NZ & Oz – a bit more

Readers have sent in a couple more instances of claims that the NZ economy has done, or was about to do, better than competitors, most notably Australia. Here’s Tony Abbott on the alleged success of NZ macro policy

there are other countries which have chosen a different path and there’s no evidence that their response has been any less effective than ours. For instance, in New Zealand they have tried to reform their way through the global financial crisis under the new government’s leadership and they seem to be doing pretty well

and here’s a picture from 1989 of then Finance Minister, David Caygill, showing what he thought the reforms could achieve.


19 thoughts on “NZ & Oz – a bit more

  1. OZs’debt sits at 11%
    and Kiwis sit at 29%
    so that’s what coalition has in store for OZ?

  2. When Tony Abbott uses the words “seem” or “seems” you have been cautioned that you have a tendentious piece of argument on your hands. Take him at his word, what he says may not bear any relationship to what is. (Thanks to Hamlet!)

  3. JQ – You may not have the time or inclination but it would be interesting if you laid out in an article the reforms you would advocate for New Zealand in order to boost per capita GDP. Would you advocate renationalisation of key businesses or would other priorities come higher? Where do you stand on tariffs and labour market regulation? Much of the substance is probably predictable based on your general worldview but it would be interesting to hear what you would make your priorities.

  4. World Bank GDP (PPP) figures for 2012 show;

    Australia, 9th rank, Int$ 44,462
    New Zealand, 27th rank, Int$ 31,499

    I think New Zealand should run an MMT policy experiment insured by the World Bank. Forge an international agreement that NZ be a laboratory for the experiment. Model capital inflows and outflows expected under the business as usual approach. World Bank to guarantee continued capital flows if world financial capital attacks NZ or the NZ currency for running the MMT experiment. Have an agreed framework to manage the experiment and adjust for perverse exogenous reactions from international capital. For example to prevent deliberate sabotage of the experiment. Implement all of Bill Mitchell’s MMT policy recommendations. Bill’s is a comprhensive and representative position for MMT.

    Run the experiment for 12 years (4 terms) subject to the following caveats. Begin the experiment at the commencement of a government term. Allow the parliaments to run full terms. Announce that each election is also essentially a referendum on the MMT experiment. A change of government ends the experiment. If the experiment is ended by the people and NZ shows a GDP shortfall that shortfall is made up by the World bank guarantee and distrubuted by the NZ govt on a calculated pro rata basis.

    Why would anyone be afraid of this experiment? I would suggest because they are afraid it will work. That would turn conventional (neoclassical) economic thinking upside down. The costs if the experiment fails would be a miniscule percentage of world GDP. The benefits if the experiment succeeds would be enormous. The benefits if the experiment failed would be an increase in economic knowledge, refutation of MMT (as a prescriptive policy framework) and a wealth of data to analyse.

    In the case of failure, it would be worth the trivial percentage of world GDP just to shut me up. 😉

  5. Those world bank figures are interesting. As a ratio they indicate that NZ is only 70% of the figure for Oz.

    The following link gives comparative figures for Australian states. It is in A$ not Int$ but it also offers some ratios. It shows Tasmania is 75% of the figure for Oz.

    Tasmania gets outside financial assistance and market access not enjoyed by NZ. However I’m sure there are many other considerations that undermine such a simplistic comparison.

  6. It’s difficult to understand what PrQ is attempting here; it seems necessary to assume that a paper/presentation is in the offing – possibly an update of PrQ’s earlier paper (2000 version)?

    What’s interesting is that PrQ’s quotes in the preceding NZ-Oz post stem mostly from the usual set of cheerleaders (i.e. beneficiaries and fellow-travellers) of the “ever so good reforms” in NZ.

    Having had (another) quick look at the earlier paper it becomes clear that us “settlers” have a clear preference for our Anglo-Saxon view of things. But, the following provides another context to play with, a context that has a far greater ideologically driven focus than one concerned with an inclusive society:

    And the outcomes?:

    i); and
    ii) (Kiwis are outperforming Aussies on that score)

    Jane Kelsey had foreshadowed those broader outcomes some time ago.

    As for NZ Treasury and its role in this? The controversial “Someone Else’s Country” documentary provides some insight into the personalities and thinking that were involved in some economic policies:

    I really can’t think why these reforms didn’t translate into jolly fine macro-level performance.

    Looking into the proposed GCSB legislation changes and Defence Forces furore might also provide some further context for “differences in performance” between the two countries …

  7. Interesting topic John. I’ve been looking at these comparisons on and off over the past decade or so as my economic consulting has taken me to and fro across the ditch. I see a number of different factors at play.

    First, New Zealand has a much higher proportion of its economy still in agriculture. Over the past 40 years Australia has seen agriculture’s share of GDP dropped from some 30% to less than 3%. Over the same period in New Zealand it is dropped but to a lesser extent – only by around 2/3 to some 12%. Over the long term agriculture’s terms of trade have been in a steady decline. Despite occasional bouts of optimism during temporary market upswings, I think the reliance on agriculture remains a barrier.

