BusinessDesk: Kiwis not so badly off versus Australians as thought, due to the different ways we measure economic data, RBNZ's Bollard says

New Zealanders may not be as badly off as thought versus Australians because of difference in the way the two nations measure their economies, says Reserve Bank of New Zealand Governor Alan Bollard.

“It is almost certain that consistent measurement conventions used in New Zealand and Australia would narrow the reported gap with Australia,” Bollard said in a speech to a lunch meeting of the Trans-Tasman Business Circle in Auckland today.

Difference in the way gross domestic product is measured could add 10 percent to New Zealand’s official GDP relative to Australia, he said in a speech titled ‘Could we be better off than we think?’

Kiwis are migrating to Australia in record numbers, with a net outflow of 36,900 migrants in 2011, drawn by the promise of higher wages and better living conditions. The comparisons provoke endless claim and counter-claim among New Zealand politicians, especially as Prime Minister John Key has pledged to ‘narrow the gap’ between the two countries.

Among the measures worth revisiting, Bollard identifies the “unobserved economy,” which includes illegal activities, cash jobs and households growing their own vegetables. Typically referred to as the black economy, the impact on GDP is measured by Australia (which doesn’t include anything illegal in its assumption) but not in New Zealand.

In fact, New Zealand and Japan are the only two nations among 45 surveyed, where “no explicit estimates of unobserved activities” are included in GDP, Bollard says. Relative to Australia, New Zealand’s GDP could be under-estimated by 2 percent based on “the underground economy and backyard production.”

Bollard notes that New Zealand’s underground economy, which would include production and trading in illegal drugs, is estimated to be “somewhat small.”

A further 2 percent of GDP could be added by changing the way banking and financial services are recognised and allocated to end users, Bollard said.

He also highlights differences in the way value is ascribed to residential buildings in New Zealand compared with Australia, where improvements in the quality of buildings over time is recognised. New Zealand doesn’t quality-adjust its measurement and the difference could add 1.5 percent to GDP, he says.

A further 3 percent could be added to GDP once New Zealand adopts a new international statistical framework, known as SNA 2008, in 2013-2014.

Australia adopted the amended measure in 2009 and on that basis 4.4 percent, or A$50 billion, was added to Australia’s GDP in the June 2008 year, he said.

“New Zealand and Australia, while still producing GDP estimates, are now producing these statistics on a different conceptual basis,” Bollard said. “They are no longer directly comparable.”

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There's a lot of things New Zealand's national accounts don't cover. Statistics New Zealand needs to up its game. Where's the balance sheets, where's the accounts that would show the effects of the earthquake. Nope, we are running NZ inc. on quarter of an accounting system and what we do have is shonky.

Here's JP Morgan economist Ben Jarman's views on Bollard's speech:

RBNZ Governor Bollard today spoke at a local business forum, asking “Could we be better off than we think?” This cryptic title had raised the possibility that the Bank is turning a little more upbeat, given that so far this year the global news-flow has exceeded markets’ very pessimistic expectations from December.

However, in the event the Governor’s remarks were much more domestically focused, and ‘big picture’ than that.

The speech addressed technical aspects of the GDP calculation, how the statistical treatment in New Zealand differs, typically in a conservative way, from global peers, and how this leads to a misperception of relative living standards.

Surprisingly, for a speech that touches on such issues as the statistical treatment of bank interest margins and growing vegetables in your back yard, currency markets have reacted positively, but in reality there is almost no read-through to the cyclical dynamics, nor how the RBNZ are viewing such developments.

The issues touched on in today’s speech, given that they suggest the level of New Zealand’s GDP probably has been understated relative to global peers, are important in that they impact perceptions. Indeed, jawboning the perception of New Zealand’s current state of affairs appears to be the central ambition of the speech.

For one, getting the comparisons right gives households less reason to migrate. Population leakage to Australia, for example, is a significant problem – “one of the largest relative outflows of a country’s citizens seen anywhere in the OECD” - and to the extent that it is based on an overstated income gap, the Governor is right to set the story straight.

Similarly, for a country highly dependent on foreign capital, due to a dearth of household savings and large budget deficit, it is important that financial markets and ratings agencies perform cross-country economic comparisons on an apples to apples basis.

But today’s speech, focusing as it does on the level of GDP (and in particular, the unmeasured but cyclically-neutral bits of it), provides little reason to change one’s view on the growth outlook for New Zealand.

As Dr Bollard noted in summing up, “the devil is in the detail”. We would say the same about this speech – despite headlines to the contrary, it was not intended to say anything about where the economy is headed.

Biggest load of BS I've ever read.  Let's include all these amendments then - the average citizen is not going to be any better off.  Does it increase our wages?  Does it increase living conditions?
Where's his next speech explaining why we're actually worse off because our costs of living are forever increasing and economics is a flawed science?

We are being conned:
The game plan is this: if the Status Quo can convince you that the economy has righted itself and from here on in everything will get better and better, every day and in every way, then we will abandon financial rationality and start buying homes we can't afford on credit, cars we can't afford on credit and boatloads of stuff from China that we don't need on credit (of course looking cool is a "need," i.e. having an iPad to carry around).

that's brilliant. Couldn't help but think of Olly when I read it

There are examples there to cover the Ministry of Truth, Statistics NZ, John Key, Bill English, and certain journalists:
Consider one of the Status Quo's most valuable cons, the unemployment rate as calculated by the Bureau of Labor Statistics (BLS).
If we look at this chart from the St. Louis Federal Reserve, we see that employment--the actual number of people with jobs, as opposed to those who are without jobs--we see that the number of people with jobs has declined recently and is now at the same level of 3rd quarter 2009, a few months after it was officially declared that the recession had ended.
The official unemployment rate was 10% in October 2009, when about 140 million people were found to have some sort of job, and now that the same number of people have been found to have some sort of job (140 million), the unemployment rate is now only 8.3%, even though the nation has added roughly 6 million residents to the workforce.


agreed -
Bollard is on the way out, why not throw out there some garbage like this

I don't know the technical details but I filled my car on Tuesday night here in brisbane, it set me back $72.65 for 55 litres of 91 petrol ($1.319/L).  Back home in NZ would be $117.15.
My salary here in Brisbane is about the same as what I was earning in NZ (AUD vs NZD - no exchange rate taken)... In that case I have to come up with $44.5 somewhere...  oh I bought 2 litre of milk for $2.

or it could be worse than we think - dont forget the  "unobserved economy"  of  future Treaty Settlement claims e.g Air and Water  arent off the table !

Yes "jawboning" about sums it up and peasants should realise they will be the ones receiving the sharp end of the stick when the prodding starts...the bankers bonus structure and the bloated state sector bosses salaries are all as safe as the credit creation rort.

If you include our underground economy we are probably streaks ahead of Aus.  Maybe that's what he's getting at?

My equivalent salary in Aus = $30k more + 17% Super contribution.
Kid2 = working in Aus
Kid1 = about to move now finished degree


Yes, NZ is doing so well eh Bolly? That's why he's been raising the OCR steadily right?

Can anyone tell me who actually owns the Reserve Bank of NZ. Is it the Rockefeller's?

The Reserve Bank is owned by the government.

Hi Kleefer. Yes that is what I have always understood, however in discussions with a senior person that works in those circles he informed me that it is actually controlled by the Rockefellers, but how on earth would you actually find out ????

It could also be a dam sight worse than the govt will let on...!
Go read about YOUR future as a's all here in black and blood.