When will New Zealand catch up with Australia?

Author: 
Trinh Le
Description: 
NZIER working paper
JEL codes: 
Abstract: 
New Zealands average income, defined as GDP per capita, is now three quarters that of Australia and even lower than in Australias poorest state, Tasmania. Over the last seven years, New Zealand has grown slightly faster than Australia, but at these rates, it would still take 140 years to close the trans-Tasman income gap. To catch up with Australia in five to 10 years, New Zealand would need to grow at between 4.7% and 7.6% per year. This exceeds New Zealands highest average annual growth rate over a five-year period of 4.6%, in the early 1960s. These calculations hold Australian growth rates constant at its annual average over 2000 to 2007. If Australia were to grow faster than its recent performance, the growth rates required of New Zealand to catch up with Australia would be even higher. While such growth rates are not impractical, New Zealand is not currently on track to achieve them, given its recent poor record on labour productivity. Catching up with Australia is not impossible, but very unlikely without major changes to New Zealands policy directions. The challenge is for its policy makers to put forward sensible policies and to carry them through to fruition in the years to come.