Is the grass really greener in Australia? Photo / Getty Images
Is the grass really greener in Australia? Photo / Getty Images
OPINION
The last time New Zealand experienced a brain drain on anything like the scale it is right now, Prime Minister at the time Rob Muldoon laughed it off.
“New Zealanders who leave for Australia raise the IQ of both countries,” he quipped.
Like so many great quotes, it isapocryphal, ie never officially documented. But I reckon he said it. Both because it sounds like Muldoon’s acerbic wit and, for those of us who recall the era from the late 1970s to the early 1980s, that exodus to Australia loomed so large.
As a child at the time, I remember a cartoon by Peter Bromhead depicting a queue of leavers at the airport and a sign on the wall that said: “Would the last one to leave please turn off the lights”.
According to Stats NZ, the latest immigration figures for the year to February 2024 year saw two annual records for New Zealand citizens. There were 74,900 migrant departures, exceeding the previous record of 72,400 in the February 2012 year and net migration loss of 47,700, exceeding the 44,400 in the February 2012 year.
Most of those leaving are headed for Australia, where wages are higher although the grass (ironically) is usually browner.
Back in the late 1970s, New Zealand had a total net migration loss of nearly 30,000 a year.
Things are different now of course. New Zealand’s population is much larger and is growing at a historically unprecedented rate. Back then we didn’t have large numbers of migrants coming in to offset the departing Kiwis.
That population growth is one of a few significant differences between the economy now and then. We also have an open market economy with a free-floating currency and tight monetary policy control.
In other words, we already had tools in place to rebalance the economy this time and the work is well under way. In the late 1970s, we had a closed, command-and-control economy that had to effectively be dismantled and rebuilt.
While the new coalition Government faces big challenges and fiscal constraints, it doesn’t have to do that.
In both the 1970s and 2020s we were late to get started with our economic rebalancing. By the time the Labour Government began reforms in 1984, we had suffered through a decade of economic malaise.
Post-pandemic, it was frustrating that Labour didn’t straighten up its fiscal approach with more urgency. In my view, it was clear by early 2021 that it was time for fiscal constraint.
Those two lost years when loose government spending grew are making things tougher now than they might have been.
Prime Minister Sir Robert Muldoon. Photo / Herald archive
Presumably, now as then, it is the economy pulling our young people across the Tasman so it is worth taking a look at the relative state of the two countries.
BNZ chief economist Mike Jones published a very good stocktake last week.
“We find the cyclical positions of the two countries are not that different. It’s just that Australia’s economy is in an outright stronger position in nearly all areas,” he wrote.
New Zealand is in recession and annual growth is currently -0.3 per cent year on year.
“If NZ’s economy hit a wall in late 2022, in Australia it’s been more of a cushion,” he said.
Annual economic growth there has cooled to 1.5 per cent. But both economies have gone backwards in per capita terms in the past year - New Zealand by -3.1 per cent and Australia by -1 per cent.
Interest rates have risen in both economies and unemployment is rising. It’s been a steeper curve of rate rises here and unemployment is expected to peak at 5.5 per cent compared to 4.5 per cent in Australia.
Inflation is falling in both countries. It is about halfway back to target from the 2022 peaks, with Australia 4.1 per cent as of the end of 2023 and New Zealand at 4 per cent.
The upshot is that the cyclical economic differences aren’t that big. They’ve certainly been wider.
But structurally Australia is a much stronger and wealthier economy. Why?
Yes, they have access to enormous mineral wealth. But to blame the difference on that alone is a cop-out. New Zealand is also blessed with outsize natural resources relative to its population. The scale of our agriculture, horticulture and forestry, the size of our fisheries and the capacity for tourism are huge on a per capita basis.
But per person, we have lower productivity and lower rates of savings and investment.
Our productivity dilemma is complicated and much debated.
Some people focus on high levels of regulation and red tape. They may have a point with regard to some of our international peers. But my experience of Australia, and Australians I talk to, is that there is no shortage of regulation and red tape across federal, state and local government.
For me, there are two key things Australia has that we don’t. Compulsory superannuation savings and a capital gains tax have made a huge difference across decades of economic growth.
These policies have turbocharged Australia’s financial sector while ours has languished.
Australians own their banks - in fact, they own ours. Most of the dividends on profits their big corporations make stay in the country. In New Zealand, most of the profits drain out.
Australia’s Superannuation fund is worth $3.7 trillion. That puts our efforts with KiwiSaver (about $100 billion) in perspective.
If you have questions about how the economy works leave them in the comments or send them to liam.dann@nzherald.co.nz and he’ll try to answer them in his weekly column - Inside Economics
Liam Dann is business editor-at-large for the Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
