That National government under the stewardship of Prime Minister Robert Muldoon remained in power for three terms of three years,that is, until 1984. During this period, there was little economic restructuring, and a common criticism of that period today, is that there was a failure to adopt some of the restructuring which occurred under Margaret Thatcher in the United Kingdom (1979) and Ronald Reagan in the United States (1980).

Politics is a dangerous subject to approach and we do not wish to enter the debate here. Simply to emphasise that by 1984 New Zealand had a very regulated economy which had undergone little restructuring or privatisation. It was prime for restructuring - for a new direction.

And restructuring is what the country got after 1984, through the election of a new Labour Government, with strong leadership on the political front by Prime Minister David Lange, and strong leadership on the economic front by a Finance Minister Roger Douglas who held strong views (and considerable ability) on the need to restructure the economy. And restructure he did.

The floating of the New Zealand dollar as an international currency; removal of trade subsidiaries and tariffs; savage cutting of public expenditure; sale of non-core state assets to private enterprise; slashing of the budget deficit; instituting an indirect tax system known as "Goods and Services Tax" or GST of (then) 10%; the deregulation of the financial markets including the open registration of over 20 newbanks.

The dramatic change away from a closed, subsidised, unproductive,uncompetitive and regulated economy to an open and deregulated economy was very dramatic for New Zealand business and the employment of equity and debt capital. And all of this happened in the three years until October 1987, during which time even without the New Zealand restructuring, there was substantial growth in world wide credit, investment and business activity.

So when the October 1987 worldwide sharemarket crash occurred,it is understandable that there would be a greater and longer lasting shock in the New Zealand context than in many other countries overseas. Our growth had, afterall, been created not only by the worldwide growth in investment credit and business expansion activities generally, but had additionally been fuelled by the raft of new financial transactions and investment opportunities which had been enabled by the recently deregulated economic framework. Overseas economies were starting to recover by 1989, and were well ahead of the New Zealand economy, which took until early 1991/92 to start torecover.

The Labour government survived in power for two terms until 1990 when the National Government in power today was first elected in its current term. Two events are significant in the last year of the Labour Government.

First, the level of the indirect tax GST was increasedfrom 10% to 12.5%. This had the effect of dampening the post sharemarket crash recovery. Whilst the beneficial effects of an indirect value added taxation structure can be seen (and will be argued) shortly, the short term effect was to discourage spending and investment. The recovery from the crash of three years earlier was further delayed.

Secondly, Parliament passed the Reserve Bank Act, which empowered, in fact dutified, the central government bank in New Zealand called the Reserve Bank, to keep inflation in check within a band of 0%- 2% as set by the government from time to time by utilising its powerover money supply and government backed interest rates.

In brief, the argument and strategy goes that if the Reserve Bank tighten money supply and manage government money use and supply prudently, then the resultant rise (or fall) in interest rates will dampen (or lift) consumer and business demand and hence keep inflation at a level where it is deemed optimum. This is called monetarism and every economist hasa different view on its validly and the social costs of using monetarism as such a tool. But that is, nevertheless, the basis of the Reserve Bank intervention as empowered by the Reserve Bank Act.

There are two kinds of inflation absolutely critical to the discussion on the economy, and interest rates. They are known as "cost-push"inflation and "demand-pull" inflation. The first is unproductive and is based on everyone's desire to protect margins and prices. It was the hallmark of worldwide inflation over the 20 years during the late 1960's through to late 1980's. In such an environment, everyone charges more for their goods and services. Nobody actually produces anything more, and everybody but the speculator loses through the uncertainty of the economic transaction and the unforeseen blow out in costs if not protected by price increases unjustified by demand.

The second (demand-pull inflation) is based on the additional productive capacity of an economy, resulting in more real dollars being available for spending, and consequently increasing prices through temporary under-supply. The inflationary pressure that arises is from increased real wealth in the economy. It has come about through increased competitive advantage of the producers; increased commodity prices; better use of technology; increased employment and hence more wage and salary earners with spending objectives; greater export value through increased competitive advantage against overseas competitors etc etc.

So the inflationary pressure, whilst perceived to havearisen from good components, is to be kept in check by the government within the 0% to 2% range. In New Zealand's case (just as with the Federal Reserve in the United States) a large function of this keeping inflation in check will be carried out by the Reserve Bank in keeping with the requirements of the Reserve Bank Act already referred to.

Reviewing the events since the sharemarket crash in 1987, we can see that the de-regulated New Zealand economy suffered perhaps more than most because of the many new and inexperienced financial operators who had expanded dramatically during the period of economic and financial deregulation. The recovery was then further delayed due to the increasein the indirect tax (GST) level to 12.5% in 1989.

Now look at the economic growth figures in the New Zealand economy from 1991. Growth in an economy is measured by the increase in the total value of goods and services which is called the Gross Domestic Product or GDP. The growth figures in GDP over the last six years are shown in the graph below.

New Zealand's G.D.P. from 1991

Whilst the inflation level had been comfortably kept withinthe 0% - 2% band up until 1993, the increase in the demand for goods and services from 1993 led to a prediction that the 1994/1995 inflation ratein New Zealand may reach 2.7% before falling back below 2% in 1996.

