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THE Government needs to sort out its immigration policies to tackle severe skills shortages, Finance Minister Michael Cullen said.
Dr Cullen told a meeting of business people in Hamilton the Government had made some recent changes to immigration policies after an "unsustainable" number of immigrants had arrived.
However, the changes had resulted in fewer people coming and the Government had not met its targets.
"It emphasises how volatile immigration is," he said.
The Government would look to a more aggressive recruitment drive overseas, as in the 1950s and 1960s, when many middle-level skilled workers came from Britain to trades such as engineering and fitting and turning.
"We've got a big job to do (tackling skill shortages) and migration is going to be a big part of that."
The country needed to build a more productive and higher skilled workforce to keep the economy growing, he said.
The economy had been booming, with gross domestic product growth of 2.3 per cent for the March quarter, the highest result in 18 quarters, but most forecasters expected a slowdown in the coming year.
"We are, if you like, sprinting and surprising ourselves at how long we have sustained that sprint, but we know we are not in the right shape for a long-distance event," he said.
"If we continue at this pace, we know we will run out of puff sooner or later," Dr Cullen said.
He said New Zealand had low levels of productivity and capital per unit of labour compared to other OECD companies.
The level of overall skills in the workforce needed to increase, as did the level of investment in New Zealand businesses, Dr Cullen said.