&D and information and communication technologies (ICT) is low, possibly because high foreign debt raises the cost of capital; the distribution of education outcomes is wide, with too many people having inadequate skills for a modern economy; and several infrastructure bottlenecks have developed. But the reforms have halted the decline in relative living standards observed since the 1960s, per-capita incomes having grown at an average annual rate of 2½ per cent over the past decade, a little faster than for the OECD as a whole...