The New Zealand economy may be bigger, and the income gap with Australia smaller, than our conservative statisticians make them out to be, says Reserve Bank Governor Alan Bollard.
In a speech to the Transtasman Business Circle in Auckland yesterday he said the bank had been looking at differences in how the two nations measure gross domestic product.
Defensible adjustments to the New Zealand numbers could, as a very rough ballpark estimate, push them 10 per cent higher than the official data relative to Australia, he said.
On the latest OECD comparative tables Australia's GDP per head is 30 per cent higher than New Zealand's on a purchasing power parity basis, and the OECD average 13 per cent higher.
"Of course, revising GDP does not lift the actual incomes, the wages and salaries and purchasing power of individual New Zealanders, and does not raise the tax base for the Government either," Bollard said.
"We cannot make ourselves better off directly just by measuring things differently. And the steady outflow of New Zealanders to live in Australia - one of the largest relative outflows of a country's citizens seen anywhere in the OECD - will not principally be because of GDP statistics, but because of individuals' actual and perceived sense of the opportunities for themselves and their families."
But reducing measurement differences was important because people might not make optimal decisions about employment, migration, training, saving and investment if they believed New Zealand's GDP was significantly lower that it actually was, and because financial markets needed accurate measures of the country's ability to repay debt.
Bollard pointed to several areas where GDP was arguably being understated.
One is by not including, as many countries do, an estimate of the "unobserved" economy, such as cash jobs. While hard to get a handle on, it could add 2 per cent to the official numbers, the bank reckons.
The way financial services are accounted for could be costing another 2 per cent and quality adjusting of residential buildings a further 1.5 per cent. The planned move to a more refined estimate of the value added by service industries could add as much as 3 per cent.
In addition, Australia has the practice of taking an average of three different measure of GDP - production, expenditure and income - while New Zealand uses the production measure alone as the preferred gauge of economic activity and growth.
If Australia had taken the same approach it would not have escaped a technical recession during the global financial crisis.
Government Statistician Geoff Bascand, said the way Statistics NZ calculated GDP adhered to a set of international standards, but would move into line with the recently updated standards in 2014.