There are several ways for New Zealand to benefit from Australia’s booming economy. The ANZAC dollar and the trans-Tasman trade are just two examples. China’s presence in the South Pacific is another reason for the country to benefit from Australia’s thriving economy. And if you’re a New Zealander, you can enjoy the ANZAC dollar’s low value and Australia’s growing economy at the same time.
Trans-Tasman travel arrangement
Both countries have free trade zones and allow Australians to live and work in New Zealand with limitations. The Tran-Tasman Travel Arrangement(TTTA) came into effect in 1973 and allows for the free movement of citizens to travel between the two countries to live and work indefinitely. Residents of each country moving to New Zealand or Australia benefits both countries as it allows for skilled migrants to be shared amongst the two countries. Every year, moving companies in NZ and AUS see an uptick of moving house quotes due to migrants across the Tasman. Both countries also have reciprocal agreements in certain areas, such as investment.
A thriving Australian economy will help New Zealand’s economy, and vice versa. Both countries have been in the process of flotation of their currencies. The Australian dollar floated in December 1983, and the New Zealand dollar followed in March 1985. Australia’s thriving economy is a huge boom for both countries. But New Zealand is not yet ready to adopt the Aussie dollar, which will mean that it will need to wait until at least 20 years before it will be fully functional in the New Zealand market.
Australia’s economy has grown steadily for decades, largely due to the nation’s strong financial backbone and low unemployment rates. This growth is also driven by increasing demand in China and Asia, and New Zealand will be able to benefit from Australia’s booming economy by exporting its agricultural goods. However, New Zealand has also had to face its own problems, which has resulted in slow economic growth.
Growth in Trans-Tasman Trade
The Australasian nations benefit from each other’s economies. Both countries have an impressive track record of international trade, accounting for around 18% of GDP. Both countries have excellent logistics systems and take advantage of free trade agreements. Despite this, New Zealand is struggling to recover from the devastating Christchurch earthquake. Growth in trans-Tasman trade will benefit New Zealand from Australia’s booming economy.
Free trade between the two countries was first facilitated by the Australia-New Zealand Trade Agreement (ANZCERTA), which was signed in 1922. The ANZCERTA facilitated trade in goods that met its rules of origin. Since 1 July 1990, goods meeting the ANZCERTA rules of origin have been duty-free and subject to no quantitative import restrictions. A recent review of ANZCERTA ROOs recommended that the rules be changed from Product Specific Rules to Change of Tariff Classification-only rules. In addition, New Zealand and Australia officials recently negotiated an Investment Protocol, with details to follow during the normal treaty making process.
Growth in U.S. goods exports to New Zealand
The U.S. and New Zealand have strong commercial ties. In 2010, U.S. exports to New Zealand totaled $10.8 billion, including $5 billion in goods and $5.7 billion in imports. In 2020, U.S. goods exports to New Zealand were expected to reach $3.2 billion, a decrease of 19.1% from 2019 levels but a 23% increase from 2010 levels. U.S. goods exports to New Zealand were led by aircraft, machinery, and special other (repairs and returns).
FDI between the two countries is growing rapidly. FDI from New Zealand to the United States will reach $12.9 billion by 2020, primarily in the manufacturing, wholesale trade, and financial services sectors. In the last year, U.S. firms invested in New Zealand totaled $3.4 billion. U.S. firms invested in New Zealand through joint ventures and local agents.
China’s presence in the South Pacific
The Chinese have long been a dominant development partner in the South Pacific, but recent developments have made their presence there less attractive. Pacific governments are increasingly familiar with China’s development model and have stepped up engagement in response to China’s growth. At the same time, concerns about China’s debt have increased, with Pacific governments increasingly scrutinising Chinese investments for sub-standard quality and inflated pricing. In addition, the region has limited debt space, making it difficult for China to provide budget-support to its own economies.
While Australia, New Zealand, and other countries in the region have a common interest in preserving their sovereignty, the rise of China’s influence has caused confusion in the region. While the US and other western nations have largely opposed China’s presence in the region, the two countries have also been pursuing a range of free trade initiatives and security interventions. These recent initiatives are welcomed by the PICs, as they keep China from becoming a hegemon in the South Pacific.
