KEY POINTS:
The Business Roundtable says the income gap between New Zealand and Australia will increase under present policies.
Executive director Roger Kerr said that although wages in Australia are already some 30 per cent higher than in New Zealand, productivity growth trends in the two countries suggested that the disparity would continue.
Productivity is a measure of how efficiently inputs such as company capital and labour are used within the economy to produce goods and services.
Kerr said recent data shows that between 1992 and 2000, New Zealand outstripped Australia in average annual rates of growth of both labour productivity and multifactor productivity (improvements in knowledge, technology and innovation). New Zealand's labour productivity had grown 3 per cent annually and Australia's had been 2.7 per cent during that period. But during 2000-2007 the positions reversed, with Australian productivity falling to 2 per cent but New Zealand's to 1.2 per cent.
In multifactor productivity, it was the same, with New Zealand falling from 2.6 per cent to 0.5 per cent, and Australia falling from 2 per cent to 0.7 per cent.
New Zealand's earlier strong position reflected the gains from the economic reforms of the 80s and early 90s, Kerr said.
"On present policy settings, the income gap with Australia looks certain to widen and there is no likelihood that New Zealand will get back into the top half of the OECD income rankings," he said.
Over the long term productivity mattered because it was the key determinant of a country's standard of living, he said.
Explanations for the productivity decline in both countries included the entry of less productive workers with falling unemployment.
Kerr blamed the size of New Zealand's government as a major factor inhibiting productivity and per capita income growth.
OECD figures showed government expenditure at all levels in Australia was 34 per cent of GDP, compared to 43 per cent for all levels of government in New Zealand, he said.
Australia had also improved its rankings for economic freedom, which encouraged entrepreneurship and growth .
Kerr said: "Recent IMF research has concluded that Australia's superior productivity performance is largely explained by its economic reforms, particularly in the labour and product market areas.
"It is therefore mystifying that recent productivity research by the New Zealand Treasury did not focus on the impact of New Zealand's economic reforms on the productivity improvements of the 90s, and the impact of policy reversals and increased government spending, taxation and regulation on the much lower productivity growth rates in the current decade."
- NZPA
