Australia does better than us

I’m old-fashioned.  Key bureaucrats should mostly be seen and not heard.  Officials advise, ministers decide.  And ministers are the ones we get to hold to account, weakly or otherwise, through the political and electoral process.

The chief executive of New Zealand’s Ministry of Foreign Affairs and Trade doesn’t appear to give many speeches, at least not on-the-record.  That is, mostly, as it should be.  But the Secretary of the Australian Department of Foreign Affairs and Trade, Frances Adamson, gave a very interesting address in Adelaide the other day on Australia and China.  It was sufficiently clear and forthright that one can only assume she had the full endorsement of the Australian government.

The speech was given in a slightly odd context.  It was the annual lecture of the Confucius Institute at the University of Adelaide.    There are hundreds of these Confucius Institutes in universities around the world (several in New Zealand),  funded by the government of the People’s Republic of China to promote the interests of China. A couple of years back

The American Association of University Professors (AAUP) called for agreements between Confucius Institutes and nearly 100 universities to be either cancelled or renegotiated so that they properly reflected Western values of free speech.

“Confucius Institutes function as an arm of the Chinese state and are allowed to ignore academic freedom,” the AAUP said in a statement, urging US universities to “cease their involvement” with the institutes unless major reforms are instituted.

China’s network of 300 Confucius Institutes – including 11 branches in on British university campuses – can be a lucrative source of funds for universities but are exempt from many of the basic rules governing academic discourse.

They are designed to project a favourable image of China’s ruling Communist Party around the world through language and cultural programmes, but are allowed to restrict discussions of topics unpalatable to China’s ruling Communist Party such as the occupation of Tibet.

The University of Chicago has shut their Confucius Institute over related concerns.

But if Frances Adamson didn’t tackle that specific issue head-on (and had some polite remarks to her hosts), what she did say was pretty blunt, even if none of it should have been controversial in a free, open and democratic society reflecting on its relationship with an expansionist repressive authoritarian state that is moving further away from, not nearer to, the sort of values that have shaped the West.

While we are complementary economies, there is no getting around the fact that Australia and China are very different places, with different political and legal systems, values and world views.

A pretty simple statement, but I’m not sure I’ve seen its like from our own leading ministers and officials.

Partly this is because the closer we get, and the more we interact, the more we need to account for and manage the differences between us – differences that cannot be wished away but that should not prevent the further development of relations between us.
This emphasises the need for a healthy dose of tolerance, for mutual respect and for openness to the patterns of give and take that underpin any successful relationship.
We understand the hesitation in China to ‘air the laundry’ so to speak.

Australians are happy – perhaps too happy sometimes – to tell each other exactly what we think.

This of course reflects different cultural attitudes:

In China, the thinking is that proper friends will not say things that offend;

Whereas in Australia, a willingness to be frank is proof of a genuine friendship.

These characteristics apply as well to our government-level interactions, something that both sides have come to recognise (though not necessarily always accept!).

Each of our approaches has utility, and we will need large measures of both respect and candour as we conduct the far-sighted diplomacy necessary to bridge our differences and progress our common interests.

Both approaches, the saving of face and the preference for frankness, also have shortcomings.

For our part, Australians should, and I am sure will, be authentic and true to our own selves, while respecting the practice of others.

Australia is a pluralistic society: a place where open debate, individual rights and freedoms are the foundation upon which we have built our political and economic systems. We are a society that thrives on the competition of ideas.

The health and vibrancy of Australia’s democracy is fundamental to our national success – it helps explain why migrants come to our shores and why they can succeed based on their talents and hard work.

And to students, in the context of various recent reports in Australia of a minority of PRC students, and PRC-dominated Chinese students associations, trying to suppress discussion

And here I want to address my remarks to those of you who are international students:
We want you to experience our contest of ideas and participate fully in it, as it is part of what constitutes an authentic Australian education.

You have paid your money; you are surely entitled to the full experience.

No doubt there will be times when you encounter things which to you are unusual, unsettling, or perhaps seem plain wrong. And can I tell you, as someone who has studied overseas in three different continents, if you aren’t encountering strange and challenging things you aren’t getting out enough! So when you do, let me encourage you not to silently withdraw, or blindly condemn, but to respectfully engage.

The silencing of anyone in our society – from students to lecturers to politicians – is an affront to our values.

Enforced silence runs counter to academic freedom. It is only by discussion, and of course discussion which is courteous, that falsehoods can be corrected.

Respectful and patient discourse with those with whom you disagree is a fundamental skill for our ever-more-connected contemporary world.

and to a wider audience

There has been much attention in recent months to the quality and reliability of news and information available to us.

We have seen accusations of ‘fake news’ and we have seen attempts at untoward influence and interference.

This is worrying and is being taken seriously in a number of countries. In our case, the Prime Minister has said: “The sovereignty of Australia, the sovereignty of our democratic processes, free from foreign interference is a matter of the highest concern.”

The Australian Government takes seriously its responsibility to ensure a robust legal framework within which free and open debate is protected and can flourish. That work is proceeding.

As well, Governments themselves must expect, and invite, scrutiny of their actions and their policy positions.

As China becomes more important to Australia’s future and to that of the world, it follows that there will be more scrutiny of China, including the ways in which it seeks to exercise influence internationally.

All of us here, as participants in a free society, have responsibilities as well.

It is our responsibility to challenge and question ‘fake news’. We can readily reduce the risk of being manipulated by seeking out collateral and confirmatory information, by testing through a second opinion.

And when confronted with awkward choices, it is up to us to choose our response, whether to make an uncomfortable compromise or decide instead to remain true to our values, “immune from intolerance or external influence” as Adelaide University’s founders envisaged.

The prospect of public scrutiny is an excellent discipline, and a vital corrective for our political culture and our institutions, including our universities.

