Why focus on Australia?
Political leaders may have had many different reasons for articulating the goal in terms of closing the gap to Australia. We believe that it is useful to have done so, not because matching Australia should be the end in itself, but because that target is, for now, a very useful proxy and benchmark for the things we really care about. It is a useful benchmark for several reasons.
First, Australia is the high-income English-speaking country to which the average New Zealander can most readily migrate. People respond to incentives and opportunities. The prospect of a better life was what attracted most of those who came to this country from the United Kingdom in the 19th century - at a time when the barriers of distance and information were so much greater than they are today. Almost all of us would need no more than a passport to follow the more than 500,000 (net) who have already left to begin a new life in Australia.
Second, Australia is also the country in which it is easiest to see and feel the differences in living standards (and to analyse the institutional and policy differences). A large proportion of New Zealanders now have friends or relatives living in Australia. Australia is a favoured holiday destination for New Zealanders - over 700,000 leisure trips were made by New Zealanders to Australia last year alone. And the many cultural similarities - from parliamentary democracy and English legal systems to shared passions and rivalries in sport - help bring the differences home starkly. The brand names on the goods in the shops are similar; indeed many retail chains and service providers are the same on both sides of the Tasman. For a family living in the suburbs of Auckland, it is simply much easier to envisage what one might gain from moving to the suburbs of Melbourne than from moving to, say, Dusseldorf or Vienna, two European cities often rated as offering among the best living standards in the world.
Thirdly of course, Australia itself is one of the higher income advanced countries. Australian incomes aren't as high[2] as those in countries such as Norway, Luxembourg, and the United States. But Australian incomes and living standards have consistently, through all the stages of its economic development and over 150 years, been in the top half of the OECD group of countries. There have been periods of slippage, but they have been able to be reversed.
Practical New Zealanders seem to relate best to the concrete and tangible. Provided Australia continues to succeed, its sustained strong track record and its proximity help provide a very tangible benchmark against which to assess our own economy's progress and the quality of policymaking in New Zealand.
Of course, Australia's policy environment, while better than our own in some respects, is far from ideal. As just one example, the Australian Productivity Commission has recently highlighted the extraordinarily generous government assistance provided to the Australian car industry during the recent recession; questionable assistance to an industry that itself is probably only viable because of government subsidies and protection.
In future, something unexpected could happen and the Australian policy environment could deteriorate sufficiently that the living standards of its people fall away relative to those in other advanced economies. There would be nothing remotely attractive about having closed the gap to Australia that way - as our largest trading partner and largest source of inward foreign investment, Australia's success matters greatly to us.
Notes
- [2]And productivity per hour worked in particular is not as high.
