'Zac' under microscope in govt-funded study

A Wellington economist has been handed a $225,000 grant to compare New Zealand's economic progress against that of Australian states.

Arthur Grimes, of Motu Economic and Public Policy Research, received the grant from the Government's Marsden Fund.

Examination of how the exchange rate of each country had moved in relation to economic shocks could help predict whether a currency merger would help or hurt New Zealand's economic progress, he said.

When the Australian states were considered individual territories, New Zealand was equivalent to the fourth-largest economy in Australasia, even though it had only 20 per cent of Australia's total population and the equivalent of 14 per cent of its gross domestic product.

Dr Grimes, Suzi Kerr and Dave Mare will plot the economic progress of the Australian states in sectors such as employment, unemployment, GDP, consumer price index and wages, and then compare New Zealand's economic performance with the individual states.

The Royal Society science academy, which yesterday announced the grant for the work, said the project would paint a picture of whether New Zealand shared similar economic cycles with all or any of the states, perhaps leading some of the cycles or lagging behind them.

It would also probe whether those cycles were enhanced or cushioned by government policy and exchange rate adjustment.

The two-year project will cost $113,063 in the first year and $112,500 in the second year.

Prime Minister Helen Clark said in May that it would be "crazy" not to support the idea of a transtasman currency if it was in New Zealand's interest.

But she said at the time that a key concern was that New Zealand, being smaller, could suffer if there was misalignment in the monetary policy cycles.

In June, Australian Foreign Minister Alexander Downer said that though the two countries would next year try to find ways to take closer economic relations further forward, it was unlikely to include the development of a single transtasman currency at this stage.

His New Zealand counterpart, Phil Goff, said New Zealand was standing back and watching the European Union single currency, the euro, to see how it went before pushing ahead with a transtasman unit.

Dr Grimes says there are arguments for and against a transtasman "zac", the currency name proposed by a former Australian deputy prime minister, Tim Fischer.

Advocates for the idea said the two nations were so similar that it made sound business sense, and would make things simpler and cheaper for everyone.

But critics argued that the transtasman neighbours were too different. The ramifications would be enormous, and cut to the core of the nations' social, political and economic identities.

- NZPA