The other Australia vs New Zealand rivalry

After the thrilling semi-final against South Africa, the New Zealand cricket team finally has to venture across the Tasman for what will surely be the game of their lives on Sunday.  The bookies and most commentators expect the other finalist will be Australia.  Despite the momentum that comes from  being unbeaten in the tournament so far, New Zealand is likely to be the underdog.  Sometimes underdogs win, so we can hope.

But what about relative economic performance?  For a century or more, New Zealand and Australia had pretty similar living standards, and then at some stage post WW2 (when depends on the series one chooses) we started drifting behind, and New Zealanders started moving in larger numbers to Australia from the late 1970s.

There has been a curious thread running through economic commentary, and political commentary on economic developments, in the last couple of years suggesting that New Zealand has begun outperforming Australia.  Those on the right of the Australian have been heard to talk of how the Australian government should follow the (apparently) reforming path of the New Zealand government.  The head of one of our think-tanks has reinforced the message in a little book published in Australia.

Export commodity prices certainly ebb and flow, and Australia’s are still retreating, but from the extraordinary highs of just a few years ago.   One of the best timely indicators of how well an economy is utilising resources to deliver long-term prosperity is to look at real GDP per hour worked.  I’ve graphed it below for both countries for the period since December 2007 (just before the recession), indexed to 100 at that date (NZ data uses HLFS hours worked data).  It isn’t a pretty picture for New Zealanders.  For the first 3 or 4 years the cumulative difference wasn’t large, but look at the last 3 years.  NZ has had no productivity growth, and Australia’s productivity growth has accelerated.  Cumulatively these are big differences: eight percentage points over seven years, from a starting point where our incomes were already well below theirs.


We can only hope for a rather better result in the cricket, although the phrase “bread and circuses” springs to mind.  Argentina still does well at soccer, but I suspect most of the public would regard that as small compensation for a century of economic failure.

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