Relative economic performance of New Zealand and Australia

In a recent post critical of a CIS article on New Zealand by Phil Rennie , Nicholas Gruen expressed “disappointment” that the author “cherry picked” to “make favoured points in line with the author’s priors”. Today there is an article by Professor James Allan in The Australian that, although generally balanced, shows a similar ideological leaning.

It prompted me to send the following letter to the Editor, which may or may not be published.

Start of letter

James Allan (Clark needs new zeal and a lot of luck 29/2/098) may well be right to claim that New Zealand voters are weary of the Government of Helen Clark. But this cannot be attributed to the economic side of things as Professor Allan claims. Had he looked at the latest OECD Economic Survey of New Zealand, he would have found that, on most standard economic performance indicators such as GDP growth per head of population, labour productivity growth, inflation and unemployment, NZ has been doing as well or better than Australia in the last decade. This is despite the fact that NZ chipped away at some of the pre 1999 labour reforms and slipped a couple of points on the very imperfect barometer of economic freedom published by the Heritage Foundation.

If 40,000 Kiwis are crossing the Tasman each year, it is because Australias resource-blessed, larger economy offers a bigger market, more diverse opportunities and higher pay at current exchange rates not because Helen Clark has failed the economic test.

End of letter

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4 Responses to Relative economic performance of New Zealand and Australia

  1. conrad says:

    This is a bit off topic, but I think the letter raises a really good question of what smaller and often only marginally poorer countries can do to try and keep their workers. NZ is lucky in that it loses workers across the spectrum, but many countries lose mainly their professionals. Often this is attributed to rather negative factors, but NZ is a good example that shows that this can happen in even pretty decent places.

  2. Fred,

    I’m not sure you’re right. Australia’s outperformance pre-dates the resource blessings coming on stream. And why should NZ’s smallness suddenly matter so much more now than it used to. It’s quite possible that it does, but no-one’s explained why.

  3. Fred Argy says:

    Nicholas, I am not sure what you mean by “Australia’s out-performance”. I am not discussing current relative levels of per capita income but trends in key economic indicators in the period after 1999 when Clark won office (not over the last thirty years).

    Comparing NZ with Australia in that period (effectively the last decade), NZ has generally had a lower unemployment rate, a higher employment rate (relative to the working age population) and a very similar or better inflation rate. It did realise a lower GDP growth rate but that difference is small when one adjusts for N.Z.’s lower population growth. As to productivity growth in the measured sector of the economy (where independent measures of both inputs and outputs exist), NZ’s performance has been “comparable to that of Australia” (OECD Survey 2007) – which I suppose isn’t saying much as Australian productivity growth virtually stagnated after 2002.

    Of course when one allows for the boom in our terms of trade, real national income per head rose much faster in Australia than in NZ over the last decade – but having more favourable export price trends is hardly evidence of out-performance.

    I agree that NZ’s “smallness” has always been an inducement for Kiwis to emigrate to Australia but I don’t know how that affects my main argument. NZ does have a very large external account deficit (even larger than ours) but no one seems to worry unduly about it. Again, it appears NZ is operating below potential according to the IMF – something which cannot be said of Australia. But all in all, which is that Clark’s government has not been an exceptionally bad economic performer. You would give her a pass or credit.

  4. Fred, I don’t know why you say you don’t understand what I’ve said. (I expect Tom N might turn up scolding me – quite rightly – for such an ugly expression as ‘out-performance’ lifted from market jargon. My only excuse is I couldn’t think of a shorter way of saying it – I plead Orwell, though I’m sure he would have disapproved as well.)

    Anyway I presume you know I mean ‘better economic performance’. You attribute Australia’s somewhat superior performance in income growth per capita after 1999 to the resources boom. Fine. Aust and NZ income was similar in 1970 and not so different in the early 1980s. NZ’s then deteriorated mainly before 1999. Some of the difference is the unnecessary recession of 1997 – but that also explains part of the superior performance since 1999.

    Anyway, my point is a simple one. The period in which Australia did much better than NZ was the reform period of say 1983 till 2000. That’s not explained by any resources boom, because there was none.

    I’m not trying to give Helen Clark any kind of mark – though I agree with you that the ideologues are having a field day with her – but there’s something particularly extreme about ideological discussion in NZ, and so I pretty much ignore it. I can’t prove it, and I can’t explain it, but as I argued at the end of a recent essay on New Zealand and Australia’s economic performance, I see the ideological polarisation of debate in New Zealand as being a possible factor in their poor performance.

    The game amongst the right in New Zealand at the moment is to praise Australia for its greater steadiness in reform as compared with NZ’s ‘stop start’ reform – without it apparently leading to any self reflection on their own possible role in such a state of affairs.

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