Trans-Tasman rivalry is usually played out in sport, but this week’s budget announcements by Australia and New Zealand have taken competition into a new arena.
Announcing Tuesday a forecast deficit of A$18 billion for fiscal 2014, Australian Treasurer Wayne Swan said predicted savings A$43 billion would see the budget balanced by fiscal 2016 and returned to surplus a year later.
Estimating real GDP growth of 2.75 percent this fiscal year and 3 percent the next, Swan said that “by mid-2015, our economy will be 22 percent bigger than before the global financial crisis, outstripping every major advanced economy”.
Yet two days later, New Zealand Finance Minister Bill English said the New Zealand budget would return to surplus a year ahead of Australia, despite also suffering from a strong exchange rate and weaker exports.
Predicting a narrow NZ$75 million (about A$60 million) surplus for fiscal 2015, English said the budget “enhances the momentum that is building across the New Zealand economy".
"That momentum can be seen in some recent favourable data and can be felt in a growing sense of confidence and security about our economic position," he added.
The New Zealand economy is expected to expand to 3 percent in the year ended March 2015, averaging 2.5 percent over the five years to March 2017 after an average of just 0.8 percent in the previous five years.
The comparison was seized upon by Australian Shadow Treasurer Joe Hockey, who used the prediction by his conservative counterpart to attack the Labor government’s record.
"How can the Australian treasurer insist that the government's budget of deficits, higher unemployment and slower economic growth is unavoidable when New Zealand has been able to deliver an earlier surplus without a major resources industry and a strong New Zealand dollar," he said.
Trading places
Writing in the Australian Financial Review, Luke Malpass, a research fellow at The New Zealand Initiative, said New Zealand and Australia “have essentially swapped places” since the 2008 global financial crisis (GFC).
“The Kiwis started the GFC in the pit, but have doggedly clawed their way back. In contrast, Australian government profligacy has completely undermined the benefits of a once in a lifetime boom,” he wrote in an article published Friday in the Australian financial daily.
According to Malpass, New Zealand put the budget back on track by increasing consumption tax but cutting spending along with income and company taxes. By comparison, Swan had posted successive deficits despite having seen tax receipts grow by more than the entire New Zealand budget.
New Zealand also expects to reduce net government debt to below 20 percent of GDP by fiscal 2021, down from the current 28.7 percent, helped by asset sales.
However, Swan said he was “completely dumbfounded” by the comparison. Australia’s English-speaking neighbor has around one-fifth of its population, while its $170 billion GDP is a fraction of Australia’s $1.5 trillion.
"There are just a couple of small differences between Australia and New Zealand," Mr Swan said. "New Zealand went into recession [during the GFC]."
Swan said the Australian economy had expanded by 13 percent since the GFC, compared to New Zealand’s 4 percent. Australia’s net government debt is expected to peak at 11.4 percent of GDP in fiscal 2015, and according to Moody’s currently has “the lowest debt level of any AAA-rated sovereign, with the exception of Luxembourg”.
According to the Australian government’s budget papers, the US economy has grown by only 3.25 percent since the GFC, while the eurozone and Japan are yet to make up lost ground.
In this regard, Japan’s announcement Thursday that its economy expanded at an annualized rate of 3.5 percent in the March quarter would have been welcomed by both Australia and New Zealand, given its importance as an export market.
Speaking in Brisbane on Thursday, ANZ economist Justin Fabo said: “Historically when you’ve had a financial crisis, growth for the next seven to 10 years is not only below the pre-crisis level, but also below long run averages. We’re still in that period.”
While pointing out that government debt had swollen by 10 percentage points since the crisis, Fabo said Australia “hasn’t had a recession in 20 years”.
New Zealand might not be able to say the same. But with its finances looking more robust, the Kiwis are undoubtedly happy to be as competitive fiscally as they are on the rugby field.