Key Points:

The last chapter of Donald Horne's 1964 book The Lucky Country begins with five words which have become famous. But the phrase has been stripped of its irony in the intervening years because nobody remembers the rest of the sentence: "Australia is a lucky country," it goes, "run by second-rate people who share its luck." Endlessly rehearsed by two generations of politicians and jingle-writers, it endures, but the self-scrutiny has been swamped with smug boosterism.

New Zealanders can scarcely claim to having a more advanced sense of irony. Thomas Bracken - who wrote the words of God Defend New Zealand - dubbed this "God's own country" in the 1890s, but the sardonic tone with which poet Allen Curnow recast it as "Godzone" half a century later has struggled to survive.

The responses probably owe less to obtuseness than to a shared desire to muffle criticism. Australians and New Zealanders - the majorities of Celtic and British ancestry anyway - have long shared an aversion to analysis, which is why "If you don't like it here, go back to where you came from" rolls off the tongue equally easily in a Strine or New Zild accent.

In that sense, there may be more, in cultural terms, that unites us than divides us. The satirist John Clarke, who started out here as Fred Dagg and is now an Australian institution, is fond of minimising the difference by saying that he's still "down in the bottom right-hand corner of the world". The second-to-last and last countries in the world to feel the tread of a European foot, we may have more in common than we realise or like to admit: a defiant sense of being better than the rest of the world because we are so far away from it.

Axiomatically, the transtasman relationship is between an older, bigger sibling tolerating the pesky squirt who insists on being allowed to join in and will have to be given another turn at bat when he goes out first ball. Writer Gordon McLauchlan, who spends at least six weeks a year across the ditch, says that the prevailing attitude of Australians to New Zealanders is "patronising at all levels", but he adds "that's probably much the same as the attitude of Aucklanders towards Southlanders".

Our traditional resentment that Australians claim New Zealand achievements as their own is largely an invention of advertising agencies, but it's an index more of our insecurity than Australia's arrogance. You can argue that Russell Crowe's a New Zealander because he spent his first four years and did his secondary schooling here, but the world isn't listening. Australians considered Split Enz an Australian band (that "nz" goes straight over their heads) because they hadn't heard of the band before it went to Oz.

John Barnett, the boss of South Pacific Pictures, whose productions (from Shortland Street to Whale Rider) have played a big part in reflecting this country back to itself, agrees that Australians don't look east to anywhere near the same extent as we look west. "What we do is irrelevant to them. Most Australians would have no idea what the `NZ' in Anzac stands for. For them, Gallipoli is an Australian story."

Barnett is one of many who trace the difference back to our sharply different foundation narratives. "They were people who had been chucked out," he says. "Pakeha settlers here were wanting to replicate England." Others have made the point that the difference is reflected in the words of our respective national anthems: ours, slightly timidly, asks God to defend us; Australia's calls on Australians to "rejoice, for we are young and free".

The traditional explanation is that the first white settlers here were wanting to make a new life whereas their Australian counterparts half a century earlier were condemned to make one. But critic and commentator Hamish Keith says the difference is overstated - and in any case did not start with white settlement.

"After Federation [in 1901 when the six Australian colonies became a Commonwealth], we decided to rebrand ourselves politically and culturally as a little Britain," Keith says, "as a place more English than England. That wasn't a reality; it was an imposition. We became a pastoral economy - as Jamie Belich so succinctly put it, 'a town supply for London'. It led to 50 years of struggle for the New Zealand imagination. But from the '60s we began to realise that ours was a metropolitan and not a rural culture."

In his book about New Zealand art, The Big Picture, Keith notes that our 19th century history is "rich in shared artists". In 1902, 70 artists from NSW exhibited at the Otago Art Society "and nobody seemed to think that odd". Some 70 years later, Ballarat-born Roger Donaldson kick-started the modern New Zealand film industry with Sleeping Dogs. He still considers himself a New Zealander.

It's tempting to see the Australian cultural scene as much more robust and productive than ours. But Australians have grappled with the same challenges that bedevil our artists. Martin Edmond, a New Zealand-born writer who has lived more than half his life in Sydney - he calls himself a "schizoid antipodean" - says the Australian cultural scene is very conservative and self-referential.

"Once you have had some sort of success, you become part of the pantheon, irrespective of what you do, and even if you do nothing. This is a country where one-hit wonders are made for life. They can live out their days touring league clubs." Some New Zealanders might think that's not too different from this side of the Ditch.

In the area of film, all countries struggle to express their unique identities because Hollywood, the largest modern cultural hegemony, makes colonies even of the Old World: in Italy, Germany and France, film-makers lament that audiences turn their back on indigenous product in favour of American blockbusters. Australian film-makers despair of getting local audiences just as ours do: it's no accident that the term "cultural cringe" was coined by an Australian, Arthur Phillips, in 1950.

Over here, too, occasional box-office hits, such as The World's Fastest Indian and Second-Hand Wedding, are successes largely in relation to the modest expectations we have of them. But in other areas - literature, the visual arts, popular music, and performance - New Zealand has a strong and vibrant identity.

And the relentlessly upbeat Keith takes the view that we always have had. "We may have grown up thinking that culture came from elsewhere but that's because that was what we were told. What we were doing was strong, vigorous and singular. What changed in the '70s and '80s was not what we were doing but that we started to look around the world and say: `Hey, this is actually all right'."

It is the case that Australia is culturally a few steps ahead of us: it introduced local content quotas on radio in the '60s and television in the '70s. We were still arguing about them in the '80s and - think the TVNZ charter - we still are. Australians are also much more protective of their cultural identity. When Project Blue Sky won the right for NZ-made programmes to be counted as local content in Australian rules, the boss of one of the major networks said publicly that no New Zealand show would screen on his channel "while my arse points to the ground". A decade on, Australian cop shows screen almost automatically, although at least we show Shortland Street in prime time.

In the end, it may simply be that size does matter. Both Australia and New Zealand are subject to the tyranny of distance (another Australian coinage; historian Geoffrey Blainey used it before Split Enz did) but Australia has more money to spend. The country's population is five times ours, but it has earmarked around 10 times as much money to encourage foreign film productions to shoot there.

But for all that, it's worth remembering that culturally we are world-beaters who punch well above our weight. Peter Jackson and his team didn't do well "considering they were New Zealanders"; they reinvented - and continue to reinvent - the movies. And for every Nicole Kidman, there's a Lucy Lawless.

If anything holds us back, it's the fact that arts funding here is controlled by bureaucrats rather than entrepreneurs. We lost John Clarke because someone in Wellington didn't think Fred Dagg was funny. And don't even mention The Flight of the Conchords.

It's a sense, said one insider who asked not to be named, that "our creativity is not being employed unless it is showing brave little battlers in black singlets".

Adds Keith: "The New Zealand Youth Choir beat the Welsh and singing is the Welsh national sport. Then the Arts Council said when they ran out of money that they should stop performing. If that had been an America's Cup yacht, do you think they would have been told to take an early shower?"