5. New Zealand's Economic Relationship with Australia and its States
Key Points
- New Zealand appears to be more highly integrated with the Australian economy than with that of any other country, but is still less integrated than the Australian states are with each other.
- New Zealand's economic performance will be an important determinant of our ability to compete with the Australian states for key resources, such as highly skilled workers and investment.
- New Zealand's growth in gross domestic product (GDP) per capita has been in the middle of the Australian states, but our level of GDP is lower than all of those states other than Tasmania.
- Australia has become an important destination for emigrating New Zealanders, resulting in a large and growing New Zealand diaspora. However, the magnitude of the net outflows are not a great deal bigger than that experienced by some of the Australian states to other parts of that country.
- New Zealand is a net importer from Australia of a number of high-value services, although we have a higher proportion of our workforce in finance, insurance and business services than do most Australian states.
- Australia accounts for a large and growing proportion of foreign investment in New Zealand, which has led to a large negative net investment position from New Zealand's perspective.
Introduction
Strong international evidence suggests that country borders typically reduce levels of economic interaction. For example, trade between geographically close regions in the US and Canada is much less than trade between distant provinces within Canada.94
Considerable work has been undertaken to reduce the barriers to economic flows between New Zealand and Australia. This started with the negotiation of a New Zealand/Australia Free Trade Agreement, which evolved into the Closer Economic Relations (CER) agreement. Since then, our two countries have introduced a wide range of further policy measures and greater regulatory coordination, and have established a number of joint institutions. New policy efforts are now being undertaken under the Trans-Tasman Single Economic Market initiative.
As a result of these measures, and our geographical proximity, New Zealand now appears to be more economically integrated with Australia than with any other country. It is our largest trading partner, there is considerable cross-Tasman investment, and significant numbers of New Zealanders live and work in Australia.
However, border effects still exist between our two countries. For example, work on price similarities has shown that New Zealand is less integrated into the Australian economy than states such as Western Australia.95
With a population of 4.2 million people, New Zealand is a similar size to many of the Australian states - smaller than New South Wales and Victoria, but larger than South Australia or Western Australia. Given this, and the high levels of trans-Tasman economic integration, it is useful to compare the performance of the New Zealand economy with that of the individual states of Australia, in addition to that of the country as a whole. New Zealand's relative performance will, to a degree, determine our ability to compete with those states in key areas, such as for highly-skilled workers and investment.
In the context of the two countries' ongoing efforts to move towards a single economic trans-Tasman market, it is also useful to consider whether in some key areas, such as migration and investment, the economic flows between our two countries are closer to those that would normally be seen between different regions within a single country, rather than between two separate nations.
5.1 Growth and Employment
New Zealand's GDP growth has been in the middle of the Australian states.96 However, New Zealand's GDP per capita is lower than that of all the Australian states other than Tasmania. After severe declines in the late 1980s and early 1990s, New Zealand's employment growth has been high, only exceeded by Western Australia and Queensland since 1995.
