New Zealand had a plan to be as rich as Australia. Here’s how it failed

New Zealand’s government set out a plan 16 years ago to “match Australia by 2025”.

But instead of fostering a booming economy to rival that of its neighbour, the country faces rising unemployment, anaemic economic growth and an exodus of Kiwis across the Tasman Sea.

The outlook is so bleak that some in Wellington now joke that the government’s next tagline should instead be to “beat Fiji by 2050”.

For Don Brash, New Zealand’s failed ambitions to match Australian incomes are especially frustrating.

He was appointed bhy then-Prime Minister John Key in 2009 to lead a high-profile, bipartisan task force charged with developing a strategy to close the income gap.

None of its 35 recommendations were adopted by the cautious centre-right government and the gap in GDP per capita has now grown, from a chasm of roughly $8,000 to $10,700.

“It was a case of missed opportunities,” said Dr Brash, who was governor of the Reserve Bank for 14 years and spent three years as leader of the opposition, for the New Zealand National Party, from 2003 to 2006.

“I think because we made some recommendations the government of the day did not like very much, they used the first opportunity they could to wind [the task force] up in 2011.

“I would’ve been relaxed about it if they had other plans to catch Australia. But they didn’t… it just hasn’t been a priority,” he told The Telegraph.

But reality is now hitting hard. Adjusting for purchasing power, GDP per person is about a third higher in Australia than in New Zealand – where the cost of living is high, unemployment has risen to a four-year high of 4.7 per cent and homelessness is rising.

New Zealand’s economy, currently in recession, was the worst performing in the developed world last year, according to HSBC.

And so, despite New Zealand’s reputation as an idyllic place to live and bring up a family, the net result is an exodus.

In 2024, 128,700 people left the Pacific nation of 5.3 million people, according to preliminary data, a figure roughly 40 per cent higher than the pre-pandemic average for this century.

While net migration was still 27,100 last year, it was a significant fall from 128,278 in 2023.

“Rather than seeing a brain exchange, we’re seeing a brain drain,” said Paul Spoonley, a sociologist and emeritus professor at Massey University of New Zealand.

He added that it was no longer “simply the 20-somethings going to live in Sydney or London for a few years to get work experiences, travel, and get away from Mum and Dad”. Now, skilled workers in their 30s, often with young families, are also leaving.

Stats NZ estimates that 56 per cent of Kiwis who left last year went “across the ditch”, enticed by better paid jobs, more generous pensions and an economy not in recession. In the last few years, Australia has made it even easier for New Zealanders to get passports and benefits.

“We have a soft labour market, so in the short term we’re exporting some of our unemployment,” said Prof Spoonley. “But the major impact is that we’re losing our well-educated, skilled people. As the labour market begins to firm up in a few years, we’re going to have a generational shortage [of workers].”

But he does not think the government is taking the situation seriously enough.

“We have adult children in their 30s, and when you look at their circle of friends, it’s very obvious to see that a lot more have moved to Australia,” Prof Spoonley said.

He added: “It seems to me we have a degree of complacency – I don’t think we are seeing much of a debate about how we can improve our competitiveness with Australia. I think that’s partly because the gap is so large, what could the government do to match it?”

So how did New Zealand lose pace compared with Australia in the first place?

In Dr Brash’s mind, there are three key factors: Australia’s mining boom, New Zealand’s economic missteps and a level of economic productivity well below most of its peers.

“Australia has avoided a recession for the best part of 20 to 30 years, so in that sense, it has done well,” he said. “There are various factors, mining being the most obvious – Australia has a very large amount of valuable mining assets, which have helped.”

But he added that New Zealand had failed to develop an ambitious strategy to boost its economy – ignoring a range of proposals included in the “close the gap” task force’s final report.

“We were recommending a more open policy to foreign investment and to reform the Resource Management Act – a cumbersome planning act which means if you want to build anything, there are substantial hoops,” Dr Brash said. “But successful governments have kept that handbrake on development.”

He said this had contributed to a “ridiculous” situation where, despite no lack of land, house prices were “absolutely nuts”.

“Even a tent is unaffordable,” he joked. “This is the result of serious policy failings.”

The poorest 40 percent of the population saw their housing costs rise substantially under Mr Key, and faster than than their incomes.

More broadly, Dr Brash bemoaned that recommendations to make New Zealand more attractive to foreign investment were sidelined.

“The corporate tax break is also no longer competitive – 28 per cent, which by Asian standards is high,” he said. “We haven’t made ourselves an attractive place for investment, so even when bright ideas do occur, people start businesses here [and] then sell them offshore.”

But the current situation has also been made worse by monetary policy in the last two or three years.

Coronavirus deepens inflationary pressure

When New Zealand closed borders and provided an economic stimulus to protect against the coronavirus pandemic, this fanned inflationary pressures and pushed already high house prices to historic levels.

In response, and unlike Australia, the central bank increased interest rates and the government rapidly halted the fiscal spigots – triggering a recession.

This approach was dropped in August – partly when updated figures showed the economy had been growing more quickly than first thought in 2023 – but the bank’s previously hawkish warnings had already hit households and businesses hard. Now the government has given up on achieving a budget surplus in the next five years.

“If we had perfect knowledge, perfect, accurate real-time data, then it would affect how we communicate,” Paul Conway, chief economist at the Reserve Bank of New Zealand, told Reuters. “Unfortunately, it’s not physics.”

But Dr Brash said it was never too late to turn the situation around – and he “is more optimistic than most of my contemporaries” about the current outlook.

“The government ignored our recommendations in 2010/2011, and look where we are now. But that said, we still have an opportunity, there’s always an opportunity in the present to do something about it.

“There are some moves afoot, [a] resource management act, foreign investment regime, some measures that make me optimistic that we are serious about improving productivity,” he said.