We want to ensure these institutions remain secure and resilient.

Our success depends in part on the legal framework, but also on the attitudes and responses of all of us when exposed to unexpected pressure.

And in contrast, what do we have in New Zealand?   Almost none of our political party leaders has been willing to comment in any substantive way on the concerns raised in the recent paper by Professor Anne-Marie Brady.    The leaders of the National Party, the Labour Party, and the Green Party seem totally unbothered about –  and unwilling to substantively discuss – having as a member of Parliament a (now) acknowledged member of the Chinese Communist Party and former member of the Chinese intelligence services, who is now widely credited as one of the National Party’s chief fundraisers.  Speeches on China topics by our own Ministers of Foreign Affairs seem mostly to take on a fawning and deferential tone, as if they are afraid of asserting, or embarrassed by, our own values.  And the Attorney-General was just reduced to making stuff up (lies) and personal attacks on institutions raising concerns.

The speech by the Australian Secretary of the Department of Foreign Affairs and Trade has been widely reported in the Australian media – and she’s just a (very senior) bureaucrat.   And what of New Zealand?

It remains striking, puzzling, and more than a little disturbing, just how little media attention either the general or the specific issues have received in the New Zealand media.    There is a column in this morning’s Herald by Bryan Gould, former Vice-Chancellor of Waikato University and former UK Labour MP prompted by the Brady paper (I’m told the column is on line but I couldn’t find it UPDATE:  here).   In it Gould opens thus:

The Herald’s readiness to report the important conclusions of University of Canterbury research into links between China and past and present New Zealand politicians and their family members is to be commended.

Surely in a serious country with media doing the job of providing searching scrutiny, it wouldn’t be cause for self-congratulation, but something just taken for granted?  A leading academic raises serious concerns about the extent of a powerful country’s influence in New Zealand and he seriously suggests that it might not be reported by the country’s largest newspaper?

It would be interesting to know whether the issues have been reported in the Chinese Herald (I gather not), but even if we stick to the English language media, just how much reporting has there in fact been?  I found a total of two stories in the Herald, one (on a quite specific element) on Stuff, nothing on Radio New Zealand (a non-commercial broadcaster with an extensive news and current affairs operation), a single story of Newsroom, nothing on TVNZ and nothing on Newshub.  Perhaps I missed the odd story, but what is striking is not the New Zealand coverage of the issues and concerns, but the lack of coverage and lack (apparently, thus far) of any sustained follow-up.    (And has the New Zealand media ever looked searchingly at those Confucius Institutes?)

The contrast with Australia is striking, worrying, and sad.  I don’t really buy the stories of extreme economic vulnerability to China, but if anything Australia’s direct economic exposure is a bit larger than ours.  And yet officials, ministers, and media in Australia are willing to speak up, and have an open and vigorous debate on the issues.  Reasonable people might differ on appropriate policy responses, but who is seriously going to defend the deafening silence as the way in which a free and open society should handle such issues?


Some Australian perspectives on PRC influence-seeking

For those interested in the activities of the People’s Republic of China and the Chinese Communist Party in this part of the world, Professor Anne-Marie Brady’s paper remains essential reading.   The material Professor Brady lays out on the New Zealand is deeply troubling, as is the near-complete subsequent silence from most of our political leaders.

But if New Zealand remains somewhat unique in having a Communist Party member and former member of the Chinese intelligence services –  who has never disavowed his past and remains very close to the People’s Republic of China embassy –  as a serving member of Parliament, the issues around PRC influence-seeking, pressure on the Chinese diaspora, and direct meddling in the domestic affairs of other countries aren’t unique to New Zealand. In yesterday’s post, I highlighted several links to contribution to the open and active debate on these issues in Australia.

But today a new collection of 22 articles, speeches etc on the issue of PRC activities in Australia (“The Giant Awakens” ) has been released by Vision Times, one of the relatively small number of remaining independent Chinese media in Australia (as in New Zealand, most of the Chinese media in Australia are now apparently under the effective control of the PRC).  More than half the authors are themselves ethnic Chinese, including a former PRC diplomat to Australia who defected a decade or so ago.

I haven’t read the entire collection, but of those I have read almost every piece struck a chord in one way or another, with so much of what is written about raising similar issues and concerns to those Professor Brady alerts us to in New Zealand.   I’d commend it to anyone interested in the subject, both because Australia (a) matters to us, and (b) seems to have very similar issues to us, and because…..well….sadly there is nothing similar in New Zealand.   The near-complete cone of silence still appears to hold.

I’d particularly commend the first paper in the collection by Professor Rory Medcalf, who is currently the Head of National Security College at the Australian National University.   It is an easy read –  only three pages – but an uncomfortable one.

A few extracts

Here in Australia we have seen the Chinese Communist Party involved in what appears to be multi-faceted campaign to influence our politics and independent policymaking. This includes propaganda and censorship in much of this nation’s Chinese-language media as well as channels of interference through intimidation of dissident voices and the establishment and mobilisation of pro-Beijing organisations on Australian soil. There is also the troubling question of political donations and their motives.

On political donations –  recall the magnitude of some of the disclosed donations here

It has also been reported recently that Australia’s main political parties have received close to $6 million in donations over the last few years from individuals associated with the Australian Council for the Promotion of the Peaceful Reunification of China. The Council, in turn, is reported to have connections to the United Front Work Department, an organisation which reports to the Central Committee of the Communist Party of China.

