Why Australia is so much richer than New Zealand?

Phil Rennie from the Centre for Independent Studies has published an analysis on why Australia is so much richer than New Zealand.

Major points are:

  • Per capita GDP (adjusted for PPP) is NZ$48,000 in Australia and $36,400 in NZ
  • The major difference is labour productivity – Australian workers produce a
    third more wealth for every hour worked, largely because they have more capital (machinery and technology) to work with.
  • Tax is a major area of difference between the two countries. Australia is a much lower taxing country, especially in terms of income tax. This affects incentives to work, save, and invest.
  • Prosperity does not come by accident. Australia has a stronger political consensus around policies for growth, which contributes to investor confidence. In contrast, New Zealand halted most major reform in 1993, and has increased tax and regulation since 2000.

That last point is an important one.  Both the Coalition and Labor in Australia are very focused on increasing economic growth, and making necessary reforms to increase labour productivity etc.

The analysis includes some wage comparisons.  For example a dump truck operator in NZ earns $45K to $60K and in Australia $73K to $84K in NZ PPP $.

Going back to Australian Labor, the report quotes the new PM Kevin Rudd:

Kevin Rudd says he is ‘committed to keeping taxes as low as possible to attract investment and reward enterprise.’

Also a good quote:

A myth persists in some quarters that New Zealand is a laboratory for free-market reform, and that it has done all it can to create a level playing field. The reality is that our major reforms are now considered orthodox around the world. If we want to increase our growth, we need to do more, as Australia has consciously chosen to do.

Finally some recommendations:

  1. Lower income taxes.
  2. Cut the top rate of income tax.
  3. Improve the quality of government spending.
  4. Commit to light-handed regulation as much as possible.
  5. Regulatory responsibility law.

Now of course some people will decry all these things.  But here’s the irony – they’re the same people who probably complain wages in NZ are not high enough. You want higher wages – you need to keep improving the economic environment.

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