    Second, the GDP statistics fail to capture a significant proportion of economic activity that takes place in the marae via non-monetised exchanges of goods and services. New Zealand’s very strong bicultural policy means that Maori values and traditions have been strongly preserved. It’s not necessarily an undesirable way to go – arguably there has been a trade-off of material growth for other important social and cultural values.

    Third, New Zealand’s unitary state and unicameral parliament means a number of reforms have been passed very quickly. Much as we dislike the problems caused by our federation and by the Senate, there is an advantage in scrutiny and a filtering out of some of the more precipitate and ill considered ideas that politicians are prone to invent.

    As others have pointed out, it may not be as simple as adherence to free market ideas in New Zealand. A number of the micro-economic reforms were pursued by Australia in parallel with New Zealand with reasonably similar drivers (indeed, observers at the OECD often lumped the two countries together as the ‘Antipodean’ economic model). I’d argue that there is a more complicated institutional story underpinning the differences.

  8. @TerjeP

    Financial assistance from the national government doesn’t count as part of Tasmanian GSP.

    So, NZ is doing worse than Tassie, which is much smaller, more isolated, far more lacking in corporate HQ’s etc. and which has lost significant ag markets

  9. NZ’s comparative advantage is as a low-wage, low-skilled economy. It still has relatively strong education sector- at all levels – but it trains people for Australia. The brain drain has been unending for more than 30 years. People skill up in NZ, then head to Australia for the higher incomes on offer. I know. I was one of them. What can change this, I’m not sure. Perhaps some of us will finally tire of the batshit crazy politics in Australia and go home. It gets tempting.

  10. John, the briefings for the incoming ministers of finance since 1984 are on the web. They set out the contemporay assessments of the nz economy and the statistics they were based on.

  11. Stephen,

    I do not think you need to be a genius to figure out why many of the so called market reforms failed. Many were just the government flogging off public assets to opportunistic rent seekers. These then became monopolies which were then run to the benefit of the new owner, not the nation as whole. (I remember a privatised electricity firm burning out all the cablse supplying the Auckland CBD by overloading them so city was without power for several months!) If the nations infrastructure get run into the ground, it isn’t too long before the whole society suffers.

  12. So, NZ is doing worse than Tassie, which is much smaller, more isolated, far more lacking in corporate HQ’s etc. and which has lost significant ag markets

    I agree it is smaller. Have you quantified the others differences or are they a hunch?

  13. @TerjeP

    Terje, you really want to quibble with the idea that New Zealand, a country of 4.5 million, containing a city of 1.4 million, is in a stronger position to retain high-income “command centre”-type economic functions than Tasmania, a state of 0.5 million people, whose largest city has 200,000 people?

    Let’s compare Australia, Tasmania and New Zealand on the basis of the employment shares of financial and business services in 2006 (the latest year for which New Zealand census data is available):

    Information media and telecommunications: Aust 2.0%, Tas 1.7%, NZ 2.0%
    Financial and insurance services: Aust 3.9%, Tas 2.7%, NZ 3.4%
    Rental, hiring and real estate services: Aust 1.7%, Tas 1.4% , NZ 2.9%
    Professional, scientific and technical services: Aust 6.8%, Tas 4.5%, NZ 8.2%
    Administrative and support services: Aust 3.2%, Tas 2.7%, NZ 3.5%
    Total Aust 17.7%, Tas 13.0%, NZ 20.1%

    Note that Auckland rates ahead of Brisbane, Perth and Adelaide on world city rankings that compare cities on the basis of the presence of major global firms providing “advanced producer services” and the city’s consequent level of integration with other world cities:

    Needless to say, Hobart doesn’t feature in these rankings, although Wellington does.
    Any reasonable assessment would compare Tasmania with New Zealand net of at least Auckland, and possibly Wellington.

  14. John said corporate HQ’s. You seem to be offering some metric relating to employment composition. What is the point you are challenging me on?

  15. Actually, Professor Quiggin referred to “corporate HQ’s etc.” and Tasmania being “more isolated”.

    I’m sorry; I thought you would understand that, since they provide services to them, financial and business service providers cluster together with corporate headquarters. Why do you think that global accountancy and advertising companies maintain offices in Auckland but not Hobart if not to provide services to the corporations there? If you have a more direct measure, perhaps you can present it, but while “management of companies and enterprises” is part of the North American industry classification system, it’s not part of the Australian and New Zealand industry classification system, so comprehensive data is not easy to obtain.

    I can tell you this, however: of Australia’s top 300 companies in 2005, only one was headquartered in Tasmania (it’s since gone into administration). That percentage, 0.3%, is far lower than Tasmania’s share of Australia’s economy or population. Source:

  16. If I had a company with HQ in Sydney I may still also need those sort of service in NZ to deal with different currency risks as well as legal and tax issues.

    As for isolated Tasmania is close to Melbourne and the Australian mainland. It’s arguable closer to Europe also. Tasmania also has less trade barriers with mainland Australia with no trade restrictions and a common currency. All up I would have said that Tasmania was much less isolated. Although NZ has a larger domestic economy than Tasmania.

  17. John, what would you bring back? Give telecom its monopoly back?

    Re-renationalise the railways. NZ did buy Kiwirail back for $600. now has a book value of $1.

    would Nz be richer if it restored the pre-1984 policy regime?

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