But whatever the mix of motives, one thing is clear. The donations were enough for the Director-General of the Australian Security Intelligence Organisation (ASIO) to take the highly unusual step of directly warning the major parties that they and Australia’s national security could be compromised by such donations. For the head of ASIO to take such a step suggests he was genuinely worried, from a national security and national interest point of view. Security agencies cannot take effective action on any of this because it has been entirely legal – all they can do is raise the alarm. It is now up to the political class to decide whether there is, within Australian democracy, enough self-respect to function without money linked to the Chinese Communist Party. This, after all, is a massive, secretive, self-interested and foreign organisation, with interests that can sometimes clash directly with Australia’s.

These issues are at least as much about the interests of ethnic Chinese New Zealanders and Australians

Indeed, much of the worry about such influence is within this country’s diverse Chinese communities. If, as a nation, we chose to ignore such concerns, we would be effectively treating such dissenting voices among our Chinese-Australian population as second-class Australians, whose freedom of thought and freedom of expression do not warrant protection.

So the issue of foreign interference needs to be addressed in a context of respect for the rights of Chinese Australians. That means this needs to be an issue that is seized and owned by the moderate, bipartisan centre of Australian politics. This way, the issue cannot be captured by extreme voices or be distorted, misconstrued or falsely portrayed as one of xenophobia.

One of the points I’ve been making in a New Zealand context is that our economic dependence on China is (often) much-exaggerated.

The risk is that we will buy the story that our economy is so comprehensively dependent on China that Australia cannot afford to cause China much difficulty on security and political issues, even when our interests diverge. Indeed, perceptions of Australia’s vulnerability to Chinese economic pressure are exaggerated. Economic pressure from China that would have the biggest impact on Australia – most notably through iron ore trade – would also impose restrictive costs on Beijing. Privately or publicly, Beijing criticises or complains to Canberra frequently over multiple issues. But the accompanying threats tend to be implicit or general – that the bilateral relationship will suffer some unspecified deterioration if Australia does not heed China’s wishes.

…..If Beijing felt it needed to send an economic signal to reinforce its displeasure, its initial response would likely involve non-tariff barriers over quarantine and safety standards, or making life difficult for businesses operating in China, with limited long-term economic impact on itself or Australia.

Beijing has adopted this approach towards South Korean business interests, yet has not succeeded in its goal of changing Seoul’s stance on missile defence cooperation with the United States. Economic vulnerability is often as much about perception as reality – and it is in China’s interests for Australia to imagine itself highly vulnerable. Already, some voices in business, academia and the media focus on the possible economic impacts of annoying China. The perception of economic harm can have an outsized effect on domestic interests, creating pressure for rapid political compromise. If we overreact to any Chinese economic threats and self-censor on issues perceived to be problematic for Beijing, it will not protect Australia from further pressure – it will signal that such pressure works.

And finally

Foreign interference in Australia is not solely a national security issue. It is a fundamental test of Australian social inclusiveness, cohesion, equity and democracy that we ensure all in this country have freedom of expression, freedom from fear and protection from untoward intervention by a foreign power.

It is a paper, part of a collection, that should be widely read in New Zealand.

In my post yesterday afternoon, I linked to an article published in the AFR by Peter Drysdale and John Denton, attempting to play down the issue of Chinese influence and suggesting that critics are “demonising” the People’s Republic, or indeed Chinese-Australians.   There is a nice, accessible, response to that article by John Fitzgerald, another Australian academic.

…for Australia, the issue at stake is not whether Leninism and liberal democracy can work happily and co-operatively in their separate jurisdictions but whether it is possible for a democracy to maintain jurisdictional separation in a dependent relationship with a Leninist state without adjusting its everyday modes of operation. Whatever we may think of authoritarian Leninist states, of which contemporary China is clearly one, they are founded on an ‘enemy mentality,’ and they have immense difficulty recognising the territorial and jurisdictional limits of their overweening hierarchical authority. How is a liberal Australia to deal with a Leninist China as that country becomes more assertive beyond its borders?

A bold free press is one of the few instruments a democracy has at its disposal to check the encroachment of a Leninist state into its jurisdiction. An open, respectful, and evidence-based conversation on this encroachment in the media is essential to getting Australia’s relationship with China right.

It is not demonising China to report what the Chinese government says about itself: that it is a wealthy and powerful Communist Party state that has no time for democratic accountable government, no independent courts, security, or media, that denies universal adult political participation, that offers no protection for the exercise of fundamental rights of freedom of speech, religion or assembly. In China this is called guoqing. There are no plans to change anytime soon. Similarly, querying the behaviour of a few named and alleged influence peddlers from China no more tarnishes the reputation of all Chinese Australians than querying the conduct of Putin’s agents in Washington impugns the loyalty of all Russian Americans.

Meanwhile, here in New Zealand the final election results will be declared tomorrow.  A self-confessed member of the Chinese Communist Party, former member of the Chinese intelligence services –  both facts hidden fron voters for years, and partially hidden from the New Zealand immigration and citizenship authorities “because that is what the Chinese authorities told us to do” – will once again be confirmed as a member of Parliament.  That alone –  the tip of the iceberg in the issues Professor Brady raises –  should be deeply troubling.  But our establishment elites seem unbothered.  Nothing is heard from the Prime Minister. Nothing is heard from the Leader of the Opposition.  Nothing is heard from the Green Party.  Nothing is heard from the Minister of Foreign Affairs.  And when last heard from, the Attorney-General and minister responsible for several of the intelligence services resorted to simply making stuff up.

“That was a Newsroom article, timed to damage the man politically.  I’m not going to respond to any of the allegations that have been made about/against him. I think it is disgraceful that a whole class of people have been singled out for racial abuse.  As for Professor Brady, I don’t think she likes any foreigners at all.”

The best response to erroneous claims is the facts. As far as I’m aware, nothing in the original Financial Times/Newsroom articles, nothing in Professor Brady’s paper, and nothing in yesterday New York Times article has been refuted.  I’ve not even seen anyone try.  Some mix of embarrassed silence, and brazening through, in the hope that the issue will just go away seems to be what our “leaders” now count as responsible leadership.

