DOM/PRESS: NZ and Australia, 31 August 2004

When I was a child in the 1940s Australia was nothing to write home about. A cousin went there to work and reported that wages were inferior to ours, and the standard of living was lower. Australia's currency was 25% below ours into the 1970s. Oh how things changed! Australia invited a proportionally larger number of migrants in the decade after the war, and as the world demand for mineral resources skyrocketed, standards of living rose steadily. New Zealand, by contrast, entered on a 30 year decline relative to Australia. By the late 1970s Australia was the place Kiwis visited to purchase cheap goods and duty free. There are now half a million New Zealanders living in Australia. Kiwis as an immigrant group are Australia's best skilled. Robert Muldoon's throwaway jibe that migrating Kiwis raised the IQ on both sides of the Tasman was half right. Sadly, emigration reduced ours. We got some skilled Aussies in return, but many fewer.

Don Brash was only stating fact when he recently wrote in the Australian Financial Review that New Zealanders' incomes have fallen 30% behind Australians'. Michael Cullen's response was partly right. The gap hasn't widened over the last decade thanks to the reforms of the 1980s and 90s that Cullen often bags. New Zealand has lately been doing as well economically as Australia, and both have slightly bettered the OECD average. The bad years when we slipped behind Australia were those when Muldoon mostly controlled the economy. The crisis of 1984 when we were forced to devalue our currency by 20% against everyone else wasn't caused by lightning. Misguided monetary policies where successive (mostly National) governments overspent, borrowed to the hilt, and ran up deficits like drunken sailors, saddled us with huge debts. Our growth rate slumped to 30% of the OECD average. Think Big was the tonne weight that broke the camel's back. Between $8 and $11 billion (depending on how you do the sums) had to be written off as a result of misguided Muldoonery. By 1984 nearly 20% of government expenditure went on debt servicing alone. That meant less for Health and Education. It took another decade to climb out of that pit. One key factor in our improvement was the untangling of the interlocking labour market relativities. They had seen higher wages negotiated in one area of skill shortage shoot across the workplace spectrum, pushing our inflation above the OECD average, to levels nearly twice those of Australia.

The Aussies had their troubles too, but on a comparatively smaller scale. Like us, excessive protectionism against the world resulted in high cost local products, deficits, inflation and growing unemployment. Even today privileged Australian workers oblige Liberal and Labor governments to follow policies that are against the interests of the unskilled. Australia's unemployment is therefore slightly higher. But they escaped problems on the scale of ours. One marked difference between us has been Australia's more cautious approach to the welfare state. Yes, Medicare, even in trimmed down form, still costs the Aussies a bomb. And they made the Aborigines welfare dependent, blighting their lives even more than they already were. We have done the same for too many Maori and Pacific Islanders. The difference is that whereas the Aborigines constitute 1.5% of Australia's population, Maori and Pacific Islanders are nearer 18% of ours. They are twice as likely to be being paid to do nothing than all other ethnic groups in New Zealand. Consequently we have a larger segment lazing about in permanent grievance mode than Australia. Australians pass through the Unemployment and Sickness Benefit phases more rapidly, just as they were meant to do in New Zealand in earlier times. Australia is less generous with retirement benefits, too. There is a strict means test. Someone with a good public service pension can't expect the equivalent of National Superannuation on top. Overall, the proportion of society on benefits is slightly smaller in Australia, meaning governments have a little more budget flexibility.

Don Brash put his finger on the spot. To say he is "bagging New Zealand" when all he did was state a self-evident truth was idiotic on the parts of Michael Cullen and Winston Peters. There's no point shooting the messenger. Better to deal with the inescapable message: New Zealand must improve its competitive edge against Australia in the years ahead if we are to cut the mustard in the globalising world marketplace.