Changes in trade agreements between Australia and New Zealand
The Closer Economic Relations (CER) Agreement between Australia and New Zealand was first signed on 14 December 1982 and came into force on 1 January 1983. It governed free trade in goods and services. The two countries had annual trade of over AUD16 billion
The two countries share a long history as colonial powers and were founding members of various regional organisations. Both countries have historically played a major role as regional powers in the Pacific. Despite their geographical differences, they have remained close allies, sharing similar interests and concerns about decolonisation and state fragility.
The Australian population is growing at a rapid rate and by 2050, there will be an additional 50 to 100 million people living in major cities. The number of people will increase, but the property prices won’t. Landowners may expect up to $84 billion more in financial returns. Australia’s housing crisis has been one of its biggest challenges over the last 15 years, and this will continue to be a big economic problem for generations.
Climate change will be Australia’s number-one priority
The climate crisis has already changed the world. Scientists have been using model-based climate scenarios to help decision-makers understand the impacts on the future climate. Australia is a party to the Paris Agreement and the Kyoto Protocol, and has been a party to international climate agreements since 1992. The Paris Agreement aims to limit the increase of global temperature to 1.5degC or below. Signatories of the agreement are required to submit climate plans, called Nationally Determined Contributions.
The new prime minister of Australia has already mentioned climate change four times in his maiden speech. He wanted to show the world what a new Australia looks like after a long history of inaction. Speaking at the Quad meeting in Tokyo, Albanese mentioned climate change and security. In his speech, he focused on the need to build resilience, adapt to climate change, and reduce emissions.
Australian companies need to adopt a different mentality to survive and prosper in periods of upheaval
The year 2021 will be a critical year for Australian companies, setting the tone for the next decade. Australian companies have historically performed well, with a relatively stable economy and shareholder returns, and they may have underestimated the impact of a decade of global upheaval. A key measure of a company’s strategy is economic profit, or returns after cost of capital. Yet, Australian companies’ economic profit has decreased by 71 percent over the past decade, whereas the United States saw its economic profit increase by only 14 percent.
This decline in economic profit can be attributed to a slower rate of reinvention. From 2009 to 2019, Australian companies grew at a roughly five-percent CAGR, but their returns on invested capital (ROI) were only two percentage points lower than their US peers. In this period, US companies saw their margins grow by two percentage points, while Australian companies saw theirs stay flat.
Australia’s economy is vulnerable to external shocks
One of the most significant forces driving economic change is declining spending per person. This is accompanied by a downward trend in wages, a development that has already been confirmed by the RBA. Changes in global prices and demand can also cause economic shocks in Australia, particularly those affecting international business. Additionally, domestic factors can affect business performance, leading to more job losses and reduced innovation. In these circumstances, a government’s response to external shocks is vital to avoid significant damage.
Japan’s Pacific conquests had a greater financial impact on the Australian economy than the COVID-19 crisis did. The Australian government expects an underlying budget deficit of $85.8 billion in 2019/20 and $184.5 billion in 2020/21. Half of the spending support will come from wage subsidies, investment incentives and household income support. The rest of the budget will likely come from cash flow support to businesses.
Australia’s population will increase by 50-100% by 2050
If current trends continue, Australia’s population will increase by 50-105% by 2050. Australia has the world’s 12th-largest population, but is the 55th most populated nation. With its uninhabitable deserts and bone-dry bush, Australia is also one of the most vulnerable nations to climate change. Despite this, Australia’s population is increasing, mainly due to immigration.
With the population increasing, the burden on the government to provide enough resources to meet the rising demand, the government has signaled it will reduce migration intake, citing congestion as a major concern. Australia’s population would remain at around 25 million in 2050, but Victoria and New South Wales would each have populations of seven to eight million. In 2050, this would create a severe housing affordability crisis, making the country a less attractive place to live.
Australia’s coal mining industry will be hard to the left on climate
In a country where the government is threatening to ban coal mining, Australia’s coal industry is cashing in on developing world demand and has pledged to go carbon-neutral by 2050. The government’s plan, however, is speculative, short on details and long on speculative technology. And it promises not to affect coal exports.
Nevertheless, the mining industry has long driven the nation’s economy. In a survey by the Sydney Morning Herald, only one-third of Australians believed coal power should be phased out within a decade. In short, Australia’s coal industry might be hard to give up despite the majority of the population’s desire for climate action. That said, the current government is a fossil fuel-friendly country, which means the coal mining industry will be hard to the left on climate in the next decade.