Some productivity snippets

I’ve shown previously various iterations of this chart, real GDP per hour worked for New Zealand and Australia.

real GDP phw july 17

It isn’t exactly an encouraging picture for New Zealand.   Then again, it is also a bit surprising.  For all of New Zealand’s underperformance over the decades, we haven’t usually diverged that badly from Australia over such a short period (the last four years or so).

That chart is for the whole of each economy, and just uses a crude measure of total hours worked.  The ABS and SNZ also produce annual data –  with quite a lag – in which they look only at the more readily measureable market sector of the economy (from memory around 85 per cent of the economy) and also attempt to adjust for changing labour quality over time (eg improvements in education and thus, in principle, human capital).

Here is that chart for labour productivity, indexed to 1000 in 1997/98, the first year for which the data are available for both countries.

market sector LP

The picture is much the same –  a new large gap has opened, in Australia’s favour, in the last few years.

Presumably part of those measured productivity gains in Australia reflects the massive private sector investment boom in the minerals and energy sectors that peaked back in 2011/12.

But out of curiosity I wondered how Australia had done recently relative to other advanced economies.    Using annual data from the OECD, percentage total growth in real GDP per hour worked over the five years 2011 to 2016 had been as follows:

Australia                                  5.3%

OECD Total                              6.3%   (and OECD median country, 5.7%)

G7                                              5.5%

EU                                              4.3%

Even the euro-area as a whole (2.5 per cent) just beat out New Zealand (2.3 per cent).     In that light, Australia’s relatively strong productivity performance didn’t look so anomalous at all.

Over that five year period, these are the OECD countries that managed more than 10 per cent productivity growth:   Estonia, Hungary, Korea, Latvia, Poland, Slovakia, and Turkey.    In fact every single one of the emerging OECD countries (the former eastern bloc countries and Korea) –  all with lower initial levels of productivity than New Zealand – managed stronger productivity growth than New Zealand did.   All but Slovenia had faster productivity growth than Australia.    That is what convergence –  supposedly the goal for New Zealand –  is supposed to look like.

Of course, several of these emerging countries had had a much worse experience –  even on productivity, which often isn’t very cyclical –  than New Zealand over the crisis/recession period around 2008/09.   But even if one looks at, say, the last decade as a whole, they are mostly catching up (often quite rapidly) and we are not.  In fact, relative to Australia –  typical closest comparator, and the place where so much of the New Zealand diaspora dwells –  we are getting further behind.

I ran a chart a few weeks ago about how low investment has been in New Zealand.  As I noted of business investment it “is now smaller as a share of GDP than in every single quarter from 1992 to 2008.   And this even though our population growth rate has accelerated strongly, to the fastest rate experienced since the early 1970s.”

Of course, an important story out of Australia is how business investment has fallen back since the peak of the mining investment boom.   Here is the business investment proxy (total investment less general government investment less residential investment) for the two countries.

bus investment aus and NZ

Business investment in Australia, as a share of GDP, has fallen very dramatically over the last few years.   But it was a very big boom –  we had nothing of the sort in New Zealand.  And even at current levels, Australia’s busines investment still materially exceeds the share of GDP devoted to business investment in New Zealand.  In fact, the gap between the two lines isn’t that dissimilar to the typical gaps that prevailed before the mining investment boom got underway in the mid 2000s.

Then again, over the last 25 years Australia’s population growth has averaged a little faster than New Zealand’s.   All else equal, faster population would generally require a larger share of current GDP to be devoted to business investment just to maintain the average quantity of capital per worker.

But here is the chart of the two countries’ population growth rates

popn growth aus and nz

Australia’s current population growth rate (1.5 per cent) isn’t much above the 25 year average (1.3 per cent). In New Zealand, the average population growth rate over the last 25 years has been 1.2 per cent, but in the last 12 months the population has increased by 2.1 per cent.     We have lots (and lots) more people, but firms presumably have not been finding it profitable to increase investment (on average across the whole economy), in ways that might suggest some possibility of the sort of productivity growth that might finally allow New Zealand to join the club of fast-growing countries, catching up to the wealthier countries in the OECD.

Not that our politicians give any sense of being worried.  An ill-governed place like Turkey –  not richer or more productive than New Zealand in our entire modern history –  might shortly go past us.   Countries that labour under communist regimes thirty years ago might go past us.  But none of our leaders seems to care. None of our parties has a platform that suggests they care, let alone offering a programme that might make a real difference.

New Zealand and Australian public finances

It is the time of year when both New Zealand and Australian governments hand down their budgets.  And these days it seems it is an opportunity for an annual comparison, in which New Zealanders feel rather virtuous about fiscal management here, and many Australians –  perhaps especially people on the right – take a turn breast-beating, regretting that they are not, in this regard, as well-governed as New Zealand.    Particularly florid Australian commentators are prone to invoking comparisons with Greece and other fiscal disasters.

I don’t find the story particularly persuasive.  Both countries had their fiscal blowouts late last decade –  in Australia, much of it was initially intended as active counter-cyclical use of fiscal policy under Kevin Rudd, while here it was discretionary choices to increase spending in the late years of the last boom.  In different ways, both the Australian Federal Treasury and the New Zealand Treasury were culpable to some extent; the former for enthusiastically embracing fiscal stimulus, when there was still plenty of monetary policy capacity left, and the latter for getting the forecasts wrong (they had told the government that big increases in spending would still leave the budget roughly balanced).    In some ways, New Zealand had a rougher time of it: the Canterbury earthquakes were a much bigger adverse hit to New Zealand government finances (a few years back) than anything in Australia.  Then again, Australia had to deal with much bigger volatility in –  and uncertainty about –  the terms of trade.

