KEY POINTS:
New Zealand's average living standard is 24 per cent below Australia's and it will take 140 years to reach income parity at current growth rates, an economic think tank has calculated.
New Zealand needs to grow significantly faster to catch its transtasman neighbour soon, says a New Zealand Institute of Economic Research discussion document released this week, When Will New Zealand Catch Up with Australia?
The 140 years answer is based on the difference between New Zealand's average annual gross domestic product growth per head since 2000 of 2.02 per cent and Australia's 1.81 per cent.
If New Zealand could double its growth rate, the gap would disappear in 13 years. Growth of 4.7 per cent would see the gap closed in 10 years.
From the mid-1980s to mid-1990s, New Zealand outperformed Australia in labour productivity growth but since 2000 has performed worse.
"Catching up with Australia is not impossible, but very unlikely without major changes to New Zealand's policy directions."
But if Australia was to grow faster, the growth rates required to catch up would be even higher.
"While many commentators believe that Australia is a lucky country, the OECD [in a 2006 report] argues that it has made its own luck through a series of structural reforms and the introduction of a sound macroeconomic framework.
"There is no reason why New Zealand can't also make its own luck."
In a previous report on the income gap, the institute stressed the importance of a freer market, freer trade and a better regulatory environment.
The 2006 discussion paper argued: "In our view, New Zealand should abandon the industry-specific regulations developed since 2000 and return to the light-handed regulatory regime of the 1990s."
