BRAIN DRAIN?

A radical change in approach across the Ditch, combined with an open border and the lack of a growth plan in New Zealand could spur a new exodus to Australia, writes Luke Malpass.

As Australia throws down an $80b gauntlet to bounce back from the pandemic, the trans-Tasman wages gulf grows and housing looks more affordable over the Ditch, the acid goes on New Zealand’s Govt to instil more confidence with Thursday’s Budget.

When Australian Treasurer Josh Frydenberg handed down the Australian Federal Budget on Tuesday, it marked a stepchange: Instead of trying to balance the books, the government would use taxpayer money to drive unemployment down.

Principally, the Aussies are now going to throw down A$74.6 billion (NZ$80b) over the next two years on tax cuts and business while lavishing tax breaks on sectors such as health, aged care and mental health: Traditionally low-wage industries, dominated by women.

But the consequences of those decisions could now be felt keenly felt in New Zealand. The resulting pressures of the new Australian largesse could now be felt in the Kiwi labour market and even start another brain drain.

This could all create a perfect storm, unless the New Zealand Budget gets the big calls right: New Zealand has a rich country on its doorstep that’s facing labour shortages, that pays better wages and where housing is as affordable or more affordable. Its government is pumping cash into driving unemployment down further. And its border is now open.

Richard Holden, a professor of economics at the University of New South Wales, thinks that the many billions being spent on aged care and other sectors in Australia over the next little while may just be a ‘‘down payment’’, and that more wage hikes and higher salaries will be on the way.

‘‘Is it going to have an effect on the New Zealand labour market? Quite possibly. I think the other thing is there’s a feeling – which I think is right – that people in the aged care sector and the childcare sector in Australia, workers are underpaid,’’ Holden told the Sunday Star-Times.

‘‘And so I think there’s going to be more upward pressure on wages in Australia and so when that happens, I think it’ll just magnify that kind of effect on the New Zealand labour market.’’

The comparative wages of nurses and teachers, for example, show that, for people prepared to leave family, friends, and community and start again, the economic rewards are there.

The last Australian mining boom was one of brawn – lots of jobs for miners, engineers, truck drivers, mechanics, construction labourers: Traditionally male-dominated fields. This time, the Australian Government is inflating the tyres of the traditional female sectors: Aged care, social services and healthcare.

Underwriting all of this is a continued resources boom, in iron ore, coal and natural gas. On current prices, over the next year, the Australian taxman will reap an extra A$35 billion in extra corporate taxes from mining alone. New Zealand has no equivalent industry, and oil and gas exploration are now both banned. That money is helping pay for a higher-wage economy with more government support.

Looking at pay is instructive.

Pay for a registered nurse in the public system on the top pay bracket starts at more than A$90,000 per year in NSW. But a plethora of allowances and loadings bumps this up significantly. This compares with $77,000 in New Zealand. For a new graduate nurse the comparison is $49,449 compared to A$64,116.

New Zealand’s nurses announced on Friday that they would be striking in June for better conditions and pay, noting that they are short-staffed and losing members to Australia.

In teaching, the gap is more significant. A graduate-level teacher in NSW earns at least A$72,000 compared to $49,000 in a New Zea

land primary school. The top pay scale for the most qualified teacher in a New Zealand primary school is $90,000 compared to A$114,000 in NSW.

While housing in Sydney is more expensive than Auckland – a median of about A$1.3 million compared to $1.12m in Auckland, in other Australian capitals houses are significantly cheaper than in Auckland. The median in Melbourne is A$975,000. In greater Brisbane it is A$662,000: Cheaper than Auckland, Wellington, Waikato, Bay of Plenty, Hawke’s Bay, Wellington, Nelson and Tasman. In Adelaide and Perth it is cheaper still.

Although a number of years ago salaries might have been higher, but living expenses higher still, that is no longer the case.

So one of the key questions out of the Budget that Grant Robertson will deliver on Thursday is whether it will produce a credible plan to get the New Zealand economy growing and keep Kiwis on these shores. The public sector pay freeze, announced last week, appeared to feed into a public anxiety over the economic direction of the country. In pre-Budget signalling, Robertson has consistently stressed he will take a ‘‘balanced’’ approach.

‘‘Overarching all this I think that he [Robertson] wants to show that he can be a fiscally austere minister,’’ head of research at BNZ, Stephen Toplis, told the Star-Times.

That said, there are limited levers that the New Zealand Government can pull to make Australia less attractive. Much of it is a game of instilling confidence.New Zealanders living in Australia can’t claim the dole and miss out on a few other things such as being able to apply for Australia’s student loans scheme, but Kiwis in work do qualify for childcare subsidies, universal healthcare (Medicare) and school education.

And now, Holden points to a philosophical shift within the ruling Australian Liberal

Party, facing an election this year. It is that debt and deficits don’t matter anywhere near so much any more because the Government can lock in debt for 30 years at ultra-low interest rates, grow the economy quicker and shrink back debt over time.

‘‘And that has really interesting implications . . . that allows them to go ahead with tax cuts, as they’ve already legislated, and it allows them to increase spending,’’ Holden said.

The Australian Government is now deliberately borrowing up big and deploying that cash to bring unemployment down, and this will likely increase demand for labour from New Zealand, which will also be competing for the same pool of potential migrants.

The irony of all of this is that New Zealand’s relative fiscal rectitude – and Robertson’s approach to management of the books – could count against it. A surplus is expected here by around the middle of this decade, while in Australia it is now into the 2030s.

But the question now will be, where is growth going to come from, and where will the best opportunities be?

Toplis says that stronger than expected economic growth since Covid-19 began means that both the fiscal and debt positions are healthier than expected, meaning slightly higher levels of spending are likely.

‘‘But I’ll be surprised if what they do takes us into a fiscal position that was any weaker than it was before we got the windfall gain,’’ he says.

And he neatly sums up the basic economic and political tension facing Robertson.

‘‘It doesn’t feel like an economy at the moment that’s crying out for more general surplus stimulus. And given the risks that are around, you would be much better off, if you do have extra money in the bank, to keep it there for that for the rainy day.’’