But what do the numbers show?  For history, I turned to the OECD’s database, where they have lots of fiscal series going back typically to around 1989.   While much of the attention focuses on the Australian federal government finances, it is important for New Zealanders to recognise that state governments are a large part of the overall government mix in Australia.  The OECD numbers are for “general government”, encompassing federal, state, and local government (or, specifically, national and local government in New Zealand).

It is also worth remembering that the size of government is smaller in Australia than it is in New Zealand.  That is so whether we look at revenue.

aus nz receipts

Or expenditure

aus nz disbursements

And government spending as a share of GDP has also been more stable in Australian than in New Zealand.  In fact, last time I checked government spending as a share of GDP had been more stable in Australia, over decades, than in almost any other OECD country.

What about fiscal balances, adjusted for the state of the respective economic cycles.  Here is the OECD’s measure.

aus nz deficits

A remarkably similar pattern really.    Our surpluses have averaged a little larger (and our deficits a little smaller) than those of Australia in the last 15 years, but there really isn’t much in it.  And do note that on this cyclically-adjusted measure, New Zealand is estimated to have been in slight deficit in 2016.

And what of debt?  This chart shows gross general government financial liabilities as a per cent of GDP.

aus nz gross debt

That is certainly a less favourable picture for Australia –  gross debt as a per cent of GDP higher than at any time for decades.   But here is the  –  superior for most purposes –  net debt picture.

aus nz net debt

Australian governments have had less debt than New Zealand through the whole period, and if the gap has closed just a little in the last decade, the change is pretty slight.    From a public debt perspective, Australia doesn’t seem to have much to worry about, with net financial assets (across all tiers of government) of around 10 per cent of GDP.

We won’t see the New Zealand government’s projections for the next few years until the Budget is released tomorrow.  But plenty of commentary focuses on the prospect of rising surpluses for years to come in New Zealand (as if this is somehow a good thing, when debt is already low), in contrast to the projections of deficits in the federal government books in Australia.

But one problem with those comparisons is that they aren’t apples for apples comparisons.  Thus, our government accounts for a long time have focused on the operating balance.  Relative to more traditional fiscal measures –  of the sort typically given prominence in Australia –  our deficit/surplus measure excludes capital expenditure but includes depreciation.  In a country with (a) a positive inflation rate, and (b) a rising population and rising living standards, government capital expenditure will typically exceed depreciation.   That isn’t a problem in itself, but it can make cross-country comparisons harder (the OECD historical numbers in the earlier charts are done consistently).

But here –  taken from the Australian official documents – are the federal government deficit measures done the Australian way (“underlying cash balance”) and something very like the New Zealand way (“net operating balance”).

Underlying cash balance Net operating balance
Per cent of GDP
2015/16      -2.4 -2.0
2016/17      -2.1 -2.2
2017/18      -1.6 -1.1
2018/19      -1.1 -0.6
2019/20      -0.1 0.4
2020/21       0.4 0.8

As they note in the Australian Budget documents

The net operating balance has been adopted for some time by the States and Territories (the States) and some key international counterparts as the principal focus for budget reporting. All the States report against the net operating balance as the primary fiscal aggregate. New Zealand and Canada also focus on similar measures.

One might feel slightly queasy about how the Australian government is raising additional revenue –  that populist bank tax seems to have more to do with utu (the Australian Bankers’ Association appointed a former Labor premier as their Executive Director, much to the annoyance of the Treasurer), and undermining Opposition calls for a Royal Commission into banking, as with principles of sound taxation –  but operating deficits of 1 per cent of GDP simply shouldn’t be a matter of concern, in a growing economy with low levels of public debt and relatively modest (by international standards) overall tax burdens.

But wait, as they say in the TV ads, there’s more.     The Australian Federal Treasury’s background Budget papers point out that

the Commonwealth provides grants to others (primarily the States) for capital purposes (that is, to acquire their own assets). This spending appears as a grant and detracts from the underlying cash balance and the net operating balance.

In 2017/18, the amounts involved are around 3.5 per cent of federal government spending.

Make that adjustment, and this is what the federal government’s operating balance would look like.

Underlying cash balance Net operating balance Adjusted net operating balance
                           Per cent of GDP
2015/16 -2.4 -2.0 -1.5
2016/17 -2.1 -2.2 -1.5
2017/18 -1.6 -1.1 -0.4
2018/19 -1.1 -0.6 0.0
2019/20 -0.1 0.4 0.8
2020/21 0.4 0.4 1.2

The adjustment doesn’t change anything about overall public sector finance in Australia.  The states will, presumably, in future have to account for the depreciation on these federally-funded capital projects.   But if one is looking just at the federal level, it seems like a reasonable adjustment.  On that adjusted measure, the federal operating budget in 2017/18 is projected to be very close to balance.  Of course, unlike the situation in New Zealand, Australian governments can’t count on getting all their budget measures through Parliament, but on the face of it, the endless angst in some quarters about Australian government finances does seem rather overdone.

The other thing that muddies the water in short-term comparisons is differences in rates of population growth.  A few years ago, Australia’s population was growing faster than New Zealand’s –  helped by all the New Zealanders going to Australia.  For now, New Zealand’s population is growing quite a lot faster than Australia’s –  not so many New Zealanders are going to Australia (and we have slightly larger controlled immigration programme per capita than Australia does).   In the short-term, unexpected population growth tends to boost demand more than supply, and specifically tends to flatter the government operating balance measures.   Consumption tax and income tax revenue both rise quite quickly, and operating expenditure tends to lag behind.   Even government capital expenditure tends to lag –  notice the recent announcement of more infrastructure spending here, much of which is to catch up with the unexpectedly fast population growth –  and you don’t have to maintain, and can’t depreciate (depreciation is in the operating balance), an asset that doesn’t yet exist.  That spending pressure will come.

