A potential merger between Australia and New Zealand was one of the talking points over lunch at a Sydney investment conference this week. Several Kiwis expressed the view that the proposal was worth looking at, although the Australians present seemed to be less enthusiastic.

The New Zealand perspective is based on our relatively poor economic performance – and the quest for a solution – but Australians seem more concerned about the effect a merger would have on the Bledisloe Cup.

In light of this discussion it is appropriate to look at the two countries, assess how they have travelled in recent years and how they are dealing with the present economic downturn.

The first point to note is that Australia’s population of 21.57 million is almost exactly five times our 4.3 million (see table). Other observations about demographics include:
Australia’s population has grown by 13.3 per cent since December 1999 compared with New Zealand’s 11.7 per cent. The gap has widened in recent years, with New Zealand’s population growing by just 0.9 per cent in the past 12 months compared with Australia’s 1.7 per cent and 1.0 per cent in Tasmania, the country’s slowest-growing state.
Australia’s population has been boosted by high net migration, which has contributed an additional 213,500 individuals in the latest 12-month period compared with just 4400 net migrants into New Zealand.

These figures are strongly influenced by the large number of New Zealanders emigrating to Australia

Australia has more people aged 65 or more – 13.3 per cent of the population compared with 12.6 per cent in New Zealand – but the number of individuals in this age group will increase dramatically in both countries over the next 20 to 30 years.

There are also major differences between Australia and New Zealand in terms of savings and household wealth.

Compulsory superannuation has given a huge boost to superannuation funds across the Tasman, with a total of A$783.4 billion ($970.45 billion), or A$36,300 per capita, compared with only $28.4 billion, or $6600 per person, in New Zealand.

Australians also have large additional savings in the form of non-compulsory managed funds and individually held securities.

This is reflected in the value of the Australian sharemarket, which was worth US$693 billion at the end of last year compared with the NZX’s miserly US$24 billion.

We are also more heavily dependent on housing as residential property represents 76 per cent of gross household assets in New Zealand compared with 62 per cent in Australia. Thus a housing downturn will have a much bigger impact in New Zealand than in Australia.

New Zealanders are slightly more geared with household or individual debt representing 23 per cent of gross household assets compared with 22 per cent in Australia and, in terms of net wealth, Australians are better off. Average net wealth for every man, woman and child in Australia is A$272,000 compared with $136,000 on this side of the Tasman.

The wealth gap was far narrower before compulsory superannuation was introduced in Australia in 1992.

One of the big issues in Australia this week was the country’s high reliance on overseas borrowings, particularly through the banking system. Reserve Bank of Australia data show Australian-based banks source just under 30 per cent of their funding from offshore, compared with 40 per cent from this source by New Zealand-based banks. Australian companies also borrow directly from foreign banks.

A recent report by Merrill Lynch showed that over 50 per cent of the direct or syndicated loans to Australian companies were from foreign banks and A$75 billion of these were due to be renewed within the next two years.

Australian authorities are concerned that these foreign originated loans won’t be rolled over and they will have to be replaced by domestic sourced funding, which has become increasingly scarce.

This heavy reliance by the private sector on foreign debt is an important issue for both Australia and NZ.

New Zealand exports are comparable with Australia on a per capita basis but they need to be because our domestic production base has been decimated over the past two decades and we are heavily reliant on imports.

Both countries are commodity export dependent, with coal representing 24.5 per cent and iron ore 14.8 per cent of Australian exports in the November 2008 year. Dairy products represented 21.8 per cent of New Zealand exports and meat 11.8 per cent over the same period.

The Australian and kiwi dollars have been weak because both countries are heavily reliant on commodities and most spot prices have fallen sharply in recent months.

As far as exports are concerned, Australia’s main markets are Japan and China, which take 23.8 per cent and 14.8 per cent of the country’s exports respectively, while New Zealand’s main destinations are Australia, which accounts for 23.5 per cent of exports, and the United States, 10 per cent.

New Zealand accounts for just 3.8 per cent of Australian exports.

Australia’s current account or balance of payments deficit is equal to 5.4 per cent of GDP compared with New Zealand’s 8.6 per cent.

Australia is in a slightly better position because of booming commodity exports in the early part of the September 2008 year and NZ has a high investment deficit, which reflects our poor savings record.

Australians are relatively more optimistic about 2009, although they expect it to be a difficult year. This relative optimism is based on the belief that the housing market is not as overheated as in other countries and the large net migration inflow will boost the economy.

This is consistent with the latest OECD forecasts, which were released in November. They predict that the Australian economy will grow by 1.7 per cent in 2009 compared with a 0.4 per cent contraction by both the New Zealand economy and the 30 OECD countries as a whole.

Australia will be doing very well to achieve any GDP growth in 2009 as commodity prices and export volumes have dropped sharply since the OECD forecasts were compiled and many major mining projects have been cancelled or deferred indefinitely.

And what about a merger between Australia and New Zealand?

There are two types of mergers, a full political union or European Union-type format with a common currency, one central bank and free movement of all trade and people between the two countries.
A full political union would not be widely supported and an EU-type format would have several drawbacks including:

A common currency comprising two commodity-based economies is likely to be extremely volatile and would dissipate any advantages of an economic union.

Decisions by a unified central bank would be far more influenced by Australian considerations and would reduce its ability to deal with New Zealand’s periodic asset price bubbles.

This problem has been brutally exposed in Europe where the European Central Bank was unable to dampen housing bubbles in Ireland, Spain and several other EU countries.

New Zealand’s best option is to develop its own economic policies and for businesses to continue to take advantage of the large number of people living on Australia’s eastern seaboard, many of whom are New Zealanders with a desire to purchase products from their homeland.

Australia & New Zealand – Many major differences




New Zealand 





Population growth 

Since Dec 1999



Net migration 

Latest twelve months



Superannuation funds 

30 September 2008

A$783.4 billion

NZ$28.4 billion

Sharemarket value 

31 December 2008


US$24 billion

Net Worth per capita

30 September 2008




Year to 30 Nov 2008

A$217.5 billion

$42.7 billion

Major exports

Year to 30 Nov 2008

Coal & iron ore

Dairy products & meat

Main export destinations 

Year to 30 Nov 2008 

Japan & China

Australia & USA

Current account deficit

September 08 year

5.4% of GDP

8.6% of GDP

OECD  GDP forecasts

2009 year