Okay, so the weather in Wellington is even less conducive to either being at the beach or in the garden than it was on Friday.
Tomorrow it will be 2025. Once upon a time there was a government that adopted a goal of catching up economically with Australia by 2025. I don’t suppose the Prime Minister of the day – John Key – really cared that much for the goal, although for a while he articulated the rhetoric well enough, and he’d campaigned in 2008 on the continuing exodus of New Zealanders to greener pastures – well, higher incomes anyway, on a dry continent – across the Tasman. The goal, and the associated taskforce set up to advice the government on how it might get there, was more of an ACT win.
Treasury provided the secretariat to the 2025 Taskforce, and since I was working at Treasury at the time, and as the chair was my old boss Don Brash, I ended up working extensively with the taskforce and holding the pen on most of the first report (after I went back to the Reserve Bank, Neil Quigley was contracted to write the second report, and I had less to do with that report). The first report was (very publically) binned by John Key the day before we released it. I later came to conclude that while I agreed with most of the long list of policy recommendations in the first report, they weren’t sufficient and overlooked one important issue in particular, but even if one disagreed with the specific policy recommendations – and Key clearly had no stomach for them – one might have hoped that his government (and those that followed) might be serious about the goal itself and looking for effective policy solutions. After all, as the 2025 Report pointed out in 2009 there had been a long history of politicians talking about catching up again with the best performing countries abroad (just no sustained success in bringing it about). (There is a link to both 2025 Taskforce reports here.)
Here it is worth noting that even in 2008 Australia wasn’t one of the stellar advanced economies, with average real labour productivity (in PPP terms) not much above the median OECD country. Much better than New Zealand of course, and Australia mattered for us both as a natural point of reference in our part of the world (similar disadvantages of distance, similar cultures) and as the place where almost all New Zealanders could readily move if they chose (and hundreds of thousands already had).
In this chart I’ve shown how things have actually unfolded
Over the full period we haven’t caught up with Australia, we haven’t even begun to close the gap, and instead the gap has widened a bit further again. Both series are noisy and subject to revisions (in New Zealand alone there are levels differences between the income and expenditure real GDP measures), but overall things have gone in the wrong direction. If one wanted to look on the less gloomy side, I guess one could note that whereas Australia has had no productivity growth at all since 2016, we have had a bit, but I wouldn’t put much weight on that myself (including with declining foreign trade shares, weak terms of trade). And although one could generate a bunch of other comparative graphs, it is productivity that ultimately underpins a country’s longer-run average prosperity.
What I find most depressing – and why I have, somewhat gloomily, been anticipating for some years writing this post – is the lack of any apparent sense of urgency in New Zealand about turning things round or actually finally beginning to sustainably close the gaps. And that has been true really regardless of which parties have held office – if Key binned the advice on the 2025 goal and did little or nothing useful instead, Ardern/Robertson refocused the Productivity Commission on distributing the economic pie rather than growing it, and Luxon/Willis show no better than occasional conventional rhetoric on the topic. And all this against a backdrop where Australia has again made it easier and safer for New Zealanders to move across the Tasman.
As it happens – and what reminded me to write the post – in the New Years’s Honours list released this morning, the government chose to honour one of the members of the 2025 Taskforce, the economist Bryce Wilkinson. That’s nice, but if I know Bryce I’m pretty sure he’d much prefer that governments – including this one – had gotten serious about finally reversing 70+ years of relative economic decline. That would have benefits for all of us, and for our children and grandchildren, who might be more interested in staying to build a better New Zealand.
croaking cassandra 
Thanks Michael. I vaguely remember John Keys frequent pivots to the center ground and on economics that was certainly where both he and Bill English landed. I asked Chat GPT about the report you mentioned – it’s was a very familiar list of policy pre-scription echoing loudly from the 80’s.
I guess what stuck me about the list was how, on nearly every point, the opposite of what Australia actually does was being recommended. So I asked Chat GPT about this and here are some of the replies.
1. Reduction of Government Spending
Conclusion: Australia’s higher government spending, particularly on social services, stands in contrast to the taskforce’s small-government vision.
2. Tax Reform
Conclusion: Australia employs a more progressive tax system and does not emphasize consumption taxes as heavily as New Zealand.
3. Labour Market Deregulation
Conclusion: Australia’s labor market is far more regulated, favoring worker protections and collective bargaining, the opposite of the taskforce’s recommendations.
4. Privatization of State Assets
Conclusion: While Australia has embraced privatization in some areas, it retains significant public ownership in essential services, contrary to the taskforce’s broad privatization agenda.
5. Regulatory Reform
Conclusion: Australia balances business interests with environmental concerns more than the taskforce’s deregulatory stance would suggest.
6. Education and Social Policy
Conclusion: Australia’s mixed public-private model in education and healthcare contrasts with the taskforce’s push for user-pays.
And the overall conclusion was this:
Overall Comparison
The NZ 2025 Taskforce’s recommendations represent a radical neoliberal approach that aligns with ideological purity more than practical governance. In contrast, Australia operates a mixed economy where:
Australia’s economic success has often been attributed to this balanced model, which combines market efficiency with strong public investment and social safety nets—an approach quite different from the taskforce’s vision.