This post isn’t intended as a criticism of New Zealand governments (there are plenty of other grounds for that), or as praise for Australian governments.  It is mostly just about making the point that, when considering overall fiscal management, if one stands back a little the similarities are much more apparent than the differences.  And that is to the credit of a succession of governments on both sides of the Tasman.

Standing back, here is how the OECD countries ranked last year on net general government liabilities as a per cent of GDP.

NZ and Aus net debt

O to be Norway one might reasonably conclude.  But given the choice, I’d take New Zealand or Australia’s cumulative (and current) fiscal management over those of almost every other country in the OECD.  And unlike many of these countries, neither country has huge off-balance sheet (ie not in these numbers) public pension liabilities either.

Productivity (or lack of it) is another story of course.




The backdoor to Australia – again

After my post last week on the apparent Australian concern that somehow New Zealand was providing a back door entry to Australia, for migrants who could not get into Australia directly, a commenter included a link to the text of a fascinating National Library lecture (itself drawn from a journal article) by Victoria University researcher Paul Hamer.   That made it clear both how longstanding these concerns have been  – going back 100 years or so –  and how focused they are on Pacific Island immigration to New Zealand.    Some of it looks like out-and-out racial biases.  But these days it is a bit different.

In their report on New Zealand out today, the IMF described our immigration policy as “fully merit-based”.   In fact, while that is more or less, and mostly, true, it isn’t fully so.  Within the annual target (“planning range”) of around 45000 residence approvals, we have Pacific quotas, for Samoa and for a group of other fairly small Pacific countries.    People from those countries can get in, to a certain extent, even though they do not have the skills, qualifications or whatever to get in through the standard nationality-blind policy.  In the year to March 2017, just over 1600 people were granted residence under these quotas.  In time, presumably, most will become New Zealand citizens.  They, like other New Zealand citizens, would then be free to move to Australia if they chose.   Australia, I gather, has no such nationality-specific immigration quotas.

In the past Australia’s concerns apparently extended to people from the Cook Island and Niue.  They are New Zealand citizens as of right, and don’t have to move here to be able to move to Australia.

What do the data show about this?    We do have PLT data on the departures of New Zealand citizens to Australia, broken down by birth country.  In my post the other day I just looked at the aggregate of the non-NZ (and non-Australian) born.  But one can dig deeper, using data that cover each year back to 2002.

Taking the Cook Islands born people first (since they aren’t covered by our immigration policy), there were total PLT departures to Australia from New Zealand of 3776 such people in the 16 years for which we have data.   That isn’t perhaps large  by Australian population standards, but it is equivalent to quite a large chunk of the small Cooks-born population.  Presumably, some other Cooks-born people might have gone directly to Australia (if there are direct flights).   The Cooks-born population of New Zealand in the 2013 Census was just under 13000.      However, a lot of those Cooks-born people came back again.  Over the same 16 years, the net outflow to Australia of Cooks-born people was a relatively modest 1248.

What about NZ citizens born in other countries, who mostly gain entry only through our immigration policy?

Here are the top half dozen or so birth countries of NZ citizens who left (net) for Australia

Net outflow to Australia of NZ citizens born in these countries  (Total, March years 2002 to 2017)
UK -8878
Samoa -8523
South Africa -7930
India -7086
Philippines -3983
Fiji -3552
China -3197

The UK tops the list.     Then again, there are many more British-born people in New Zealand than there are people born in any other country  (about 256000 at the 2013 Census).

So here are the net outflows over the sixteen March years (2002 to 2017) to Australia of foreign-born New Zealand citizens, as a percentage of the 2013 NZ resident population of people born in that country.

net outflow to Aus by birthplace

If the Australian government really is concerned about those Pacific Island inflows, the Samoa figures might appear to give them some support.   Then again, the South African and Sri Lankan born outflows, as a share of the respective populations, are almost as large –  and presumably those people got into New Zealand by meeting our nationality-blind tests.    For some of those birthplaces, the proportions seem quite remarkably high.

As it happens, the Cook Islands numbers are quite a way down the list, and Tonga further still.  SNZ don’t publish the data at a sufficiently disaggregated level to know what the proportions look like for New Zealand citizens born in Niue, Tokelau or Kiribati.

I don’t have  any great or specific interest in this apparent concern of Australia’s –  and frankly the absolute numbers seem pretty small relative to the size of Australia’s population (and overall migration inflows).  But, the subject having come up again, I was interested in what light the published data could shed on the issue.

Backdoor entry to Australia?

In the various articles in the last few days on Australia’s decision to increase university fees for, among others, New Zealanders studying at Australian universities, there have been a few references to the fear sometimes expressed by Australian officials and politicians that New Zealand’s relatively liberal immigration policy might be being used by some material number of our migrants as a backdoor entry to Australia. Come to New Zealand, stay a few years and get citizenship, and then move on to Australia and the better-paid jobs that a more productive economy can offer.

It had some plausibility as an argument 20 years or so ago, when New Zealand’s immigration policy was much more open than Australia’s.  Any difference between the two countries’ immigration policies is much less marked now (they liberalised late in the Howard years).

It also hasn’t been an issue that I’ve paid much attention to –  it is, after all, mostly a matter for Australian policymakers.   But I thought I would take a quick look at the data SNZ has available on Infoshare.

Using the PLT data (with all its limitations) one can find numbers on the gross and net flows of New Zealand citizens between New Zealand and Australia, and also on the birthplaces (by country) of those making the move.  So one can easily work out what share of the New Zealand citizens moving to Australia (and coming back) were born in Australia and New Zealand, and what share were born elsewhere.  The data seem to be available only for the last 15 years.

