Bickering over gap with Australia neglects NZ's real problems

BY COLIN JAMES

OPINION: So we're not catching up with Australia or we are catching up. Take your pick and find some numbers and a time frame to fit, as Phil Goff and John Key did last week.

But which numbers?

Is it GDP per capita - gross domestic product (GDP, or total output) divided by population? If so, which GDP? Australia averages three different GDPs (production, income and expenditure) for its commonly used figure. New Zealand uses production only for its commonly used figure.

Or is it work income? And is that gross or net? If net, do you just deduct income tax (lower here) or also adjust for GST (15 per cent here soon to Australia's 10 per cent, making an item 4.5 per cent higher here) and other fees (such as ACC, stamp duty, vehicle licences, all higher there)? Do you adjust for basic costs such as housing (higher there)? And do you compare average work income or the median (the point at which half are above and half are below)?

The two countries' GDP- production per capita, the Bank of New Zealand's Stephen Toplis found last year, had a closely similar growth track through the past 20 years, except in the two 1990s recessions, when New Zealand fared worse and most of the post- 1980s gap opened up.

During this decade, Toplis found, the gap stabilised, ending close to where it started, even after opening up a bit in the 2008-09 recession.

But GDP per capita is not spread around equally. In both countries income inequality expanded in the 1990s, dramatically so here, in part driven by our late-1980s and 1991 deregulation of wages and employment.

Australia kept more protection on work incomes. John Howard deregulated in his last term but his Liberal successor, Tony Abbott, has taken it off Australia's election agenda after Julia Gillard's partial reversal.

It is Australia's higher real work incomes - net of taxes and other charges and the cost of living - that are the main attraction to New Zealanders who relocate there. The transition is easy and the pickings better.

So the real issue for Key, who, like Don Brash before him, campaigned hard on deploring that westward diaspora, is how to lift real work incomes to match Australia's.

Gerry Brownlee had a part- answer: more mining. Australia is a bigger and richer "quarry". Its mining-based jobs pay much higher wages than jobs in our main "quarries", that is, rain (via grass, into food and fibre) and fine nature-scapes (for tourism).

Singapore, with geographical position but no "quarry", focuses on lifting incomes by lifting its employees' productivity.

That needs investment. Raising New Zealand work incomes to Australia's level by 2025 will require a lot more investment.

But investment requires saving. New Zealanders made a subconscious collective decision in the 1990s and 2000s to spend far more than we earned and to sink what we did save into houses, not productivity-enhancing assets.

The consequence: a bother about foreigners, who did save, scoffing our productive assets. Even Key, an internationalist in a former life, is suddenly determined we shall not become "tenants in our own land".

The surprise is that this should be a surprise. The trajectory has been clear for most of our two spendthrift decades. The issue is not "tenants in our own land". The issue is getting investment - some desirably from foreigners even when we do save - which boosts higher-income activities.

That is the strategy Brisbane Lord Mayor Campbell Newman outlined to the local government conference last Monday. Not too long ago Brisbane and Auckland were on a par. Now Queensland is well above Auckland and mining is only part of the reason.

New analysis by Motu Research shows why: the share of jobs in "high-value, non-routine, knowledge-intensive activities" increased markedly less in Auckland than in Brisbane (and in Melbourne, Adelaide and, to a lesser extent, Sydney and Perth). It finds that within New Zealand "Auckland is functioning as a core city" for those activities "but is peripheral within Australasia".

Cycle tracks, digging up beauty spots and more cows won't fix that. That is why the super Auckland decreed by the Government has to be more than just more efficient. It has to become smart Auckland, locomotive to the whole economy.

The alternative, just rearranging Auckland's deckchairs, will have politicians still arguing in 2025 over which numbers prove their pointless point.

ColinJames@synapsis.co.nz

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