Could we be better off than we think?
International comparisons of economic statistics can be fraught with difficulties and could have resulted in New Zealand's economic performance being understated, Reserve Bank Governor Alan Bollard said today.
Different countries use different methodologies and data sources, meaning – in some cases – care needs to be taken when comparing economic statistics, Dr Bollard told a meeting of the Trans Tasman Business Circle in Auckland.
He said the Reserve Bank believed that if consistent measurement conventions were used, the income gap between New Zealand and Australia and other OECD countries would narrow.
"Our view is that in New Zealand, some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand's economic performance. In international league tables New Zealand is in some ways better off than is often thought."
The Reserve Bank has explored differences in the way gross domestic product (GDP) is measured in Australia and New Zealand. Allowing for these differences, our GDP could be significantly higher relative to other countries than currently measured. A very rough, broad, ballpark might put this up to 10 percent higher than official data, compared with Australia.
"These are not definitive numbers, and we accept there are counter-arguments to them."
Revising New Zealand's GDP does not lift actual incomes or purchasing power for New Zealanders, or raise tax revenues for the government, Dr Bollard said. "We cannot make ourselves better off directly just by measuring things differently."
But more comparable data is important to ensure individuals make well-informed decisions about training, migration and saving, and that financial markets have accurate measures of New Zealand's ability to borrow and repay debt.
Governments also need good data to ensure well-informed social and economic policy, and to understand comparability with other countries, including that of our large trans-Tasman neighbour.
Dr Bollard said the Reserve Bank's analysis did not answer the question of whether New Zealand was closing the trans-Tasman gap. "However, it does argue that the gap is not as wide as most people think."
He noted that the Prime Ministers of Australia and New Zealand recently agreed that their respective Productivity Commissions would look at reforms aimed at increasing economic integration between the two countries.
"Given this aim, a useful contribution could be to improve harmonisation of statistical measurement in Australia and New Zealand, where appropriate, to improve data comparability."
He said problems with the comparability of statistics were an international issue, and his comments were not a criticism of Statistics New Zealand. Rather they were aimed at making people aware of the issues, and encouraging a greater priority being placed on improving New Zealand's economic statistics.
Dr Bollard said he was aware that, in the area of GDP, Statistics NZ has plans in place to increase the ease of comparability of data with Australia.
Organisations like the United Nations and International Monetary Fund were working to make economic statistics more comparable. But for the time being there were pitfalls in making international comparisons.
"As usual, the devil is in the detail. Compare with care."
The Reserve Bank estimated the impact differences in measurement have on New Zealand's GDP relative to Australia's.
- Changing the way the "unobserved economy" is measured could add 2 percent to New Zealand's GDP. The unobserved economy includes cash jobs and work undertaken by households for their own use, like growing vegetables.
- Changing how the financial services are measured could add another 2 percent.
- Adjusting the way residential buildings are valued could add 1.5 percent.
- When New Zealand adopts a new international statistical standard in 2013/14 GDP could rise by 3 percent.
- There are other measurement differences that also potentially affect GDP, though these are hard to quantify.
Taking all these measurement differences into account, a rough estimate might put our GDP at up to 10% higher than official data, compared with Australia.
A copy of the speech is available on the Speeches page.
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