Finance Minister Bill English's attempt to attract foreign companies to New Zealand to take advantage of our low wages has received a luke warm response on both sides of the Tasman.
English said on TV ONE's Q+A that New Zealand's 30% lower wages compared to Australia could attract more trans-Tasman business in the next few years.
He said Australian companies should be looking at bringing
activities to New Zealand because "we're so much more competitive
than most of the Australian economy".
Prime Minister John Key says his Finance Minister was taken out of context, while Australian economic analysts say it's a dangerous ploy by the government.
Key today defended his Finance Minister.
"He was just simply making a point that at the moment we are seeing investment because of those wages," Key told TV ONE's Breakfast.
That's investment such as the Australasia call centre established by Cannon last year.
"Now that's partly because the quality of workers are really, really good, and the wages are a bit lower," said Key.
Massive Australian companies already have major labour forces in New Zealand.
But will they take advantage of New Zealand's low wages and increase their presence?
"You have got to remember they are looking for a pool of multi-skilled workers, therefore I don't think wages will be a big, big attraction," said Mike Rafferty, research analyst at Sydney University.
The wage gap between New Zealand and Australia is about 30%.
And analysts say promoting the country as a low wage option for foreign companies sends a dangerous message.
"If you are sending a message to young New Zealand graduates and ambitious people that we are going to be selling New Zealand's low wages. The message they are sending to them is that if they want good wages, go somewhere else," said Rafferty.
Key says the government has not given up its election promise to reduce the wage gap between the two countries.
"Our main game here, and the main aim for the government is how you lift those wages, and lift them relative to Australia, and when you narrow that gap, that is when you see migration coming the other way," Key said.
"The only other time we've had more people coming from Australia than New Zealanders going to Australia in about 40 years was when our wages were above theirs."
He said there has been evidence of investment in New Zealand because of the lower wages, but the government has not changed its strategy to attract business on that basis.
The Australian analyst is not sold on closing the wage gap.
"New Zealand has got issues with roads and public transport just like Australia. And governments are now getting penalised for not dealing with those issues and I would be fearful, politically, in this sort of electoral cycle if governments say 'yes we will just cut taxes and that's going to fix everything'," said Rafferty.
The Finance Minister's comments have been widely criticised by Labour, unions and political analysts.
Director of AUT's work and labour market Institute Ray Markey said the comments seem to contradict the government's frequently stated aim of creating pay parity with Australia.
He told Breakfast today that New Zealand needs to focus on improving its productivity rather than encouraging businesses with low wages.
"The reason we have low productivity is because we have low capital investment, and low wages are a dis-incentive for investing in capital in industry.
"If you've got cheap labour why would you invest in expensive plant and equipment?" he explained.
He said low productivity had been an issue for 15 years and promoting a cheap work force wouldn't help the government buck this trend.
"There's a number of economies, particularly in Asia, who have taken this path and attracted capital on the basis of low wages, and that's developing economies.
"We're a developed economy, we can't compete with those countries on that basis because we'd have to dramatically reduce living standards.
"We need to compete in a different way, we need to attract capital into high-tech, high productivity, high value added sectors," Markey said.
He said if the government is serious about improving incomes it will need a range of policies which support that goal.
He explained that places such as Singapore, Taiwan and South Korea, which have previously attracted investment through cheap labour, are moving on to high tech industries with the support of their governments.
'Lost the plot'
Meanwhile, Labour's Finance spokesperson David Cunliffe says English has 'lost the plot', pushing the case for New Zealand to be a low-wage economy.
Cunliffe said the Finance Minister's comments at the Australia-New Zealand Leadership Forum and on Q+A have raised huge concerns about the government's lack of a plan to create jobs and raise incomes.
"Bill English, John Key and company promised in 2008 to close the wage gap with Australia. They have failed. Instead it has blown out to more than 34%.
"Rather than honestly admitting that failure - surely even Bill English can't believe in himself any longer - and adopting a plan to lift wages and growth, National is trying to spin its way out of its embarrassment," Cunliffe said.
"By arguing the advantages of a low-wage economy, Bill English has turned into a dead end street, and sadly he's taking hundreds of thousands of Kiwis with him. I don't know any low-wage Kiwi who sees that status as an advantage.
"We will never, and should never, aim to compete with an emerging Asian economy on low wages," Cunliffe said. "To do so would be a social and economic tragedy."