The fortunes of our neighbours across the ditch are one of the most underrated influences on the New Zealand economy. Australia is our biggest trading partner and by far the number one destination for New Zealand migrants and tourists. It's also our biggest source of inbound tourists and immigrants.

But Australia has underperformed in the past few years as commodity prices slumped and it suffered the come down from the great mining boom.

For many Kiwis the New Zealand job market has looked like the better bet with huge consequences for population growth in this country.

Now as the Australian economy roars back into life and the job market picks up, we may need to brace ourselves for a shift in migration flows that could also hit our GDP growth.
As recently as 2012 the flow of migration to Australia was a significant drag on New Zealand's population growth.


In fact, despite the 1970s and 1980s being remembered as the golden age of Kiwi migration to Australia, 2012 was a record year with a net loss of nearly 40,000 New Zealand residents across the Tasman.

But as Australia's economy slipped into post-mining boom doldrums the trend changed rapidly. For more than two years, up until the latest data released this week, New Zealand was in the black, gaining more migrants from Australia than it lost. Less New Zealanders left home and many who had been in Australia for years returned home.

"It was both Australia's labour market weakening on the mining sector decline and the New Zealand story taking off," says Paul Bloxham, HSBC's Sydney-based Australia New Zealand chief economist.

"New Zealand was the rock star economy in 2014 and 2015. That growth story attracted migrants back across the Tasman."

In 2014 it was Bloxham who grabbed headlines, here and in Australia, when he dubbed New Zealand the "rock star economy", pointing out how much better shape we were in at the time.

As the story unfolded the net migration gain for New Zealand peaked at 1933 people in the year to June 2016.

If that doesn't sound like a massive figure consider that New Zealand lost an average net 17,000 people a year to Australia between 1979 and 2016.

On that basis it accounts for more than a quarter of the record annual net migration gains of about 70,000 that the country has been experiencing.

That record migration trend has in turn underpinned our top line GDP growth.

"New Zealand we described as a rock star economy not just because of the GDP performance, but also because policy settings have been very positive. The big difference between Australia and New Zealand is that the public finances are in better order and NZ has been able to get back to a budget surplus," Bloxham says.

"The single largest challenge that the Australian economy faces is that it has persistent budget deficits and hasn't managed to get the public finances back in to good order."

For New Zealand, Australia is a very large influence and the labour market in particular is the statistic which drives the migration trend, Bloxham says.

"The dynamics of the labour market in Australia are very important if you want to understand what's going on in NZ because of the free-flow of labour across the Tasman," he says.

"So we had this enormous boom in the mining sector then we had the single largest downturn we'd ever seen in the resources sector which was a drag on growth and [in] Australia now we've got the resources sector starting to stabilise."

Australia has had a stellar run of employment growth - rising in each of the last seven months.

Jobs growth is running at an annual 3.1 per cent and unemployment is falling - although at 5.5 per cent it remains higher than New Zealand at 4.8 per cent.

"I think we've seen that very vividly in the cross state numbers," Bloxham says. "For example employment growth is picking up quite quickly in Western Australia where the mining sector is the biggest share of output. As the Aussie labour market improves too, it will be more attractive for Australians to stay here or Kiwis to potentially migrate to Australia."

Another Australian economist, Kate Hickie at Capital Economics, notes that the correlation between the relative employment growth trends and migration flows has been historically very strong.

An overlay of the charts shows the two data sets tracking each other consistently.

"The strength of the New Zealand labour market relative to the Australian labour market has been a key factor in the migration story. This would suggest that, with the Australian labour market strengthening notably since March, we should expect some slowdown in migration ahead," she says.

In fact New Zealand's September migration data showed the trend may already have reversed.

The net flow of migrants across the Tasman was a loss for New Zealand for the first time since September 2015.

The number was small - a net loss of 66 people in the year ended September - but a look back at the historic data shows just how volatile the swings in flow can be.

A net loss of about 35,000 in 1979 reversed to zero in 1984. But it blew out again to a net loss of nearly 40,000 by 1989. New Zealand was back in the black by 1991 but then the losses blew out again for the next 20 years with peaks in 2001, 2008 and 2012.

It's no coincidence that Australia this week celebrated a 25-year run without a recession - probably the longest recession-free run in the developed world.

Bloxham is still optimistic about New Zealand's economy - particularly the crown accounts compared to Australia.

But he notes that there is some uncertainty around the new Government because there is not a lot of detail about key policy - including plans to further curb immigration.

"It does seem the migration flow is likely to slow down for a number of reasons.

"We think that might start to put a bit of upward pressure on wages growth and then in turn pressure on inflation, so we have in mind that the RBNZ will likely have to lift its interest rate later next year as a consequence."

Whether Australia can sustain its strong economic comeback is another matter.

Capital Economics' Hickie believes Australia's employment growth will flatten out next year.

She sees the two economies heading into a relatively similar phase of moderate growth.

"Looking ahead, we don't expect a further major change in the relative performance of either labour market - with our forecast that the unemployment rate in both economies will nudge down fairly slowly over the next year."

Australia's annual GDP growth is currently 1.8 per cent, New Zealand's 2.5 per cent. HSBC's Bloxham sees both Australia and New Zealand running at 3.4 per cent growth by the middle of next year.

Hickie at Capital Economics is less bullish, picking Australia to be closer to 2.5 per cent and New Zealand at 3 per cent - with some downside risk around the new Government.
Regardless, that suggests that Australia is not about to roar away from us just yet. We may see migration flows in neutral territory for a while.

Kiwi moves to Oz to expand business

Aucklander Michele Clemens' reasons for leaving New Zealand were similar to those of many Kiwis who have hopped over the ditch.

The software industry manager moved to the seaside Sydney suburb of Manly in February because of the significantly bigger market for the company she works for, Ranqx.

Job opportunities in her industry were also thin on the ground in her homeland and she saw more room to progress in Australia.

New Zealand was a great testing ground for fledgling businesses, but for them to truly make a mark they needed a bigger customer base.

She felt it was also easier for women to get ahead in business in Australia.

"In New Zealand there were only so many of the top-level roles that I was looking for ... and it felt like they were more often than not going to men.

"I feel like here in Australia it's not such an issue. I don't know if that's just because there's more opportunity, but it was easier to get a senior role as a woman."

She is paying quite high rent in Manly, but believes the cost is roughly equivalent to Auckland these days.

"And it's better set up infrastructure-wise than Auckland. You earn more and although the living expenses are a little bit higher the lifestyle is much easier."

Not to mention the weather.

Journo heads back to Aotearoa for job opportunities

Newstalk ZB's James O'Rourke headed to Australia after doing the big OE in Europe but came home for the promise of job opportunities.

The online news producer and his Aussie partner Tess Chapman moved back to New Zealand from Australia about three months ago after more than seven years living and working in Sydney, Perth and Melbourne.

They both managed to secure work but the pay was substantially lower than they had been earning on the other side of the Tasman.

"My partner and I didn't realise how things had changed cost-wise so it's been a shock getting used to what you'd pay for certain products or services - you pay a lot more here than you would in Melbourne to get the same thing."

Financially, the couple felt they were better off in Australia, but they were still finding their feet in New Zealand.

"It's kind of at the point where you have Australian prices for everything but you get paid that $15,000- $20,000 less ... which is strange because you'd expect it to be the other way around," he said.

"So it's been an adjustment, I don't think it's been a regret though."