Note that birthplaces don’t necessarily tie up closely with migration status.   I suspect that the bulk of Australian-born New Zealand citizens in these charts are the kids of New Zealanders who went to Australia for a few years, had a family there, and then came home.   And some portion of those born outside Australia and New Zealand will also be the children of New Zealanders, with citizenship by descent.   But the bulk of the movement of New Zealand citizens who were born outside Australia and New Zealand is likely to be people who were first given entry to New Zealand under our immigration policy.   Of course, some of the New Zealand born might be children born shortly after their parents arrived as immigrants, and thus in some sense also a phenomenon of the immigration policy.

Here is the chart for the net flow.

net flow to Aus

The Australia-born flow is small, and pretty stable, but has increased a bit in the last few years.   But the bulk of the action is in the New Zealand born line.

What of the non-Australasian born (our proxy for people who were policy-permitted immigrants to New Zealand?   That line looks like a very muted version of the NZ-born line –  many of the same fluctuations but on a much less pronounced scale.  Curiously, right at the moment more non-Australasian born New Zealanders are (net) leaving for Australia than NZ born NZ citizens.    Perhaps that might suggest there was something to the reported Australian concern.  But these are small net numbers of two quite large sets of gross flows.   So lets go directly to the gross flows.

This chart show PLT arrivals of NZ citizens from Australia (the much-vaunted people “coming home”).

arrivals from Aus

All three lines have increased in the last few years, with the largest percentage increase in the (small number) of Australian-born NZ citizens.   Non-Australasian NZ citizens coming back from Australia make up around 11 per cent of the total, and have done throughout the period we have data for.

non aus share

Of course, 11 per cent is a lot less than the foreign-born share of the population (around 25 per cent),  but that foreign-born population share has been increasing quite a lot in the last 15 years or so.

There is probably a lot more interest in the outflows to Australia.  Here is the same breakdown of NZ citizens by birthplace for departures.

departures to Aus

The numbers of Australian-born NZ citizens leaving for Australia has increased, but the numbers are very small.   And by far the largest absolute change has been in the NZ-born series –  outflows in the latest year to March are the lowest for any year in the data set.  But what of the non-Australasian born (the people who mostly initially came to New Zealand as immigrants?)

non aus share of departures

Somewhat to my surprise,  there has been quite a step up in the share of that group in the total outflows to Australia of NZ citizens.  In the most recent year, that share was 24 per cent, up from the around 17 per cent it had fluctuated around for some time.

Of course, as I noted foreign-born people make up around 25 per cent of the total population (that share may be higher again by next year’s Census).  So it shouldn’t surprise us that in the normal course of life, quite a few non-New Zealand born citizens will move to the better opportunities in Australia.  Some will be, for example, people who came as 2 year olds 40 years ago, and whose behaviour and motives are likely to be very similar to those of the NZ born.  The cold truth is that, typically, economic opportunities are better in Australia than they are in New Zealand.

And on the other hand, it is also likely that anyone who was sufficiently motivated to leave some foreign home and come to the ends of the earth (New Zealand) might, on average, be less settled, and more ready to move again,  than someone who had spent their whole life here.  That is an almost inescapable feature (not bug) of immigration, and doesn’t suggest any deliberate gaming of the system.

It is also worth pointing out that even if there is some gaming going on, the lags aren’t short.  The outflow of non-NZ born citizens in the last few years has nothing to do with NZ immigration policy in the last few years, because you have to have been here for five years to become a New Zealand citizen in the first place.  And, as I understand, when you apply for citizenship you have to sign a declaration stating that you intend to stay.  So, if there is the sort of issue Australians apparently worry about, it is quite a slow-burning story.

I don’t want to reach any strong conclusions (and I keep reminding people of the limitations of the self-reported intentions PLT data), but the twin facts:

(a) the foreign-born share of NZ citizens coming back from Australia is so much less than the share going to Australia, and

(b) the significant increase in the foreign-born share of NZ citizen departures in recent years

might suggest there is a little more of that sort of “backdoor entry” going on than I might previously have supposed.

If so, of course, it is totally rational behaviour on the part of the immigrants.  As I’ve repeatedly noted, and as I’ve even heard pro-immigration academics acknowledge, New Zealand isn’t a first choice for lots of migrants.  If they could get into Australia most would probably choose it over New Zealand (a bigger, higher income, country/market).  And they’d probably prefer the US, the UK, Ireland, and probably even Canada over New Zealand.   You take what you can get, and make the most of the opportunities that arise.  For those who become New Zealand citizens, access to the Australian labour market is one of those opportunities.

If we were genuinely attracting really highly-skilled migrants, that would be our loss and Australia’s gain, when they do move on.  But of course MBIE’s own data confirms that all too many aren’t that highly-skilled at all.  We don’t know what the skill mix looks like for those who later move on to Australia, but since the overall NZ outflow to Australia is often described as “looking like NZ” (in terms of skills/qualifications), perhaps it isn’t very different for once-immigrants who also move on.

I was planning to go on and write about how we should think about the option to move to Australia, and gradual changes that have made things tougher for New Zealanders doing so, but perhaps I’ll save that for another day.

And I won’t devote a post to the latest PR on Stuff from the MBIE-funded Professor Paul Spoonley.  Suffice to say that, relative to his piece in the Herald earlier in the week, he appears to have doubled down.    In that piece, even he thought some reforms were needed. But now…

Record immigration levels are not a bad thing for New Zealand, provided the current high standards for entry remain, an immigration expert says.

It was MBIE’s own data that showed that more than half of skilled migrant applicants couldn’t command more than $49000 per annum in the New Zealand labour market.

And while this time he avoids direct use of  the “xenophobia” slur, his case still seems to rest mostly on slurs and assertions.