Is this a fair summary and comparison from your point of view?
Do you think that Australia’s mixed model is the reason for it’s healthy economy or should Australia also be pursuing economic policies as outlined in the 2025 report?
As a task force member why were you not interested in examining the existing economic structures in Australia as a potential model for New Zealand to catch up economically? If Australia has a better performing economy with it’s mixed model approach and progressive taxation why would the opposite work for NZ? Was there another countries economy or different economic data you were looking at for the basis of the report?
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I wasn’t a Taskforce member (just a staff assistant), but we spent a lot of time thinking about similarities and differences, and where NZ could adopt poliicies llikely to help us converge, recognising that in plenty of areas Aus policy settings seemed inferior to our own.
On one purely factual point, the govt spending shares of GDP you are comparing as apples and oranges (for NZ we were using core Crown spending). On a like for like basis, Aus govt spending has historically been a slightly lower share of GDP than NZ’s.
The key issue in thinking about Aus is recongising how much differences the natural resources make to Aus fortunes. We either can’t or won’t replicate that (prob a mix of can’t and won’t), and so don’t have the luxury of second-best policies in other areas if we want to close the income gaps and encourage NZers to stay here. Moreover, as I noted in the post, Australia is not an enormously successful economy itself (better than us, but worse than many OECD leaders).
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Thanks for replying Michael. The point about different measurements of GDP between the 2 countries is important and something Chat GPT missed. Reading your articles is challenging me to think hard about my own economic views and learnings. It is a field that fails a lot of the time in terms of analysis and modelling and expectations are often confounded by reality.
For example – how has Argentina achieved economic growth after massive cutbacks in government spending, rising poverty and unemployment and annual inflation over 150%? What’s more there are low levels of private sector borrowing – so how is growth achieved? It makes no sense.
How is Australia avoiding a recession with high interest rates and recent government surplus? There economy should be contracting but it isn’t.
Why did all the economists in NZ (maybe apart from Bernard Hickey and other ‘lefty’ economists) get the forecasts for 2024 and 2025 so optimistically incorrect? What information did they miss? It was a large piece of information given the size of the downgrade that was made for the NZ economy by the end of 2024.
The MMT lens doesn’t neatly fit all of these scenarios but it comes close – probably the best exposition on economics I’ve come across and continue to return to is Steve Keene. His key thesis is that economics should be the study of a complex dynamic systems and this does make a lot of sense when you consider the number of interconnected variables are involved.
This is an interesting Steve Keene lecture that I’ve watched a couple of times now. Breaks down the history of government debt to GDP for the US and other countries over time and discusses the objective of achieving a surplus, it’s impact and rarity – if you have a spare hour or so – https://www.youtube.com/watch?v=WOIaF7sjb3M
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Sorry to put it all like that but I do remember the report coming out and I remember having the similar questions at that time. If we in NZ want to have an economy that performs like Australia’s, why not replicate Australian economic policies?
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Australia is prepared to borrow and to spend on infrastructure projects. Eg, during Covid the Australian Quantitative Easing program enabled the Australian Government to borrow to the tune of $900 billion. The NZ QE program started with a plan for $100 billion, but stopped at $59 billion which the NZ government ie Grant Robertson as Minister of Finance gifted away $27 billion in frivolous projects of National significance like bungy jumping. The RBNZ either then panicked or made a mistake and repaid the remaining $32 billion as soon as they borrowed it reducing the Government’s borrowing to just a mere $27 billion.
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Happy New Year Mr Reddell. May we continue to read your blog in 2025, even if the economic statistics are not so happy.
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I seem to remember that Michael once commented on how much more wealthy each resident would be without the excessive immigration that NZ has allowed this century. Immigration is plainly positive if done for a purpose in filling real gaps but the pressures of general labour market and subsequent arrivals who have had a greater wish to escape than to contribute to their new world has made for the increasing divisiveness in the NZ of 2025.
It is not all economy and money but even more a cohesive society that improves wellbeing and prosperity that would make our citizens wish to stay or or ultimately return from elsewhere.
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I seem to remember that Michael once commented on how much more wealthy each resident would be without the excessive immigration that NZ has allowed this century. Immigration is plainly positive if done for a purpose in filling real gaps but the pressures of general labour market and subsequent arrivals who have had a greater wish to escape than to contribute to their new world has made for the increasing divisiveness in the NZ of 2025.
It is not all economy and money but even more a cohesive society that improves wellbeing and prosperity that would make our citizens wish to stay or or ultimately return from elsewhere.
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I think John Key was more interested in starting a property empire than making NZrs better off.
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Yes as Key, like other Central bankster economic monopoly PMs( puppet minions), seems primarily interested in growing his personal wealth. While he is media spokesman pushing central banking policies and increasing the private bankers wealth with the govts various debt schemes .
Are they still pushing their “carbon trading” scheme under “man made global warming” ? ( haha).
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