Differences in standards of living may be more pronounced than GDP per capita implies, as the latter does not include interstate transfers, which reduce income differences between states. For example, Tasmania's state government receives a disproportionate share of goods and services tax (GST) revenues,97 and on average, its residents receive substantially more in social benefits and services (health and education) than they pay in income taxes and indirect taxes. In 2003/04, Tasmania's household incomes excluding transfers were 24 per cent below Australia's as a whole. However, when government cash and in-kind transfers to Tasmanian households are included, final household incomes were only 12 per cent below average.98
New Zealand's relatively low output per capita is reflected in wages, which are lower than in the Australian states. In 2006, the average weekly earnings of full-time workers in Australia ranged from NZ$1,025 in Tasmania to NZ$1,248 in Western Australia (converted at purchasing power parity PPP exchange rates). In New Zealand, earnings averaged NZ$906. This wage gap has widened over time: in New Zealand, real wages grew on average 1.1 per cent each year from 1997 to 2006, whereas Australian state real wage growth ranged from 1.3 per cent (Western Australia) to 1.7 per cent (Tasmania).99
5.2 Migration
Lower wages in New Zealand may be one influence on migration to Australia, together with family connections, lifestyle considerations and job opportunities. Australia has become important for New Zealand's outward migration in the past 40 years, and is now the destination for a substantial majority of emigrating New Zealanders. This migration has accumulated to form a considerable New Zealand diaspora, which grew to an estimated 389,000 people in 2006, the equivalent of about 10 per cent of the New Zealand population.100 Unlike migrants to other destinations - which immigration restrictions bias towards the highly skilled - the skill distribution of New Zealanders moving to Australia is similar to that of the general New Zealand population. New Zealanders in Australia have a higher labour force participation rate than do Australian-born residents of Australia, and are concentrated in the young adult age group.101
Examining individual states, New Zealand has seen net migrant outflows to Australia of a similar magnitude to those experienced by Tasmania and New South Wales to the other Australian states. Queensland has been a major net recipient of people from most of the Australian states and New Zealand. Although we do not have statistics on the numbers of Australians now resident in a different state, we expect at least some of those groups to be of a similar size or larger than the number of New Zealanders living in Australia. This is implied by gross migration flows, which are less between Australia and New Zealand than between Australian states. Given that migration flows within countries are generally much greater than flows between them, this data suggests that New Zealand and Australia's labour markets are now highly, but still not perfectly, integrated.
5.3 Trade and Industry
Each Australian state has its own industrial structure and specialisations, which influence its economic performance. New Zealand's industrial specialisations can be compared with those of the individual Australian states in two ways: through the composition of its workforce, and by examining trade between New Zealand and Australia.
New Zealand is a net importer from Australia of a number of high-value services: computer and information services, royalties and licences, and, to a lesser extent, financial services. There is a particular imbalance in royalties and licences: in 2007, New Zealand exported NZ$51 million to Australia, and paid Australians NZ$193 million. On the other hand, financial services exports from New Zealand have grown from NZ$5 million in 2003 (and probably lower in 2001) to NZ$63 million in 2007, close to imports of NZ$65 million.
Finance and insurance services and business services are two industry groups with higher than average labour productivity and wages.102 The New Zealand workforce has relatively fewer finance and insurance workers than do New South Wales or Victoria, but more than the other states. In New South Wales, employment in these services fluctuated around 4.8 per cent of the total workforce over the whole period, and in Victoria, it has remained around 4.0 per cent. After a decline between 1996 and 2002, the proportion of New Zealand workers in the finance and insurance industries has grown more strongly than in any of the Australian states and now comprises 3.1 per cent of New Zealand's workforce. This may suggest that New Zealand is increasingly developing its own economic activity in these areas and is not serviced by Sydney and Melbourne's financial sectors to the extent that the other states of Australia appear to be. Property and business services employment became more important in all states of Australia from 1996 to 2006, and New Zealand kept up with this trend.
5.4 Investment
The fourth dimension of New Zealand's relationship with Australia is investment. In recent years, Australia has tended to be a net investor in New Zealand.103 Net investment has been positive since 2002 after briefly turning negative in 2001.
Accumulated net investment by Australians has raised New Zealand's net liabilities to Australia by 270 per cent since 2001. Australia now accounts for a third of New Zealand's total net foreign liabilities. This is large compared with Australia's share of world investment stocks, suggesting a high and growing level of capital market integration between New Zealand and Australia.
Previous work has indicated that this Australian component of New Zealand's foreign liabilities is less likely to be associated with a current account reversal than that owed to nationals from other countries, reducing the potential risk.104 However, taken together, Australia and New Zealand have a net international investment deficit position of 61 per cent of Australasian GDP, which is still large by international standards.
Figure 5.1 Real GDP per capita105
Source Statistics New Zealand, National Accounts; Australian Bureau of Statistics, 5220.0 Australian National Accounts: State Accounts, Table 1 – Gross State Product, Chain volume measures and current prices
→ Full size version of Figure 5.1 [134 kB JPG]
5.1 Growth and Employment. New Zealand's GDP per capita is lower than all of the Australian states other than Tasmania.
Figure 5.2 Index of real GDP per capita
Source Statistics New Zealand, National Accounts; Australian Bureau of Statistics, 5220.0 Australian National Accounts: State Accounts, Table 1
→ Full size version of Figure 5.2 [116 kB JPG]
New Zealand's per capita growth since 1990 has been in the middle of the Australian states.
