It will take 140 years for incomes in New Zealand to catch up with those in Australia if the economy here travels at the average rate it achieved the period 2000-2007.This result comes from work done by Dr Trinh Le of the New Zealand Institute of Economic Research. Closing the gap in incomes between New Zealand and Australia looks to be a much bigger task than anyone has previously thought.
The NBR goes on to say
"Catching up with Australia is not impossible, but very unlikely without major changes to New Zealand's policy direction," the NZIER paper written by economist Trinh Le said.The NZIER along with the OECD and the Treasury have argued that the important issues for growth are freer markets, freer trade and a better regulatory environment.
In 1974 New Zealand's average income was slightly higher than Australia's. A little over 30 years later, in 2007, it was three-quarters of Australia's.
New Zealand's gross domestic product per capita is currently one-third lower than Australia's. Even Australia's poorest state, Tasmania, now has a 13 percent income advantage over New Zealand.
To close the income gap with Australia in the next five years New Zealand's GDP per capita would have to increase by 7.6 percent a year.
Update: The paper referred to above is When will New Zealand catch up with Australia? (pdf) Public discussion document, NZIER working paper 2008/03, September 2008. The abstract reads,
New Zealand’s average income, defined as GDP per capita, is now three quarters that of Australia and even lower than in Australia’s poorest state, Tasmania.Update 2: The NZ Herald says Money matters hard to pin down and We're just 140 years behind Aussies.
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 Zealand’s 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 Zealand’s 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.