The lucky country - or just pragmatic

By Richard Braddell

Between the lines


What could be more galling? Without raising a sweat, Australia has consistently outperformed New Zealand. And we are not talking about rugby or netball.

We are talking, or at least the Institute of Economic Research is, about the economy, that area of New Zealand endeavour where our purist approach has been held up as an example to the world.

But pragmatism, as practised by the Australians, seems to have its points. As the institute observes in its latest quarterly predictions, Australia has beaten New Zealand in economic growth, exports (to Asia in particular), consumption and success in moving away from an agricultural-based economy.

We can claim some victories. Our investment growth has been stronger than Australia's, as has employment and the participation in the workforce by people capable of working. The contrast is even more stark considering that Australia is slowing from strong growth, New Zealand's is just getting underway.

The Employment Contracts Act can claim some credit for New Zealand's labour market performance. Without it, employers might be more reluctant to take on staff, knowing it is more difficult to get rid of them. But it has been at a cost to incomes. Australia's more highly unionised workforce is paid more with compensation rising 5.6 per cent annually since 1997, compared with 3 per cent in New Zealand.

And while New Zealand's inflation performance has also been better than Australia's, the question lingers as to whether our staunch approach has been worth the cost. New Zealanders still live with the memory of the 1994/95 tightening when interest rates soared and the economy ground to a halt.

They may well take pause to wonder, particularly when Australia's looser monetary policy seems to have produced near-comparable inflation with very little impact on growth.

One area where neither country can take pride is in their balance of payments. Both have yawning deficits although, again, New Zealand's has less going for it.

While Australia's seems to cycle between 3 and 6 per cent of GDP, reflecting changes in merchandise trade, New Zealand's in addition reflects the shift to overseas ownership of local businesses. Both deficits, the institute suggests, indicate unacceptably low domestic savings.

While such comparisons between the two countries are crude, the institute says the facts paint a grim picture with Australia outperforming New Zealand all too often.

"Although we can list employment as a victory for the home side, Australia does better on just about every other measure. And it isn't just a trick of the cycle. In the last 20 years, Australia's annual growth has been higher for 14 of them."

Australia has long been called the lucky country but there's more to this outperformance than good fortune. Political pragmatism deserves credit too.