Figure 5.3 Aggregate employment growth
Source Statistics New Zealand, Household Labour Force Survey; Australian Bureau of Statistics, 6291.0.55.003 Labour Force, Table 5
→ Full size version of Figure 5.3 [159 kB JPG]
New Zealand's employment growth since 1987 was in the middle of the Australian states. Measured from June 1995, it was higher than all but two of the states.
Figure 5.4 Mean full-time weekly salary and wage income106
Source Statistics New Zealand, Customised Income Survey Data; Australian Bureau of Statistics, 6310 .0 Earnings, Benefits and Trade Union Membership, Table 1
→ Full size version of Figure 5.4 [151 kB JPG]
New Zealand has lower wages than all the Australian states. Wages are highest in Western Australia and New South Wales.
Figure 5.5 New Zealand and Australian diaspora107
Source Statistics New Zealand, Census tables 1971-2006; Australian Bureau of Statistics, 3105.0.65.001 Australian Historical Population Statistics, Tables 80-84; ABS, 2068.0 2006 Census Tables
→ Full size version of Figure 5.5 [92 kB JPG]
5.2 Migration. The number of New Zealanders living in Australia has increased since 1971. In 2006, there were 389,000 New Zealanders in Australia – 2.1 per cent of the Australian population and the equivalent of 9.7 per cent of the New Zealand population.
Figure 5.6 Annual net migration between Australian states and between New Zealand and Australia108
Source Statistics New Zealand, External Migration; Australian Bureau of Statistics, 3412.0 Migration 2005-06, Table 5.7
→ Full size version of Figure 5.6 [186 kB JPG]
New Zealand has experienced large outflows of people to Australia for a number of years. However, the size of these flows is not dissimilar to past migration from NSW and Tasmania to the other states.
Figure 5.7 Gross migration flows between Australian states and between New Zealand and Australia, 2005-2006 109
Source Statistics New Zealand, External Migration; Australian Bureau of Statistics, 3412.0 Migration 2005-06, Table 5.7
→ Full size version of Figure 5.7 [186 kB JPG]
New Zealand's gross migration flows to Australia in 2005–2006 were considerably smaller than Australian interstate flows, and more unbalanced.
Figure 5.8 Value of services trade with Australia
Source Statistics New Zealand, Customised balance of payments data
→ Full size version of Figure 5.8 [87 kB JPG]
5.3 Trade and Industry. New Zealand is a net exporter of communications services to Australia, but a net importer of finance, computer and information services as well as intellectual property.
Figure 5.9 Finance and insurance employment
Source Statistics New Zealand, Household Labour Force Survey; Australian Bureau of Statistics,6291.0.55.003 Labour Force, Table 5
→ Full size version of Figure 5.9 [185 kB JPG]
New Zealand's levels of employment in the finance and insurance industries are a little higher than all of the states but lower than New South Wales and Victoria.
Figure 5.10 Property and business services employment
Source Statistics New Zealand, Household Labour Force Survey; Australian Bureau of Statistics, 6291.0.55.003 Labour Force, Table 5
→ Full size version of Figure 5.10 [211 kB JPG]
New Zealand's levels of employment in the property and business services industries sit broadly in the middle of the Australian states.
Figure 5.11 Investment between Australia and New Zealand
Source Statistics New Zealand, Customised balance of payments data
→ Full size version of Figure 5.11 [83 kB JPG]
5.4 Investment.110 New Zealand has had high, but fluctuating, net investment from Australia since 2002. In 2006, investment from Australia was $10.9 billion, while New Zealand disinvested $2.3 billion from Australia.
Figure 5.12 New Zealand's net international investment position
Source Statistics New Zealand, Customised international investment position data
→ Full size version of Figure 5.12 [90 kB JPG]
New Zealand's net international investment position with both Australia and the rest of the world is large and negative. However, since 2001, Australia has made up a growing proportion of New Zealand's net foreign liabilities (33.6 per cent in 2006, up from 13.6 per cent in 2001).
Back to Top