No more free beer tomorrow? Economic policy and outcomes in Australia and New Zealand since 1984

Abstract

There are no controlled experiments in macroeconomic policy, nor in systematic programs of microeconomic reform, but a comparison between New Zealand and Australia over the period since 1984 provides as close an approach to such an experiment as is ever likely to be possible. From quite similar starting points the two countries pursued liberal reform programs that differed sharply, mainly as a result of exogenous differences in constitutional structures and the personal styles of the central actors. Australia followed a more cautious, piecemeal, consensus-based approach, whereas New Zealand, in contrast, adopted a radical, rapid, ‘purist’ platform. The NZ reform package was generally seen by contemporary commentators as representing a ‘textbook’ model for best practice reform. However, Australia since 1984 has performed much better than New Zealand, whose per capita GDP growth indeed ranked at or near the bottom of the OECD. In this paper, we assess a variety of explanations for the divergences in policies and outcomes.