Marching in step

Australians and New Zealanders will be reminded of their shared histories in the deepest way ahead of the 100th anniversary of the landings at Gallipoli on April 25.

But their finance ministers and prime ministers are just as pre-occupied with the shared fortunes of their economies, particularly with the growing closeness of their currencies and respective dependencies on China.

"The better Australia does, the better we do."
Bill English, New Zealand's Finance Minister

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In this week before ANZAC Day, New Zealand's Finance Minister Bill English is visiting Australia to see for himself what's going on in the economy including addressing the Business Council of Australia's annual forum in Sydney about the relative success of New Zealand's economy - as the Kiwi dollar approaches an extraordinary parity with the Australian dollar.

English is cautious about the lessons Australia can draw from New Zealand's stronger economic growth rate and, far from cross-ditch triumphalism, warns New Zealand does best when its nearest neighbour is also firing on all cylinders.

"I don't think the gap is as big as Australians perceive," English told Australian television.

For New Zealanders, the malaise in the commentary around the Australian economy is novel, and somewhat concerning. Australia's relative strength during the Global Financial Crisis and its mining investment boom helped support New Zealand's economy during the crisis and through the Christchurch earthquakes of 2010 and 2011.

For decades, New Zealanders have seen Australia as the 'lucky' economy. Having the shoe on the other foot is as uncomfortable as it is rare.

English said he was in Australia to get a better feel for what was behind the media commentary and political headlines "because it's such an important economy for us."

"The better Australia does, the better we do," he emphasised.

The New Zealand dollar's rise is both a bonus for households planning winter holidays in sunnier climes but it is also a concern for manufacturing exporters and those hoping for stronger demand from Australian consumers for New Zealand products, English said.

"It's also got Kiwis a bit worried about what is happening in Australia," he said.

"They're a bit surprised to see themselves near parity and concerned that it might indicate some negativity around the Australian economy."

English himself is more confident Australia's growth slowdown will be temporary.

"Our view about Australia is that it is fundamentally a strong, resilient economy and one way or another they'll work their way through this," he said.

The key driver for both economies is China and, fortunately for New Zealand, it is faring slightly better than Australia because of the shifting of the gears inside what is still the world's fastest growing large economy.

China's construction slowdown and a mountain of new iron ore supply has driven iron ore prices below US$50/tonne, 10 year lows, hitting Australia hard. The end of a mining investment boom and a slowing manufacturing sector because of a strong currency has turned Australia into the “unlucky country”, for now at least.

China's weaker demand for New Zealand's biggest export, milk powder, has also weighed on export receipts. But New Zealand's growth is mostly internally driven for now, with construction booms in Christchurch and Auckland and solid household spending driving annual GDP growth at more than 3 per cent. New Zealand is also benefiting from a tripling in Chinese tourist arrivals to almost 300,000 a year within the last five years.

"We like to think of it as a rock solid economy, rather than a rock star economy," said English in reference to a description which has entered the popular realm over the last year.

Meanwhile, plenty of Australians wish their Coalition Federal Government could learn a few tricks from its centre-right cousins across the ditch when it comes to economic management.

Even archly conservative political commentators in the Australian media have gushed about the achievements of Prime Minister John Key and English as the Kiwi dollar neared parity in early April, one them as "shining lights, running the most successful and stable conservative government in the world”.

Of particular note was the 'tax switch' orchestrated by Key and English in 2010 when the New Zealand’s Goods and Services Tax rate was increased from 12.5 per cent to 15 per cent at the same time as the top income tax rate was cut from 38 per cent to 33 per cent.

For conservative – and even middle and left-leaning – Australian commentators, the Key-English team have demonstrated increased electoral policies are possible while instituting structural reform. Including fiscal reform.

Some hope ability to win elections and reform the economy while boosting confidence could rub off on Australia's current batch of leaders.

As English flies west, Australian Prime Minister Tony Abbott is visiting Wellington early in the week before ANZAC to jointly open a new National Memorial Park in the capital and he is expected to talk about the respective economic outlooks with Key.

English is less sure New Zealand's leaders have much to teach Australia's, particularly when it comes to tax reform.

"We ran very open and transparent policy debate about it so by the time a decision came to be made it wasn't really that controversial. I don't know that there're too many lessons for Australia," he said.

The irony is English has regularly pointed to Australia's slower and more deliberate economic reforms during the 1980s and 1990s – when Australia was led by the reforming Labor governments of Bob Hawke and Paul Keating and then the first conservative John Howard government - as a model for the "incremental radicalism" adopted by the Key-English Government.

For now, he doesn't expect the New Zealand model, if there is one, to be replicated across the Tasman, where a slowing economy and a morass of bi-cameral federal and state parliaments make reform even tougher.

Photo: WELLINGTON, NEW ZEALAND - MARCH 19: Finance Minister Bill English addresses the house during question time at Parliament on March 19, 2014 in Wellington, New Zealand. (Photo by Hagen Hopkins/Getty Images).

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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