This may appear not to be too much of a high rate, but remember that the start of the inflationary cycle is the easiest point at which to suppress inflationary pressure so as to bring things back into order. The competitive advantage is lost if our inflation rate comes upto the level of our trading partners or beyond. Furthermore, the Reserve Bank has no discretion to lift the inflation band target - 0% - 2% is it. The Reserve Bank made it clear that monetary conditions should be tightened to ease back consumer demand and hence growth in the Gross Domestic Product to a permanent and sustainable level of 3.5% to 4% per annum. This range on its own is very high in economic terms and presents great growth opportunities for the property owners.

The result of not controlling inflation is that whilst prices and values increase, productivity and competitiveness falls, and property investors need businesses and consumers to make their tenants profitable. All leases come up for expiry, renew or review at some stage. The property investment owner wants a long term strong economy with profitable tenants to occupy the investment asset.

Growth rates of over 6% followed by the resultant demand-inflationlevels of 4%, then 6% then 10%, would ultimately lead to falling of business confidence, a reduction in consumer and business investment spending, and an undermining of investment capital values.

The entirely successful strategy to hold inflation at a low level, and maintain growth rates still well ahead of our trading partners will result in long term value growth and tenancy demand.

In addition to the internal pressure to control inflation,the central bank in the United States, the Federal Reserve, has increased US domestic interest rates for exactly the same reason. There is increased confidence in the US economy and a fear of inflationary pressure (althoughless "demand based" than in New Zealand). The US economy is dominant in worldwide financial affairs. The consequence of the US rates being increased has been that the New Zealand interest rate rises influenced by the Reserve Bank for domestic control purposes have been compounded by the US interest rate changes.

New Zealand wholesale rates (by example, the 90 day bill rate) increased from its low point of 4.5% in January 1994 to 10.4% in 1995 and 1996. The rate movement was sharp as the Reserve Bank, seemingly unable to deal with the inflationary pressure arising from the recent growth, used monetary devices to control inflationary demand. This had the effect desired of softening demand aimed at achieving their objective of limiting inflation to within a band of 0% - 2%.

It had been argued by many that implementation of the monetary policy by the Reserve Bank has been too late and that this had contributed to the wild growth swing in 1994/1995 and the consequent over-reaction in the subsequent year or two.

If other events had not occurred in New Zealand at that time, it is likely that the raising of interest rates would have had the effect of simply dragging back the inflation level to the required levels. Although a balancing act would have been necessary, there may not have been such a significant reaction.

Unfortunately, however, during the period late 1996 until early 2000, New Zealand suffered from two other negative characteristics.

Firstly in 1996 New Zealand elected its first mixed member proportional (MMP) government designed to enable coalition groupings to govern. Whether one agrees with the MMP principle or not, the first New Zealand experience of MMP from 1996 to 1999 was divisive and paralyzing with the effect that the country had little or no political or economic leadership for the period up until late 1999.

Secondly, the Asian financial markets crisis occurred in September/October 1997 and led to a dramatic falling of Asian investment interest in New Zealand and a substantial drop in tourism numbers. It created immense uncertainty.

These negative characteristics were added to a Reserve Bank policy that kept interest rates at their now very high level until mid to late 1998.

In fact in only May 1998 the wholesale bill rate in New Zealand stood at 10.4% and the floating residential interest rate was 11.25%. The delay of the Reserve Bank to recognise the other adverse consequences and the true then rate of growth culminated in an economic trough, sequential quarters of negative growth technically defining a shallow recession, and very little economic activity.

The period from mid 1998 until the end of 2000 saw several very significant changes leading to the present commencing of a growth phase in the New Zealand economy.

Firstly, the inaugural MMP coalition government was thrown out of office in the November 1999 election. Although a coalition structure remains, it is a co-operative and growth oriented coalition, and the divisiveness of the previous 3 years has been put well behind.

Secondly, the fallout effects of the Asian financial crisis have gone and our tourist numbers stand at a record high with significant growth forecast over the next 5-10 years.

Thirdly, from mid 1998 the Reserve Bank recognized that it had been overcautious in its attempt to control an inflation expectation some 2 years behind. It rapidly permitted the dropping of interest rates to the point where they are almost halved at the current level of 5.75% only slightly above levels during the last growth cycle in 1994/1996.

The Reserve Bank also instituted a Government Cash Rate that currently sits at 5.75% so the wholesale indicators are less significant and more governed by the policy rate instituted by the bank. Floating residential rates are now 7.4% and commercial funding can generally be achieved between 7% and 8.25%.

Finally there has been a staggering rural sector recovery leading to many export gains. The recovery itself has come about through record commodity prices, very favorable growing seasons in New Zealand and a very low dollar value optimizing exporters receipt.

The currency sits at 60% of its value 4 years ago and virtually all expectations are that it is likely to firm substantially over the next 1 - 2 years. A leading investment house in New York has recently predicted that our currency will firm to USD 0.55 from its present USD 0.41 over just the next 12 months.

The combination of political stability, less Reserve Bank involvement and concern, record tourism and rural sector receipts has lead to a reasonable expectation of solid and sustainable GDP growth over the next 3 or 4 years.

New Zealand has enjoyed some good times over the last 10 years but it has accompanied far too much flatness due to external influence and domestic interference.

The focus in New Zealand now seems to be less political interference and being able to reap the rewards from many years of restructuring and reaction to changing market policies.

Every potential exists for sustainable economic growth with a rising currency on a level and low tax field with less Government and Reserve Bank interference. Subject to any unforeseen negative influences from overseas, the start of this decade, century and millennium may well herald the most positive and sustainable period of growth in New Zealand for 20 years.

Investment in sustainable capital assets will benefit from such a trend.