But heading into elections, Spoonley said, it is important to call out prejudice in our leaders to avoid anti-immigration policies similar to the US.

“Let’s continue to debate immigration,” he said. “But let’s not stereotype or see one group or another as a problem.”

Instead of “xenophobia” now it is “prejudice” he claims to worry about.  Of course, he adduces no evidence, or examples, of such “prejudices”, or of how they are somehow driving the debate.  And as for US immigration policy, the immigration policy run under Barack Obama’s administration had its pros and cons (it wasn’t very skills focused), but the overall number of green cards issued per capita was around one third of the number of residence approvals we currently grant.

And, of course, the issue is hardly ever the migrants.  They are just people trying to make the best for themselves and their families.  The issue is, and should be, immigration policy choices made by our politicians, and by us as a society.


When Australia’s unemployment drops, more people will go there again

I had things more interesting (at least to me) to write about today, but I heard the Minister of Finance on Morning Report talking up the alleged strength of the New Zealand economy, noting that we were now – in some way or another –  doing what south-east Queensland had done previously, becoming all that we always wanted to be, and so New Zealanders weren’t fleeing the country any more.  He was careful not to suggest that the diaspora is coming home –  they simply aren’t, and haven’t at any time in the 40 years since the large trend net outflow began.    As if it is somehow relevant to current New Zealand immigration policy debates – and recall that immigration policy is about non-citizens – he and others keep telling us “but they could”.    It can happen.  It did to some extent in Ireland, but it happened there after they structurally transformed their economy and successfully lifted their productivity performance.  There is no sign of such a successful transformation here, whether under this government or the long run of its predecessors.

I’ve run this cartoon before

As I noted, since this was first run in early 1991

…. we’ve had Bill Birch, Winston Peters, Bill English, Michael Cullen, and Bill English again, and although we’ve had plenty of cyclical ups and downs, never at any time have we looked like successfully or sustainably reversing our relative economic decline.

And now we can add Steven Joyce to the list.

But what about those net migration flows to Australia that the Minister was talking about?

net PLT to Aus

Going back 1978/79, I’ve shown three different measures of net outflow here:

  • New Zealand citizens only
  • New Zealand and Australian citizens (the group not requiring specific approval to move trans-Tasman)
  • all citizenships

Mostly the patterns are all but identical, and dominated by fluctuations in the movement of New Zealand citizens.  That makes sense: New Zealanders are free to move, and New Zealand has been materially poorer than  Australia throughout this almost 40 year period.     And over that period, there is no very obvious change in the trend –  just large average outflows, but very large cyclical fluctuations in those net outflows.

It is interesting that right at the end of the chart there is some divergence.  Over the last year, for the first time in 40 years, there has been a net inflow of around 2000 non New Zealand/non-Australian citizens from Australia.  I’m not quite sure why that is, but it is broadly consistent with the theme of this post.  Given a choice between going to Australia or staying in New Zealand, not many people tend to go when the Australian labour market is weak.     Over the last 12 months, a net 4206 New Zealanders left for Australia, but that is a lot lower than the average of around 25000 in a typical year.

In that chart above there have been five episodes when the net flow to Australia (on any of the measures shrunk a lot for a period).  The peaks were around:

  • 1982/83
  • 1991
  • 2002/03
  • 2009/10
  • the present.

And here is a chart of Australia’s unemployment rate.

Aus U

It  shouldn’t be any great surprise that all those temporary reductions in the net outflow to Australia coincided with periods of increased unemployment in Australia.  If anything, the Australian unemployment rate looks more important as an explanatory factor than, say, the difference between the New Zealand and Australian unemployment rates.   In 1991, for example, both countries had very high unemployment  –  and at present both countries have unemployment rates well above pre-recession levels.

The greater importance of the Australian unemployment rate shouldn’t be a surprise.  New Zealanders don’t need to have a firm job offer, or advance approval, to move to Australia.  They can do so “on spec”, looking for work once they arrive.   But a typical person will be much less likely to take that risk if the search process in Australia is going to be long and arduous and might fail altogether.  And the risks have increased over the years, as Australian first tightened access to welfare for New Zealanders living in Australia, and then as people become more aware of the rather limited entitlements New Zealanders have there, even if they have been in Australia for some years.

It isn’t a mechanical relationship of course.  And the Australian unemployment rate now –  at around 6 per cent –  is a lot lower than it was in those 1983 and 1991 peaks.  But since the wage gaps between New Zealand and Australia haven’t narrowed at all, and the productivity gaps have continued to widen,  it seems only prudent to assume that as and when the Australian labour market improves, the net outflow to Australia will resume in something like full historical numbers.

In the repeated burble from the government about the alleged strength of the New Zealand economy, it is often overlooked that while our unemployment rate is not high in absolute terms it is still well above what we experienced pre-recession, and more so than is the case for most other advanced countries that have control of their own monetary policy.   And Australia is in much the same position,

U rates in floaters

And even most of these countries largely ran out of conventional monetary policy room.  Neither New Zealand or Australia did.   Neither labour market is that strong.  Against that backdrop it shouldn’t really be surprising that the outflow to Australia has temporarily slowed.   It doesn’t reflect any credit (or discredit for that matter) on our government.  It looks like mostly a cyclical issue in Australia.  An easier stance of policy by the Reserve Bank of Australia  –  which would have been warranted with inflation persistently below target – would probably have seen rather stronger outflows even over the last couple of years.

UPDATE:  Just to reinforce the point about Australian unemployment, here is an ABS chart from a few months ago highlighting how their underemployment measure has not fallen even as the official unemployment rate has.

Graph 1, Unemployment and Underemployment rate, November 1980 to November 2016
Graph: Graph 1, Unemployment and Underemployment rate, November 1980 to November 2016