Susan St John disputes the Business Roundtable's statement that New Zealand's ratio of government spending to GDP is high relative to that of other OECD countries (The Independent 5 December).

We base our analysis on the level of general government total outlays. The general government sector consoli-dates the accounts of central, state and local governments plus social security. Total outlays are defined as current outlays plus net capital outlays. This is the most comprehensive indicator of government expenditure and the best measure of the tax burden.

We take our data from the semi-annual OECD Economic Outlook. The latest Outlook (June 2001) puts New Zealand's ratio of general government total outlays to GDP at 40.2% in 2000 (the latest actual figure), well above the OECD average of 37.9%. The data show that New Zealand is highly-taxed relative to other OECD countries.

St John's assertion that "using the BRT's preferred measure of government spending as a percentage of GDP, New Zealand at 36.4% is below the average and the median" is simply wrong. Her data relate to current general government expenditure and omit net capital outlays.

The costs of new hospitals, schools and prisons must ultimately be funded from tax revenue in the same way that salaries paid to nurses, teachers and prison officers are. It defies common sense to include salaries but exclude new buildings when measuring the tax burden.

NZ data presented in OECD figures, which St John cited, relate to 1997 whereas the data for most other countries relate to 1999. We use data for 2000 for all OECD members for which data are provided.

St John seems on shaky ground in suggesting that GST inflates the level of government spending. GST paid by departments is presently excluded from Crown accounts prepared on a GAAP basis and excluded entirely from those prepared on an SNA basis. GST is also excluded from local government accounts.

The decision to gross up benefits and subject them to tax will have increased New Zealand's ratio of government spending to GDP in 2000 relative to what it would have been by perhaps 0.4 percentage points. Neither that policy nor GST invalidates the conclusion that New Zealand has an above-average tax burden by OECD standards and one that is far above high-income Asian countries such as Singapore and Hong Kong.

We have pointed out that no country has achieved sustained per-capita income growth of 4% or more with a government sector share of the economy as high as New Zealand's level of around 40%. St John's ideological preference for a big-government, low-growth economy is perfectly legitimate, but it is inconsistent with the goals of the government and other political parties seeking to achieve growth rates which would restore New Zealand to the top half of the OECD rankings.

R L Kerr, executive director, NZBRT