Australia and New Zealand are neighbours, friends and sporting competitors. But they’ve had vastly different fortunes in the past few years.
Staring at a third recession in just two years, Kiwis are moving across the ditch to Australia in substantial numbers, seeking a sunnier economic climate.
“The cost of living was just getting out of control,” says Alex Cashmore, who moved to Melbourne this year.
Alex Cashmore and his wife Taya moved across the ditch this year. (Supplied)
He and wife Taya bought a house in Auckland as prices peaked in 2021 and just before the official cash rate skyrocketed from 0.25 per cent to a peak of 5.5 per cent.
“Double-shafted,” he laughs, grimly.
The interest rate on repayments is higher than the cash rate set by the Reserve Bank of New Zealand, so when their introductory offer expired, repayments went from “two point something” on their mortgage to 7.15 per cent.
“I’ve got friends who bought at the same time as me. They’ve sold their houses,” he says.
Shifting to Australia with their border collie Ronin, they have seen big boosts to their pay.
Taya manages a large gym. Alex is a software engineer. And here, wages are higher.
“My wife got a 20-25 per cent pay rise. The market for software engineers was a 10-15 per cent pay rise [from NZ].”
Three recessions
A recession is when the gross domestic product (GDP) of a nation goes backwards for two consecutive quarters.
And our Kiwi cousins have endured a difficult two years.
“It’s going to be a triple-dip recession with three episodes of two negative quarters of GDP in a row,” says Sharon Zollner, the chief economist of the ANZ bank in New Zealand.
“Three very shallow but, nonetheless, recessionary periods.”
Not only is Sharon Zollner one of New Zealand’s most high-profile economic voices, she works for one of its largest private-sector employers. (ABC News: Luke Bowden)
And that’s since the COVID-19 shock of early 2020, when Australia endured its first recession in more than 30 years.
Ms Zollner says New Zealand’s central bank was “unusually, even refreshingly, honest” about the fact its push to reduce inflation would lead to a rise in unemployment and a recession.
But that’s had a longer-term impact.
“Investment and hiring is pretty much a confidence game. You have to be confident that the demand you’re seeing is going to persist into the future,” she says.
By telling people the future was extremely difficult, the Reserve Bank of New Zealand may have confirmed it would happen.
Bigger market
Liam Hooper is two months into life in Melbourne, couch-surfing with friends in the weeks before he moves into a flat.
He moved for different reasons to most newly arrived Kiwis — a life change after the sad death of his mother — but he’s having similar experiences.
The 23-year-old describes using job websites to search for potential employment and finding vastly expanded options.
“There are just as many jobs in just the inner suburbs of Melbourne for my roles — like industrial product design or digital product design — as there are for all of New Zealand,” he says.
LIam Hooper has only just arrived in Australia, but is happy with the choice: “It feels like it’s a place that’s always moving.” (ABC News: Patrick Stone)
Despite only starting out, he’s confident the stronger Australian economy will work out for him.
“I’m excited about my prospects,” he says.
“Wages here seem to be about $15,000 higher for your [annual] salary than it is back home.”
Hard landing
To get inflation under control, the New Zealand Reserve Bank lifted its official cash rate (OCR) by 25 basis points on October 6, 2021, to 0.5 per cent.
Trying to achieve the same thing, the Reserve Bank of Australia lifted its cash rate by 25 basis points as well, but six months later (May 4, 2022) and to a still lower 0.35 per cent.
Despite starting the “hiking cycle” earlier, both shared similar challenges.
The annual increase in prices — measured by the consumer price index or CPI — hit a peak at about the same time:
- New Zealand: 7.3 per cent (September 2022)
- Australia: 7.8 per cent (December 2022)
And unemployment fell as the demand roared after the lockdowns and international travel restrictions of the COVID-19 pandemic.
The percentage of people looking for work fell to historically low levels:
- New Zealand: 3.2 per cent (December 2021). The lowest rate in almost 40 years
- Australia: 3.4 per cent (July 2022). The lowest rate in almost 50 years
New Australian job figures out today will tell us more about the heat in the economy and if our central bank is any closer to cutting its cash target rate, which helps to determine the cost of home loan repayments.
Painful transition
Getting inflation down is hard.
Australia’s Reserve Bank governors have frequently used the term “narrow path” when talking about how hard it is to hike interest rates — to slow down the economy — without falling into recession.
New Zealand tripped.
“We’ve seen a perfect storm in terms of what’s hitting the New Zealand economy,” says Christina Leung, deputy chief executive of the New Zealand Institute of Economic Research.
“We’ve seen the dampening effects of high interest rates on demand and that’s been exacerbated by [job] cuts for the public sector by the new government over the past year.”
“Generally, the transition from a high inflation environment is usually quite painful,” says Christina Leung.
Inflation means consumers have less purchasing power — their money doesn’t buy as much.
But lowering inflation by lifting interest rates saps consumer confidence, costs people with mortgages more in repayments and makes credit for businesses more expensive.
“Generally, the transition from a high-inflation environment is usually quite painful. And that is what we’ve been seeing,” Ms Leung says.
A key reason New Zealand is in the economic doldrums now is rocketing mortgage repayments.
But there’s a key difference to Australia.
Housing pain
Almost 60 per cent of home loans in New Zealand are fixed. The rest are subject to variable rates affected by the central bank’s decisions.
In Australia it’s completely the other way. Only about 17 per cent of home loans are fixed, meaning most rise and fall on the cash rate set by the Reserve Bank.
This has been seen by many as a weakness because our immense housing debt restricts the Reserve Bank from putting rates higher when it sees a need.
However the New Zealand situation shows a different problem that’s led to a “painful and sharp” impact, according to Ms Leung.
“[Because] New Zealand tends to have a relatively large proportion of its mortgage book fixed, it does generally take around one to two years for the impact of what the Reserve Bank does with the [rate] to flow through to the broader economy,” she says.
What this means is the lag makes it harder to work out what the impact of those moves has been.
“There is the risk that the Reserve Bank ‘over-corrects’ waiting for the impacts to come through.”
Brain drain
Kiwis have voted with their feet, uprooting their lives in larger numbers.
Last year there was a net migration loss of 27,000 people from New Zealand to Australia, according to Stats NZ (the equivalent of the Australian Bureau of Statistics).
Population indicators manager Tehseen Islam said traditionally there had been an overall loss of migrants from New Zealand to Australia.
This averaged about 30,000 a year during 2004–2013 and 3,000 a year during 2014–2019.
“The net migration loss from New Zealand to Australia in 2023 was larger than the loss of 14,600 in 2022. However, it should be noted that this is below the record loss of 43,700 in the March 2012 year.”
The differing fortunes of our economies play a big part.
“The relative performance of countries [is] a key influence in terms of the flow of labour,” says Ms Leung.
“And that is what we’re seeing at the moment. There’s more favourable employment prospects in Australia. That’s encouraging a lot of New Zealanders to move across the Tasman.”
ANZ’s Sharon Zollner says migration has always been tied to what’s available.
“And big countries always offer more opportunity,” she says.
“The fact is, if you’re footloose and fancy free and you’ve been made unemployed in New Zealand, then why wouldn’t you hop across the ditch?”
Read More: New Zealand’s economic woes lure thousands of Kiwis to Australia