Income gap dealt blow with $85b coal deal

Prime Minister John Key's insistence that New Zealand can close an income gap with Australia has been dealt a further blow, with the signing of an $85 billion deal to export coal to China.

Mr Key said yesterday that he believed New Zealand could catch Australian incomes by 2025, despite Reserve Bank governor Alan Bollard throwing cold water on the Government's goal.

Dr Bollard said on Sunday that he did not believe the gap could be closed because of Australia's vast mineral wealth. New Zealand should instead concentrate on "crumbs from Australia's table".

The comments angered Mr Key, who said yesterday it was "a fairly negative view about New Zealand's future and I just don't agree with it".

Mr Key said Dr Bollard was being fatalistic. Though it was true Australia had more mineral wealth than New Zealand, "I'm not going to write off New Zealand today just because Alan Bollard tells me it's difficult to achieve".

But Dr Bollard's remarks were underscored yesterday with the announcement by Australian mining company Resourcehouse that it had signed the $85b deal with China to supply coal in Australia's biggest single export contract.

The 20-year deal to supply 30 million tonnes of coal a year to China is expected to create tens of thousands of jobs in central Queensland and provide royalties of more than A$605m (NZ$763m) a year to the state government from 2014.

The deal comes six months after Australia signed a gas deal with Petro China to supply A$50b of liquefied natural gas from Western Australia during the next 20 years.

The two contracts alone amount to about two-thirds of New Zealand's annual gross domestic product.

Mr Key acknowledged yesterday that such deals made it difficult for New Zealand to catch up, but said that it remained possible.

"It is an aspirational goal but I also think it's realistic – I think we can get there. Thirty years ago New Zealand had the same wage rates as Australia and they still had their minerals back then."

New Zealand also had an abundance of water, which Australia did not. Though the Government had not specifically investigated exporting water, there were opportunities for its use, including irrigation, he said.

"Irrigation presents a huge opportunity – there's a million hectares of land that could be irrigated properly in New Zealand and have quite a substantial impact on our GDP."

Mr Key said though Australia's continuing minerals boom could persuade some young New Zealanders to cross the Tasman searching for work, New Zealand also had "a very nice balance of lifestyle".

The Government was also working to put in place better economic integration with Australia to ensure New Zealand benefited from its neighbour's wealth. "In one sense Alan Bollard is absolutely right. A strong economy in Australia benefits New Zealand."