Published in Insights, The New Zealand Initiative’s newsletter, 5 December 2014
Only until a couple of years ago, it would have been unthinkable to suggest that New Zealand could hold some policy lessons for Australia, let alone that it could be seen as a model that Australia might wish to emulate. Australians had become used to regarding New Zealanders as their poorer cousins. Rather than wonder what was right in New Zealand, they were conditioned to ask what was wrong.
New Zealanders shared the idea that the grass was indeed greener – metaphorically at least – on the Western side of the Tasman. They voted with their feet; in some years the equivalent of almost one percent of the total population migrated to Australia.
At first glance, such perceptions were certainly justified and, indeed, are still justified. New Zealand’s per capita GDP has been lagging behind Australia’s for a long time.
However, New Zealand has been growing faster than Australia since 2011. It is also outperforming Australia on measures of competitiveness and economic freedom.
The change of both countries’ economic fortunes reflects both Australia’s competitive decline and New Zealand’s more recent reforms. At the same time, New Zealand is benefitting from a terms-of-trade boom which Australia used to enjoy but does not do so anymore.
In short: We may be witnessing a role reversal in Australia’s and New Zealand’s economic fortunes, for which there is not a single reason but a multitude of factors at work, some of them external.
At a time when many Australian and international commentators are giving up on the possibility of implementing reforms in mature democracies, New Zealand has demonstrated they are still possible. The New Zealand experience, however, also shows how difficult it is to change the political course in the face of public and institutional inertia.
New Zealand’s future prosperity depends on the degree to which public opinion will support productivity-enhancing reforms and on the quality of political leadership in building constituencies for reform and implementing acceptable reforms.
The same can be said about Australia, where reforms are much more urgent now. As Australian Prime Minister Tony Abbott recently put it: “Our challenge – the challenge of the current Government – is to show that the age of reform has not ended, it was merely interrupted.”
If Abbott requires any ideas for this daunting task, a look across the Tasman Sea may well be inspirational.
The above is an edited excerpt from Oliver Hartwich’s new monograph Quiet Achievers – The New Zealand Path to Reform. Commissioned by the Canberra-based Menzies Research Centre, it was published by Connor Court and can be ordered here.