This chapter discusses the main challenges facing New Zealand in meeting the goal of raising living standards. In the near term, the economy needs to shift onto a more sustainable growth path and the stabilisation task of the central bank would be made easier if the government were to pursue a more fiscally-neutral stance over 2007 and 2008. Labour utilisation has been impressive but economy-wide trend productivity growth remains modest. The country has accumulated large net foreign liabilities, the current account deficit is at very high levels, and household saving has fallen sharply. Higher household savings could boost future national incomes, while greater accumulation of financial assets would make it easier for individuals to smooth consumption over their lifetimes. The government is currently a significant net saver, but the Treasury’s long-term fiscal projections indicate that adjustments over time to spending and/or taxes will be required to ensure that public finances are sustainable. Against this background, public pensions and other retirement income policies, financial markets and the design of the tax system can each play a key role in helping the country maximise its national income and, thus, its consumption possibilities, over the longer run. As well, several remaining structural reforms still need to be seen through to successful implementation, and policies to tackle climate change effectively still need to be developed.