Study: 'Relatively high prices' for levels of income

CATHERINE HARRIS
Last updated 05:00 22/05/2014

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New Zealanders are paying much less than Australians for goods and services, but more than the British, a new study has shown.

In a piece commissioned by the Productivity Commission, Professor Norman Gemmell of Victoria University said prices were relatively high in New Zealand, especially when purchasing power was factored in.

According to its index, Australia's overall prices in 2011 were 33 per cent higher compared to New Zealand, but Britain's were 5 per cent lower. This was a reversal of the situation in 2005, when Australia's prices were almost on a par with New Zealand's, and Britain's were 9 per cent higher.

However, Gemmell said spending rates also had to be considered. In 2005, Britain's prices were higher than New Zealand but British expenditure per capita was 30 per cent greater. Taking both factors into account, Gemmell said New Zealand appeared to have "relatively high prices given our income levels".

Goods and services which were particularly expensive in New Zealand were those associated with investment in general, property, construction and utilities (such as water, gas and electricity). Alcohol, tobacco and passenger transport, except for private motor vehicles were also fairly expensive, possibly due to a lack of economies of scale.

Alcohol and tobacco faced high excise duties, although they were offset by low tax, and passenger transport such as air and rail transport were either subject to regulation or had some semi-monopoly power within New Zealand.

On the positive side of the ledger, Gemmell said key exportable products were relatively cheap including beef,veal, lamb, fish, and dairy products such as butter.

Government-dominated services such as education, health and social protection, were hard to measure but also regarded as relatively cheap in New Zealand, reflecting the country's "relatively low average wage levels", despite higher intermediate and capital input costs".

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