New Zealand’s Winning Economic Game

New Zealand and Australia may share budget deficits, but the rising tide of Aussies crossing the Tasman reflects renewed economic vibrancy in the land of the long white cloud. With stronger economic growth, lower unemployment and an appreciating Kiwi dollar, New Zealand is now winning in the economic game as well as on the rugby field.

In April, for the first time since 1991, more Australians arrived in New Zealand than the reverse case, with a net monthly inflow of 100 Australian migrants. The number of Kiwis moving across the Tasman has halved in the past two years, from 45,700 in the year to April 2013 to 22,300 in the year to April 2015, with the net loss of 1,900 New Zealanders to Australia the smallest number since 1992, according to Statistics New Zealand.

According to Australia’s Department of Foreign Affairs and Trade (DFAT), nearly 650,000 New Zealand citizens reside in Australia, representing a large proportion of its estimated population of 4.5 million compared to Australia’s 23 million. In contrast, around 65,000 Aussies live in New Zealand, with citizens of both countries allowed to visit, live, and work in either nation under a 1973 agreement.

Former New Zealand Prime Minister Robert Muldoon once famously said that “New Zealanders who leave for Australia raise the IQ of both countries.” For more than 20 years, an annual inflow of around 40,000 Kiwis to Australia sparked jokes about “Bondi bludgers” reportedly benefiting from Australia’s welfare system, with wage rates around 30 percent higher and jobs in abundance.

But with the New Zealand government now staging employment expos across Australia to lure Aussie workers away from their slowing post-mining boom economy, the “brain drain” is now happening in reverse.

“We’ve had a good post-GFC period,” New Zealand jobs minister Steven Joyce told the Sydney Morning Herald in November 2014.

“Unemployment is dropping - we’re already at 5.4 percent and heading down quite significantly. Where there are risks in terms of shortages appearing, we’re taking a proactive stance and saying, ‘well, we’ve donated a lot of skilled people to Australia over the years and now we’d like some back’,” he said.

HBSC economist Paul Bloxham, who has described New Zealand as a “rock star economy,” has predicted it will again outperform every other OECD economy in 2015, helping the Kiwi dollar approach parity against the Aussie. An upturn in construction from the rebuild of Christchurch, which has been estimated to cost NZ$40 billion ($29 billion), and a booming housing market in its financial capital of Auckland would spur growth, although he acknowledged the impact of weaker dairy prices.

The last time the New Zealand dollar exceeded the Australian currency in value was for a brief few hours in October 1973. On May 27, the New Zealand dollar was buying nearly 94 Australian cents, although it came close to parity in April.

While Australia’s $1.4 trillion economy, the world’s 12th-largest, dwarfs 54th-ranked New Zealand’s $200 billion, the smaller nation has outperformed in recent times.

In 2014, the New Zealand economy expanded by 3.3 percent compared to Australia’s 2.8 percent growth, while unemployment was 5.8 percent in the first quarter of 2015 compared to Australia’s May figure of 6.2 percent.

Delivering the New Zealand budget on May 21, New Zealand Finance Minister Bill English said the nation was now more “confident and resilient,” having emerged from recession during the global financial crisis to “solid, 3 percent growth.”

While he forecast a budget deficit of NZ$684 million for fiscal 2015, he predicted a surplus the following year, with net debt peaking at 26.3 percent of GDP in fiscal 2016 and declining thereafter to around 20 percent by fiscal 2021.

“New Zealand remains one of the faster-growing developed economies, with conditions supporting sustained solid growth, forecast at 2.8 percent on average over the next four years,” English said.

“By mid-2019, the number of people in work is expected to rise by another 150,000 and the unemployment rate to drop to 4.5 percent. The average wage is also expected to rise by NZ$7,000 to NZ$63,000 a year. New Zealand’s positive economic performance, relative to others, is demonstrated by the strength of the New Zealand dollar and the very low number of people leaving for Australia.”

English told the Australian Financial Review that his biggest concerns were falling commodity prices, along with the outlook for his neighbor.

“[A big concern is] uncertainty around the Australian economy: the better they do, the better we do. It’s been that way for the last 30 years, but that’s a lot less clear now,” he told the financial daily.

Uncertainty over the Australian economic outlook has increased, with falling commodity prices and weakening business investment threatening the continuation of a 24-year economic winning streak. In his May 12 budget, Australian Treasurer Joe Hockey switched gear from cost cuts to a “soft, cuddlier budget,” announcing A$10 billion in new spending and projecting continued budget deficits through to the end of the decade.

While Australia’s GDP is seen rising by 2.75 percent in fiscal 2016, unemployment is also expected to reach 6.5 percent, with a “sustained recovery in non-mining investment…taking longer than expected.”

On May 5, Australia’s central bank cut its official cash rate to a record low of 2 percent, citing falling commodity prices, weak business, and public investment, as well as the need for a cheaper currency. In contrast, New Zealand’s official interest rate was 3.5 percent in April, with only drought, lower dairy prices, and a “high” exchange rate weighing on the outlook.

When Australian Prime Minister Tony Abbott visited New Zealand in February, he told local media that “there are lessons for Australia in what you have done.” After years of dominance by its larger rival, New Zealand might suddenly have become the “lucky country” Down Under.