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Alan Bollard says New Zealand should not attempt to compete economically with Australia as it is "unrealistic".
Speaking to TVNZ's Q + A programme on Sunday morning, the Reserve Bank Governor contradicted the policy of Prime Minister John Key's national party.
Bollard says he doesn't think New Zealand can catch up with Australia as their economic advantages are just too great.
"Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn't annoy people to mine them. They've run their economy well but we just don't have their advantages," Bollard told TVNZ's Guyon Espiner.
Australian average incomes are approximately 1/3 larger than New Zealand's and "catching up" by 2025 is a goal of the Key government who had Don Brash lead a taskforce last year to consider its options.
The government says the objective of the taskforce is to stem the trans-Tasman brain drain and raise the standard of living.
But Bollard has contradicted those aspirations and says New Zealand should not be trying to do that because "I don't think we can".
However, he also says the lack of advantages is not necessarily a bad thing.
"There are a lot of crumbs that come off the Australian table that we can take advantage of," says Bollard.
Those "crumbs" include Australia's strong internal manufacturing sector which provides a lot of opportunities for Kiwis.
Bollard said it was up to the government to set its own goals but "to me the most interesting thing is how can we take advantage of Australia's good luck".
Labour blames National
Labour is reading Bollard's statements as a lack of confidence in the government.
"I think he and the business leaders have looked at the government's track record and said: nothing here will close that gap," says Labour leader Phil Goff.
Goff said he believed New Zealand did have the potential to close the gap but National was doing nothing to achieve that.
"To the contrary, New Zealand has fallen further behind Australia over the past year," he said.
"We have gone backwards, not forwards."
Goff said the previous Labour government achieved a lower unemployment rate than Australia but since the election New Zealand's rate had soared and was now 30% higher than Australia's.
"Australia has enjoyed a government that has been proactive, has stimulated the economy and has committed itself to investing more in skills training and education," he said.
"Our government has sat on the sidelines. Employers have complained at its lack of a skills training strategy. As a result, one in five young New Zealanders are not in employment, education or training.
"Australia has reduced that to one in 10."
But John Key rejected Goff's criticism and says Bollard is entitled to his opinion on the Australian economy, though he disagrees with him on that.
"Dr Bollard's responsibilities are in relation to changing interest rates in New Zealand and while he is an intelligent and well informed person doesn't mean he looks at a whole of government perspective, nor does it mean that just because it's difficult, as he correctly points out that, we should abandon that goal," says Key.
NZ economy
Discussing the New Zealand economy, Bollard said it was starting to grow but the situation was fragile.
"We're now seeing growth, but some of it is coming from stimulus from the Government, some of it is coming from very soft monetary policies, some of it is coming from businesses building up stocks and things like that, and some of it is coming from very good dairy prices," he said.
Bollard said he hoped unemployment had peaked and statistics issued last week, which showed it running at 7.3% compared with the Reserve Bank's forecast of 6.6%, actually represented only a very small number of jobs lost.
"There's quite a big increase in the number of people wanting to get back in the workforce and some of that is good news," he said.
Bollard said he had not changed his view on when the Reserve Bank would raise interest rates.
"We will watch the data carefully, maybe around the middle of the year, but that's a maybe."
He described the housing market as looking slightly
spongy.
He said he was initially worried that house prices would boom
again, but that wasn't happening.
"We have seen prices pick up, but actually sales are still quite low."
Changing the tax system
On Tuesday, Key will outline his economic agenda at the opening of parliament.
Bollard had a message there too, saying New Zealand needs to
change its tax system to reduce the incentives to invest in
property.
"For monetary policy, you don't want a tax system which says you'll
get an advantage from investing in one particular area, in this
case housing, because then you get over-investment in one
sector.
"You get people relying on a lot of eggs in one basket and that seems to be the New Zealand story".
Bollard admits the issue is very complicated but a land tax is a possibility.
Whether Key plans to address that, the nation will see next week - as for planning to match Australia's wealth, he has been told that is not going to happen.
Do you agree with Bollard's comments? Should NZ not try to compete economically with our trans-Tasman cousins? Comment below...
Add a Comment:
Post new commentJohn from Sydney said on 2010-02-09 @ 02:47 NZDT: Report abusive post
Figures show changes between Australia's and NZ's GDP (per capita PPP basis) over 30 years: In 1980, the AUS GDP per capita was $US 9819.53, NZ was $US 8267.21 (figures from economywatch.com). The NZ figure was 84.2% of AUS. In 1990, the AUS figure was $US 17539.06, NZ figure was $US 13487.37, the NZ GDP per capita being 76.9% of AUS. In 2000, the NZ GDP was 72.1% of AUS, and in 2008, 72.5%. Don't get me wrong: I'm an Aussie who believes that a prosperous NZ benefits AUS and vice versa
andrewfun2bfit said on 2010-02-08 @ 15:25 NZDT: Report abusive post
Dr Bollard has come out with the most uninspiring economic message for all New Zealanders. David, give up on breaking the Tasman economic divide now because goliath has a greater amount of natural resources. For goodness sake Dr Bollard lets dominate the global stage and compete against Aussie. We are always settling for second best, lets grab the bull by the horns and deliver on the world scene! Shame on you Bollard...
Parorchestia said on 2010-02-08 @ 10:32 NZDT: Report abusive post
Dr Bollard has fallen into the old fallacy of correlating natural resources with national wealth. There is no such correlation, otherwise Nigeria would be wealthy and Switzerland poor. As an economist he has ignored the old truism that politics subsumes economics, but culture subsumes politics. Our culture is not as conducive to wealth generation as is Australia's. Until we change, we are doomed to decline.
benrebo said on 2010-02-08 @ 09:13 NZDT: Report abusive post
He is absolutely 100% correct. Australia is blessed. The only way we will catch is if food price growth outstrip mineral price growth. We could develop smarter, more advanced industry, except our human capital keeps leaving for a more secure future. Even if one had a good idea, it wouldn't get off the ground without taking reckless personal risk because banks won't fund anything other than rental properties. That said, while some are richer, a hell of a lot more are poorer
Laurenceuk said on 2010-02-08 @ 06:27 NZDT: Report abusive post
Mr Bollard has failed to explain why other countries that are similar in size and resources to New Zealand have similar levels of GDP to Australia and even higher. I thought increasing GDP was all about technique,producing higher value goods,improving production methods,infrastructure,education,saving costs,studying our markets carefully etc etc. Of course it can be done but not with fatalist naive comentators such as Bollard.